<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE IMPERIAL HOME DECOR GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2679 51-0370302
(STATE OF INCORPORATION) (PRIMARY SIC NO.) (I.R.S. EMPLOYER ID. NO)
</TABLE>
------------------------
THE IMPERIAL HOME DECOR GROUP INC.
23645 MERCANTILE ROAD
CLEVELAND, OHIO 44122
(212) 464-3700
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES P. TOOHEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE IMPERIAL HOME DECOR GROUP, INC.
23645 MERCANTILE ROAD
CLEVELAND, OHIO 44122
(216) 464-3700
(NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
ROBERT A. PROFUSEK, ESQ.
JONES, DAY, REAVIS & POGUE
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 326-3939
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statements
for the same offering. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
11% Senior Subordinated Notes due 2008, Series
B............................................. $125,000,000 100% $125,000,000 $36,875
Guarantees of the 11% Senior Subordinated
Notes due 2008(2)............................. $125,000,000 (3) (3) None(3)
Total Registration Fee................... $36,875
</TABLE>
(1) In accordance with Rule 457(f)(2), the registration fee is calculated based
on the book value, which has been calculated as of July 9, 1998, of the
outstanding 11% Senior Subordinated Notes due 2008 of The Imperial Home
Decor Group Inc. to be canceled in the exchange transaction hereunder.
(2) The 11% Senior Subordinated Notes due 2008, Series B, of the Company being
registered hereby will be guaranteed by all of the Company's subsidiaries
other than operating subsidiaries organized outside the U.S.
(3) Pursuant to Rule 457(n), no registration fee is required with respect to the
Guarantees.
------------------------
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
OTHER REGISTRANTS
<TABLE>
<CAPTION>
ADDRESS AND TELEPHONE NUMBER
JURISDICTION OF OF PRINCIPAL EXECUTIVE
NAME INCORPORATION PRIMARY SIC NO. IRS EMPLOYER ID. NO. OFFICE
- ---------------------------- --------------- --------------- -------------------- ----------------------------
<S> <C> <C> <C> <C>
Vernon Plastics, Inc. Delaware 2671 04-3411142 Shelley Road--Ward Hill
P.O. Box 8248
Haverhill, MA 01835
(978) 373-1551
WDP Investments, Inc. Delaware 2679 51-0370304 23645 Mercantile Road
Cleveland, OH 44122
(216)765-8582
Marketing Service, Inc. Delaware 2782 34-1765225 23645 Mercantile Road
Cleveland, OH 44122
(216)765-8582
The Imperial Home Decor Delaware 2679 51-0370302 23645 Mercantile Road
Group (US) LLC Cleveland, OH 44122
(216)765-8582
Imperial Home Decor Group UK 2679 Not Applicable Belgrave Mills
Holdings I Limited Limited Belgrave Road
Darwen, Lancashire BB3 2RR
U.K.
44-1254-870-700
</TABLE>
<PAGE>
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 jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.
SUBJECT TO COMPLETION, DATED JULY 10, 1998
THE IMPERIAL HOME DECOR GROUP INC.
OFFER TO EXCHANGE
ITS 11% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B,
FOR ANY AND ALL OF ITS OUTSTANDING
11% SENIOR SUBORDINATED NOTES DUE 2008
Vernon Plastics, Inc., WDP Investments, Inc., Marketing Service, Inc., The
Imperial Home Decor Group (US) LLC and Imperial Home Decor Group Holdings I
Limited, as Subsidiary Guarantors of the 11% Senior Subordinated Notes Due 2008.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON 1998, UNLESS EXTENDED.
The Imperial Home Decor Group Inc., a Delaware corporation (the 'Company'),
hereby offers (the 'Exchange Offer'), upon the terms and conditions set forth in
this Prospectus (the 'Prospectus') and the accompanying Letter of Transmittal
(the 'Letter of Transmittal'), to exchange $1,000 principal amount of its 11%
Senior Subordinated Notes due 2008, Series B (the 'Exchange Notes'), registered
under the Securities Act of 1933, as amended (the 'Securities Act'), pursuant to
a registration statement of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 11% Senior Subordinated Notes due 2008 (the
'Old Notes' and together with the Exchange Notes, the 'Notes') of which
$125,000,000 aggregate principal amount is outstanding. The form and terms of
the Exchange Notes are the same as the form and terms of the Old Notes except
that (i) the Exchange Notes will bear a Series B designation, (ii) the Exchange
Notes will have been registered under the Securities Act and will not bear
legends restricting the transfer thereof, and (iii) holders of the Exchange
Notes will not be entitled to the rights of holders of Old Notes under the
Exchange and Registration Rights Agreement (as defined). The Exchange Notes will
evidence the same debt as the Old Notes (which they replace) and will be issued
under and be entitled to the benefits of the Indenture, dated as of March 13,
1998, as supplemented (the 'Indenture'), by and among the Company, the
Subsidiary Guarantors and The Bank of New York, as trustee. See 'The Exchange
Offer' and 'Description of the Exchange Notes.'
Interest on the Exchange Notes will be payable semi-annually on March 15 and
September 15 of each year, commencing on September 15, 1998. The Exchange Notes
will mature on March 15, 2008. Except as described below, the Company may not
redeem the Exchange Notes prior to March 15, 2003. On or after such date, the
Company may redeem the Exchange Notes, in whole or in part, at the redemption
prices set forth herein, together with accrued and unpaid interest, if any, to
the date of redemption. In addition, at any time on or prior to March 15, 2001,
the Company may, subject to certain requirements, redeem up to 33 1/3% of the
original aggregate principal amount of the Exchange Notes with the Net Cash
Proceeds (as defined) of one or more Equity Offerings (as defined) by the
Company, at a price equal to 111% of the principal amount to be redeemed,
together with accrued and unpaid interest, if any, to the date of redemption,
provided that at least 66 2/3% of the original aggregate principal amount of the
Exchange Notes remains outstanding immediately after each such redemption and
provided further that such redemption occurs within 360 days after the date on
which any such Equity Offering is consummated. The Exchange Notes will not be
subject to any sinking fund requirement. Upon a Change of Control (as defined),
(i) the Company will have the option, at any time on or prior to March 15, 2003,
to redeem the Exchange Notes in whole, but not in part, at a redemption price
equal to 100% of the principal amount of the Exchange Notes plus the Applicable
Premium (as defined) as of, together with accrued but unpaid interest, if any,
to, the date of redemption, and (ii) if the Company does not so redeem the
Exchange Notes, or if a Change of Control occurs after March 15, 2003, each
holder of the Exchange Notes will have the right to require the Company to make
an offer to repurchase such holder's Exchange Notes at a price equal to 101% of
the principal amount thereof, together with accrued and unpaid interest, if any,
to the date of repurchase. No assurance can be given that the Company will have
sufficient funds available to satisfy its repurchase obligation with respect to
the Exchange Notes following a Change of Control. See 'Description of the
Exchange Notes.'
The Exchange Notes will be unsecured and will be subordinated in right of
payment to all existing and future Senior Indebtedness (as defined) of the
Company. The Exchange Notes will rank equally in right of payment with all Pari
Passu Indebtedness (as defined) of the Company and will rank senior in right of
payment to all other Subordinate Indebtedness (as defined) of the Company. The
Exchange Notes will be unconditionally and irrevocably guaranteed (the
'Subsidiary Guarantees') jointly and severally on an unsecured, senior
subordinated basis by a holding company for the Company's U.K. operating
subsidiaries, all the Company's direct and indirect U.S. subsidiaries on the
issue date of the Exchange Notes and all future U.S. Restricted Subsidiaries (as
defined) that incur indebtedness (collectively, the 'Subsidiary Guarantors').
The Exchange Notes will not be guaranteed by any of the Company's operating
subsidiaries organized outside of the United States (the 'Non-Guarantor
Subsidiaries'). The Indenture permits the Company and the Subsidiary Guarantors
to incur additional indebtedness, including Senior Indebtedness, subject to
certain restrictions. As of March 28, 1998, after giving pro forma effect to the
Transactions (which as defined includes the Initial Offering, as defined), (i)
the Company had $198.0 million aggregate principal amount of Senior Indebtedness
outstanding (exclusive of unused commitments), all of which was Secured
Indebtedness (as defined), (ii) the Company had no Pari Passu Indebtedness
outstanding other than the Old Notes and no indebtedness that is subordinate or
junior in right of payment to the Old Notes, (iii) the Subsidiary Guarantors had
no Senior Indebtedness outstanding (exclusive of guarantees of the Senior Credit
Facilities), (iv) the Subsidiary Guarantors had no Pari Passu Indebtedness
outstanding (exclusive of the Subsidiary Guarantees), no indebtedness that is
subordinate or junior in right of payment to the Subsidiary Guarantees and total
liabilities (excluding indebtedness and liabilities owed to the Company) of
$67.1 million, and (v) the Non-Guarantor Subsidiaries had total liabilities
(excluding liabilities owed to the Company) of $87.6 million. See 'Description
of the Exchange Notes' and 'Description of the Senior Credit Facilities.'
(cover continued on following page)
---------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 16 FOR A DISCUSSION OF MATERIAL RISK
FACTORS THAT SHOULD BE CONSIDERED IN THE EXCHANGE OFFER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
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>
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on , 1998,
unless extended by the Company in its sole discretion (the 'Expiration Date').
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. In the event the Company terminates the Exchange Offer and does
not accept for exchange any Old Notes with respect to the Exchange Offer, the
Company will promptly return the Old Notes to the holders thereof. The Exchange
Offer is not conditioned upon any minimum amount of Old Notes being tendered for
exchange, but is otherwise subject to certain customary conditions. The Old
Notes may be tendered only in integral multiples of $1,000. The Old Notes were
sold by the Company on March 13, 1998 (the 'Issue Date') to Chase Securities
Inc. and Bear, Stearns & Co. Inc. (the 'Initial Purchasers') in a transaction
not registered under the Securities Act in reliance upon an exemption under the
Securities Act (the 'Initial Offering'). The Initial Purchasers subsequently
placed the Old Notes with (i) qualified institutional buyers in reliance upon
Rule 144A under the Securities Act, (ii) a limited number of institutional
accredited investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act), and (iii) qualified buyers outside of the United States in
reliance upon Regulation S under the Securities Act. Accordingly, the Old Notes
may not be reoffered, resold or otherwise transferred in the United States
unless registered under the Securities Act or unless anapplicable exemption from
the registration requirements of the Securities Act is available. The Exchange
Notes are being offered hereunder in order to satisfy the obligations of the
Company under the Exchange and Registration Rights Agreement entered into by the
Company, the Subsidiary Guarantors and the Initial Purchasers (the 'Exchange and
Registration Rights Agreement') in connection with the Initial Offering. See
'The Exchange Offer.'
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the 'Commission') set forth in certain no-action letters issued to
third parties in similar transactions, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder that
is (i) an 'affiliate' of the Company within the meaning of Rule 405 under the
Securities Act or (ii) a broker-dealer that acquired the Old Notes in a
transaction other than part of its market-making or other trading activities)
without compliance with the registration and prospectus delivery requirements of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. See 'The Exchange Offer--Resale of the Exchange Notes.' Holders
of Old Notes wishing to accept the Exchange Offer must represent to the Company,
as required by the Exchange and Registration Rights Agreement, that such
conditions have been met. Each broker-dealer (a 'Participating Broker-Dealer')
that receives Exchange Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating 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 Participating Broker-Dealer in connection with resales
of Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale. See 'Plan of Distribution.'
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer.
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See 'Risk Factors--Absence of a Public Market Could
Adversely Affect the Value of Exchange Notes.' Moreover, to the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes could be adversely affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY SUBSIDIARY GUARANTOR. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
The Exchange Notes will be available initially only in book-entry form and
the Company expects that the Exchange Notes issued pursuant to the Exchange
Offer will be issued in the form of a Global Exchange Note (as defined herein),
which will be deposited with, or on behalf of, The Depository Trust Company
('DTC') and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Global Exchange Note representing the Exchange Notes
will be shown on, and transfers thereof will be effected through, records
maintained by DTC and its participants. After the initial issuance of the Global
Exchange Note, Exchange Notes in certificated form will be issued in exchange
for the Global Exchange Note only under limited circumstances as set forth in
the Indenture. See 'Description of the Exchange Notes' and 'Book-Entry; Delivery
and Form.'
<PAGE>
AVAILABLE INFORMATION
The Company and the Subsidiary Guarantors have filed with the Commission a
registration statement on Form S-4 (the 'Exchange Offer Registration Statement,'
which term shall encompass all amendments, exhibits, annexes and schedules
thereto) pursuant to the Securities Act, and the rules and regulations
promulgated thereunder, covering the Exchange Offer contemplated hereby. This
Prospectus does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to the Company and
the Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Exchange Offer Registration Statement, reference is made to the
exhibit for a more complete description of the document or matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The Exchange Offer Registration Statement, including the exhibits thereto, can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
inspected at the Commission's regional offices at 7 World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such materials can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such site is http://www.sec.gov.
Upon declaration by the Commission that the Exchange Offer Registration
Statement is effective, the Company will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the 'Exchange
Act'), and in accordance therewith will be required to file periodic reports and
other information with the Commission. The obligation of the Company to file
periodic reports and other information with the Commission will be suspended if
the Exchange Notes are held of record by fewer than 300 holders as of the
beginning of any fiscal year of the Company and the Subsidiary Guarantors other
than the fiscal year in which the Exchange Offer Registration Statement is
declared effective. The Company has agreed that, whether or not it is subject to
the reporting requirements of Section 13 or Section 15(d) of the Exchange Act,
for so long as the Old Notes or the Exchange Notes remain outstanding, it will
file with the Commission and distribute to holders of the Old Notes and the
Exchange Notes, as applicable, copies of the financial information that would
have been contained in such annual reports and quarterly reports, including
management's discussion and analysis of financial conditions and results of
operations, that would have been required to be filed with the Commission
pursuant to the Exchange Act. See 'Description of the Exchange Notes--Certain
Covenants--Reports and Other Information.'
------------------------
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS 'FORWARD-LOOKING STATEMENTS' WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (THE 'EXCHANGE ACT'). THESE FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE
COMPANY'S CONTROL. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS
INCLUDED IN THIS PROSPECTUS, INCLUDING THE STATEMENTS UNDER 'SUMMARY-- THE
COMPANY,' 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS,' AND 'BUSINESS--COMPANY OVERVIEW,' '--COMPETITIVE
STRENGTHS,' '--NORTH AMERICAN INTEGRATION PLAN,' '--BUSINESS STRATEGY,'
'--INDUSTRY OVERVIEW' AND 'INDUSTRY TRENDS,' AND LOCATED ELSEWHERE HEREIN
REGARDING THE COMPANY'S FINANCIAL POSITION, PLANS TO INCREASE REVENUES, REDUCE
EXPENSES AND TAKE ADVANTAGE OF SYNERGIES AND ANY STATEMENTS REGARDING OTHER
FUTURE EVENTS OR FUTURE PROSPECTS OF THE COMPANY, ARE FORWARD-LOOKING
STATEMENTS. WHEN USED IN THIS PROSPECTUS, THE WORDS 'BELIEVE,' 'ANTICIPATE,'
'INTEND,' 'ESTIMATE,' 'EXPECT,' 'PROJECT' AND SIMILAR EXPRESSIONS ARE INTENDED
iii
<PAGE>
TO IDENTIFY FORWARD-LOOKING STATEMENTS, ALTHOUGH NOT ALL FORWARD-LOOKING
STATEMENTS CONTAIN SUCH WORDS. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF
THE DATE HEREOF. NONE OF THE COMPANY, ANY SUBSIDIARY GUARANTOR NOR THE INITIAL
PURCHASERS UNDERTAKES ANY OBLIGATION TO UPDATE OR REVISE PUBLICLY ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE. ALTHOUGH MANAGEMENT BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO
ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE CORRECT OR THAT SAVINGS OR
OTHER BENEFITS ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS WILL BE ACHIEVED.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
MANAGEMENT'S EXPECTATIONS ('CAUTIONARY STATEMENTS') ARE DISCLOSED IN THIS
PROSPECTUS, INCLUDING IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS PROSPECTUS AND UNDER 'RISK FACTORS.' PROSPECTIVE PURCHASERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. ALL
SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY, ANY SUBSIDIARY GUARANTOR OR THE INITIAL PURCHASERS OR PERSONS ACTING ON
THEIR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS. SEE 'RISK FACTORS.'
iv
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, included elsewhere in this
Prospectus. Unless the context otherwise requires: (i) the 'Company' refers to
The Imperial Home Decor Group Inc., a Delaware corporation, and its subsidiaries
on a pro forma combined basis after giving effect to the Recapitalization and
the Imperial Acquisition (each, as defined); (ii) 'IHDG' refers to the Imperial
Home Decor Group Inc. (formerly known as Borden Decorative Products Holdings,
Inc., a Delaware corporation ('BDPH') and immediately prior to the
Recapitalization an indirect wholly owned subsidiary of Borden, Inc.
('Borden')), BDPH's subsidiaries, the Canadian wallcoverings business of Borden
('Sunworthy') and the Vernon Plastics business of Borden ('Vernon Plastics');
(iii) 'Imperial U.S.' refers to Imperial Wallcoverings, Inc., a Delaware
corporation, and 'Imperial Canada' refers to Imperial Wallcoverings (Canada),
Inc., a Canadian corporation, each, an indirect wholly owned subsidiary of
Collins & Aikman Corporation, a Delaware corporation ('C&A'); (iv) 'Imperial'
refers to Imperial U.S. and Imperial Canada; (v) 'IHDG UK' refers to Imperial
Home Decor Group Holdings I Limited, a newly formed wholly owned subsidiary of
the Company incorporated in the U.K. and the indirect holding company for the
Company's U.K. operating subsidiaries; (vi) 'Blackstone' refers to Blackstone
Capital Partners III Merchant Banking Fund, L.P., Blackstone Offshore Capital
Partners III L.P. and Blackstone Family Investment Partnership III L.P.; (vii)
'North America' refers to the United States and Canada; (viii) 'Europe' refers
primarily to Western Europe, but also includes Eastern Europe; and (ix) 'U.K.'
refers to the United Kingdom.
THE COMPANY
COMPANY OVERVIEW
The Company believes it is the world's largest producer and marketer of
residential wallcoverings based on pro forma net sales for 1996. The Company is
the result of the combination of the residential wallcoverings and polyvinyl
chloride ('PVC') sheeting businesses of IHDG, which were previously
substantially wholly owned by Borden, with the Imperial wallcoverings business
previously owned by C&A. On a pro forma basis for 1996, the Company estimates it
would have had a 38.1% and 19.3% share of manufacturer sales of residential
wallcoverings in North America and the U.K., respectively. The Company's
estimated 31.9% share of the combined 1996 North American and U.K. residential
wallcoverings sales is believed to be over three times the level of sales of the
next largest residential wallcoverings manufacturer in North America and the
U.K. The Company designs, manufactures and markets its residential wallcoverings
products under various recognized brand names, including Crown, Sunworthy,
Imperial and Albert Van Luit, as well as under exclusive licensing and
distribution agreements with leading designers and consumer brands such as Ralph
Lauren, Lenox, Nautica, Laura Ashley, Alexander Julian, Eddie Bauer and the NCAA
schools. Due to the differences in market conditions and competitive factors in
North America and Europe, the Company operates its residential wallcoverings
business as two separate geographic divisions, North America and Europe, each of
which will coordinate its manufacturing, sales, marketing and distribution
activities. Vernon Plastics is a leading manufacturer of calendered, flexible
PVC sheeting, printed sheeting and laminated products that operates as a
separate line of business distinct from the Company's residential wallcoverings
business. On a pro forma basis for 1997, the Company would have had net sales of
$536.5 million and EBITDA, as defined, of $32.6 million. On a pro forma basis
for 1997, the Company's total sales in North America and Europe represented
approximately 67.3% and 29.3% of the Company's total sales, respectively. The
Company's operations outside North America have recently contributed
substantially all the Company's total consolidated pro forma EBITDA.
Residential wallcoverings are decorative products produced from paper,
fabric, vinyl and other substrates that are printed, embossed and laminated and
are applied to walls using specially designed adhesives applied to the back of
the wallcovering during the manufacturing process. Residential wallcoverings are
of two types, sidewalls and borders. Sidewalls are produced in broad sheets and
are designed to cover the entire wall. Borders are produced in narrower sheets
and are intended to be applied to the top of the wall or above the wall molding
as a complement to the painted or sidewall covered surface. Residential
wallcoverings compete with paint products for a 'share of the wall' in the
residential decorating market.
1
<PAGE>
COMPETITIVE STRENGTHS
Leading Market Position. In 1996, on a pro-forma basis, the Company
generated over three times the revenue of the next largest residential
wallcoverings manufacturer in North America and the U.K. and held a 38.1% share
of manufacturer sales in North America and 19.3% in the U.K. Based on 1996 pro
forma net sales, IHDG and Imperial were the first and second leading
manufacturers of residential wallcoverings in North America, with approximately
19.1% and 19.0% shares, respectively, of the manufacturer revenues in North
America and IHDG was the leading manufacturer of residential wallcoverings in
the U.K., with approximately 19.1% of the U.K. manufacturer revenues. The
Company serves all segments of the residential wallcoverings industry and has
one of the most comprehensive product offerings in the industry. The Company's
wallcovering products include both sidewalls and borders, and are manufactured
using a variety of substrates including paper, fabric and vinyl. The Company
currently maintains approximately 45,000 active SKUs. Management believes that
the Company's ability to supply this full product line is a particular advantage
because many retailers are consolidating their suppliers. The Company's in-house
brands, including Crown, Sunworthy, Imperial and Albert Van Luit, are among the
leading names in the residential wallcoverings industry. Management believes
that consumers associate the Company's brands with superior design, quality and
service.
Exclusive Licensing and Distribution Agreements with Leading Brands. As
the worldwide revenue share leader in the residential wallcoverings industry,
the Company believes it is uniquely suited to leverage the substantial marketing
power of leading fashion designers and 'name' brands and has secured exclusive
long-term licensing and distribution agreements for wallcovering products in
North America with several of these, including Ralph Lauren, Lenox, Nautica,
Laura Ashley, Alexander Julian, Eddie Bauer and the NCAA schools. The majority
of these licensing agreements have been entered into or renewed during 1997 and
typically have a term of not less than two years. The Company also has
relationships with several leading home textiles producers, such as Fieldcrest
Cannon, Croscill, J.P. Stevens, Crown Crafts and West Point, which enable it to
provide pattern and color schemes that are coordinated with the bedding and
window treatments offered by these producers.
Strong Relationships with Leading Chain Stores. The Company believes that
it has particularly strong relationships with leading mass merchants, home
centers and specialty chains (together, 'Chain Stores') in North America and the
U.K. Management believes that these Chain Stores have captured, and are expected
to continue to capture, sales from both smaller Chain Stores and the
lower-priced and middle-priced segments of the independent dealer channel. The
Company has enjoyed long-standing relationships of more than ten years with each
of its top ten Chain Store customers, which together generated approximately
25.8% of its residential wallcoverings sales in North America and Europe in
1997. In the home center channel, the Company is the leading supplier to the
three largest U.S. home center chains, The Home Depot, Lowes and Menards, and is
the first or second leading supplier to each of the five largest chains in the
U.K. The Company is the sole residential wallcoverings supplier to Kmart and the
leading supplier to Wal-Mart and Target. The Company is also the leading
supplier of residential wallcoverings to Sherwin-Williams, the largest specialty
paint and wallpaper chain in the U.S. The Company believes that it is uniquely
suited to attract and retain these large and fast growing retail customers due
to its (i) highly efficient, modern production and distribution facilities, (ii)
strong portfolio of in-house and licensed brands, (iii) willingness to invest in
co-op advertising, in-store fixtures and category management initiatives, and
(iv) ability to achieve consistently high service levels for in-stock
merchandise.
Low Cost, Technologically Advanced Manufacturer. The Company believes that
it is the highest-volume manufacturer of residential wallcoverings in the world,
which, combined with its fully integrated operation across design, manufacturing
and distribution functions, enables it to capitalize upon economies of scale in
purchasing, manufacturing and distribution. The Company also believes that its
key technological and manufacturing process advances in rapid manufacturing line
changeover, batchless production, 'in-register' embossing and computer aided
design and manufacturing ('CAD/CAM') technology have contributed to its low-cost
position and enhanced its ability to produce a broad range of SKUs cost
efficiently. As a result of its high production efficiencies and technological
leadership, management believes that the Company is one of the lowest-cost
producers of residential wallcoverings in North America and Europe. Management
expects that the implementation of the Integration Plan (as defined), which
entails the closure of two of the Company's four North American printing plants
and consolidation of 11 U.S. distribution and finishing operations into the
Company's state-of-the-art Knoxville, Tennessee facility, will further enhance
the Company's low-cost position
2
<PAGE>
by maximizing utilization of the Company's most modern, efficient assets and
facilitating substantial head count reductions. See '--North American
Integration Plan.'
Significant Investment in Manufacturing and Distribution
Assets. Management believes that the Company's recent significant investments
in modernizing its manufacturing equipment and distribution facilities provide
it with a competitive advantage. From 1995 through 1997, the Company invested
approximately $90.0 million primarily to improve the efficiency of its existing
operations, including: (i) a $14.0 million investment by IHDG in two new
high-speed gravure print lines and associated finishing equipment at its
facility in Morecambe, U.K., which are achieving productivity levels
significantly greater than that of the prior generation of printing technology;
(ii) a $6.4 million investment by IHDG in batchless production, 'in-register'
embossing and CAD/CAM technology in the U.K., which has contributed to its
low-cost position and enhanced its ability to produce a broad range of SKUs cost
efficiently; (iii) a $23.3 million investment by Imperial in a state-of-the-art
finishing and distribution facility in Knoxville, Tennessee, which is expected
to reduce annual distribution expense; and (iv) a $9.0 million investment by
Imperial in printing equipment, in-line finishing, CAD/CAM technology and
information systems at the Sherbrooke, Canada manufacturing facility, which is
expected to improve manufacturing gross profit. Management anticipates achieving
higher operating margins in future years as it achieves full utilization of
these modern, highly efficient assets by absorbing the capacity of redundant and
less efficient facilities.
Experienced Management Team. The Company has a senior management team with
a wide range of experience in the residential wallcoverings and related
industries. The Company's President and Chief Executive Officer, James P.
Toohey, had 32 years of experience in a primarily marketing oriented
business--Hallmark Cards, where he was most recently President of Hallmark
International--prior to joining Imperial in October 1996 and becoming an
employee of the Company as of March 13, 1998. The Company also benefits from the
industry expertise of its new President--North American Marketing, Michael
Landau, who has 28 years of experience in the wallcovering industry, most
recently as President of F. Schumacher & Co. Wallcoverings, a position he held
from 1990 to 1997. During his tenure as President, F. Schumacher & Co.'s
revenues grew from over $10.0 million to over $100.0 million. The remainder of
the senior management team has been from the management of both Imperial and
IHDG and from outside the Company. The Company's senior managers will be awarded
options or other equity rights, subject to certain performance-based and other
vesting provisions. See 'The Transactions,' 'Management,' 'Executive
Compensation' and 'Security Ownership.'
Product Innovation. The Company has developed a new self-adhesive border
product, 'Stick 'n Play' in cooperation with 3M, which is currently being test
marketed in anticipation of its planned introduction in the Fall of 1998. Other
product innovations introduced by the Company include 'Sculptured Edge' and
'Outlines' borders that have one edge die-cut to follow the printed design, thus
producing an effect with enhanced visual appeal. Self-adhesive and special-cut
wallcoverings command higher sales prices and better margins and appeal to a
segment of consumers that might not otherwise consider purchasing wallcoverings.
NORTH AMERICAN INTEGRATION PLAN
Cost-Savings Measures. The Company has adopted a plan to integrate IHDG
and Imperial in North America (the 'Integration Plan'), the five principal
components of which are: (i) closing Imperial's inefficient, limited capacity
paper making and coating facilities in Plattsburgh, New York in favor of
leveraging the combined Company's ability to purchase substrate at a lower cost
than either Imperial's present manufacturing cost level or IHDG's outside
purchase cost level; (ii) rationalizing the Company's printing facilities by
consolidating four presently five-day per week, non-continuous printing plants
into two seven-day continuous operations; (iii) rationalizing the Company's
finishing function by consolidating all finishing activities from the four
printing facilities at which they are presently located to the Company's
state-of-the-art finishing and distribution facility in Knoxville, Tennessee;
(iv) rationalizing the Company's distribution network by consolidating seven
existing distribution warehouses into the Knoxville facility; and (v)
substantial employee head count reductions in North America through the
elimination of redundancies in selling, customer service and other support
operations.
3
<PAGE>
Management estimates head count reduction and fixed cost savings from the
Integration Plan to be $28.6 million, net of $10.4 million of incremental
overhead costs (as compared to total pro forma costs for 1997), comprised of the
following components:
<TABLE>
<CAPTION>
COST SAVINGS
INTEGRATION PLAN COMPONENT (DOLLARS IN MILLIONS)
- --------------------------------------------------------------------------------- ---------------------
<S> <C>
Rationalization of printing facilities........................................... $ 3.3
Rationalization of finishing facilities(1)....................................... 4.6
Paper making facility closing.................................................... 3.2
Rationalization of distribution facilities(2).................................... 5.1
Elimination of selling, customer service and support redundancies................ 12.4
------
Total.......................................................................... $28.6
------
------
</TABLE>
- ------------------
(1) The amount shown is net of $2.5 million of estimated incremental costs
relating to the rationalization of finishing facilities.
(2) The amount shown is net of $7.9 million of estimated incremental costs
relating to the rationalization of distribution facilities.
The Company's head count reduction plan is as follows:
<TABLE>
<CAPTION>
HEAD COUNT AT
ACQUISITION DATE EXPECTED HEAD COUNT
---------------- -------------------
<S> <C> <C>
Printing facilities.............................................. 629 475
Finishing facilities............................................. 276 201
Substrate/paper making facility.................................. 115 33
Distribution facilities.......................................... 280 220
Elimination of selling, customer service and support
redundancies................................................... 541 355
------ ------
Total.......................................................... 1,841 1,284
------ ------
------ ------
</TABLE>
The foregoing actions will each be commenced in the current year and are
expected to be substantially completed by the end of 2000. Accordingly, 2000 is
the first year in which their effects are expected to be fully realized. The
total of head count and fixed cost savings estimates of the Integration Plan in
1998 and 1999 are presently estimated at $5.0 million and $18.0 million,
respectively. The head count reduction and fixed cost savings estimates do not
give effect to margin improvements expected to result from implementation of the
Integration Plan and new capital budgeted for investment at the rationalized
facilities, as well as the planned revenue improvements expected to result from
the Company's planned product development and remerchandising plan described in
'--Business Strategy.' While there necessarily can be no assurance that any
particular level of cost savings will be achieved (see 'Forward-Looking
Statements' and 'Risk Factors--Integration of Imperial, Implementation of
Business Strategy and Limited Relevance of Historical Financial Information'),
management believes that the parallel structure of Imperial and IHDG's
operations in North America and their substantial recent capital investments in
modern production and distribution assets, which management believes were
underutilized prior to the Transactions, will facilitate the achievement of
these cost savings.
Budgeted Capital Expenditures and Rationalization Expenses. Management has
adopted a North American capital budget of approximately $40.0 million in the
aggregate for 1998 and 1999, substantially all of which relates to the
implementation of the Integration Plan. The Integration Plan will not require
any material capital expenditures in the U.K. In addition, management estimates
that it will incur one-time severance and other cash expenditures of
approximately $23.2 million during 1998 and 1999 relating to the head count
reduction, facility consolidation and other components of the Integration Plan.
Additional Gross Margin Effects. In addition to the head count reduction
and fixed cost savings expected to be achieved through the rationalization of
facilities and operations as described above, the rationalization of the
manufacturing asset base coupled with significant recent and planned capital
expenditures at the facilities are intended to drive North American gross
margins from 47% in 1997 to approximately 59% by 2001. If successfully
implemented, this would create an additional $17.0 million of gross profit
(based on the Company's pro forma fiscal 1997 net sales) in addition to the
$28.6 million of head count reduction and fixed cost savings.
4
<PAGE>
See 'Business--North American Integration Plan.'
BUSINESS STRATEGY
In addition to improvements in the Company's financial performance expected
to result from head count reductions and fixed cost savings associated with the
Integration Plan, the Company intends to capitalize upon its position as the
world's largest supplier of residential wallcoverings to enhance its sales and
profitability by implementing a growth strategy comprised of the following five
components:
Grow with Leading Chain Stores. The Company intends to maintain and expand
its position as the leading supplier to large, fast-growing Chain Stores in the
U.S. and U.K., especially home centers, and grow along with them as they
continue to roll out new stores and capture sales from both smaller Chain Stores
and the lower-priced and middle-priced segments of the independent dealer
channel. The Company's exclusive licensing and distribution agreements with
well-recognized name brands, ability to consistently achieve high service levels
for in-stock merchandise and willingness to invest in co-op advertising,
in-store fixtures and category management initiatives, such as the in-store
gallery concept, are central components of this strategic initiative. The
Company's gallery concept is designed to showcase a selection of both collection
books and in-stock residential wallcoverings products organized by color and
pattern style using a dedicated space within the store to facilitate display,
stocking and consumer selection. The Company is testing the concept at Sherwin
Williams and plans to initiate a rollout at selected Chain Stores later this
year. In Western Europe, where the Company's sales to the large Chain Stores
have historically been restricted to those with central warehousing, the Company
plans to develop local sales and distribution networks to serve Chain Stores
that require store-by-store service.
Leverage Exclusive Licensing and Distribution Agreements and Build In-House
Brand Recognition. The Company intends to: (i) continue to leverage its
existing licensing and distribution agreements with Ralph Lauren, Lenox,
Nautica, Laura Ashley, Alexander Julian, Eddie Bauer and the NCAA schools to
provide clear design direction, increase the Company's share of retail shelf
space and exploit joint merchandising and promotional opportunities, thereby
maximizing sales per collection; (ii) rationalize its in-house product offering
to reduce the amount of duplicate SKUs between the Imperial and Sunworthy
brands; and (iii) increase advertising dollars from $3.2 million in 1997 to $6.3
million in 1998 and focus expenditures on the Imperial brand to develop consumer
recognition and differentiate the product. Management expects that the rollout
of existing licenses and continued addition of new licensed brands will provide
a platform for sustainable, long-term growth and increase licensed products'
share of the Company's residential wallcoverings sales.
Rebuild Sales in the High-End, Independent Dealer Segment in North
America. Management believes that the substantial size, premium prices and
highly fragmented nature of the manufacturer base serving the high-end
residential wallcoverings market in the independent dealer channel make it a
structurally attractive segment. The Company's gross margin on its Albert Van
Luit product line in this segment was approximately 76% in 1997 versus the less
than 50% average for its overall North American residential sales. Management
also believes that the Company's highly efficient distribution facility and
network, ability to manufacture short runs of custom SKUs cost effectively and
brand recognition provides it with a competitive advantage in recapturing a
leading position in this segment after having reduced its presence in the early
1990's as part of a cost cutting program. The Company's high-end strategy will
consist of the following initiatives: (i) build on its well recognized Albert
Van Luit, Sterling and Katzenbach & Warren brands by increasing the number of
active high-end collections from 23 to 72 over the next four years and improving
the quality of product introduced under these names; (ii) develop a design
studio presence in New York; (iii) build a regional network of sales agents to
service the designer/dealer community; and (iv) selectively pursue add-on
acquisitions of, and/or strategic joint ventures with, competing high end
brands.
Pursue Add-on Acquisitions and Strategic Joint Ventures. The Company
intends to pursue selected add-on acquisitions of, and/or strategic joint
ventures with, small, niche manufacturers' important product lines and retail
accounts that will increase utilization of its existing manufacturing and
distribution assets. The ongoing consolidation of fragmented North American and
European wallcoverings markets should provide multiple acquisition
opportunities, especially in the high-end product segment.
Increase Share in Growing International Markets. The Company plans to
expand its 32 member export sales team and leverage established contracts with
key distributors in order to continue to increase its sales in the high growth
markets of Eastern Europe, to which the Company's sales have increased from
approximately $2.6 million in 1993 to $51.0 million in 1997. The Company expects
to establish a strong consumer brand
5
<PAGE>
position as these markets mature and develop more sophisticated retail
environments. Management believes that as the major U.S. home improvement chains
expand internationally, there will be a growing need for high-quality,
dependable suppliers such as the Company to establish a direct presence overseas
in areas not already fully served by the European division of the Company.
THE TRANSACTIONS
THE INITIAL OFFERING
The Old Notes were sold by the Company on March 13, 1998 to the Initial
Purchasers pursuant to a Purchase Agreement dated March 11, 1998 (the 'Purchase
Agreement') between BDPI Holdings Corporation ('MergerCo') and the Initial
Purchasers. The Initial Purchasers subsequently resold the Old Notes to (i)
qualified institutional buyers pursuant to Rule 144A under the Securities Act,
(ii) to a limited number of institutional accredited investors (as defined in
Rule 501(a)(1),(2),(3) or (7) under the Securities Act) and (iii) certain
persons in offshore transactions in reliance on Regulation S under the
Securities Act.
Pursuant to the Purchase Agreement, the Company, the Subsidiary Guarantors
and the Initial Purchasers entered into an Exchange and Registration Rights
Agreement dated as of March 13, 1998, which grants the holders of the Old Notes
certain exchange and registration rights. The Exchange Offer is intended to
satisfy such exchange rights which terminate upon the consummation of the
Exchange Offer.
The Initial Offering was consummated on March 13, 1998 and was made in
conjunction with the series of transactions (the 'Transactions') described
below.
THE RECAPITALIZATION
The Initial Offering was made in connection with (i) the recapitalization
(the 'Recapitalization') of BDPH pursuant to a Recapitalization Agreement, dated
as of October 14, 1997, as amended (the 'Recapitalization Agreement'), among
BDPH, MergerCo and Borden and (ii) the Imperial Acquisition pursuant to an
Acquisition Agreement, dated as of November 4, 1997, as amended (the 'Imperial
Acquisition Agreement'), among C&A, Imperial U.S. and MergerCo. MergerCo was
wholly owned by Imperial Home Decor Group Holdings LLC ('Holdings'), an entity
formed by Blackstone for purposes of the Recapitalization.
The Initial Offering, the Recapitalization, the Imperial Acquisition and
the initial borrowings under the Senior Credit Facilities are collectively
referred to as the 'Transactions.'
The closing of the transactions contemplated by the Recapitalization
Agreement, the initial borrowings under the Senior Credit Facilities and the
consummation of the Offering took place immediately prior to, but substantially
simultaneously with, the closing of the Imperial Acquisition, which occurred on
March 13, 1998 (collectively, the 'Closing').
The principal components of the Recapitalization were:
o The transfer of substantially all the assets and liabilities of Sunworthy
to a wholly owned subsidiary of BDPH;
o The contribution of $84.6 million in cash by Blackstone to MergerCo (the
'Equity Contribution');
o The merger of MergerCo with and into BDPH (the 'Merger'); and
o The conversion of all the preferred stock and certain common stock of
BDPH into the right to receive a total of $309.5 million in cash, subject
to adjustment as described in the Recapitalization Agreement (the 'Merger
Consideration'). See 'The Transactions--The Recapitalization.'
Following the Recapitalization, Blackstone owned 89% and Borden retained 11% of
the outstanding BDPH Common Stock (the 'Common Stock').
THE IMPERIAL ACQUISITION
The principal components of the Imperial Acquisition were:
o The acquisition of all the outstanding capital stock of Imperial U.S. by
BDPH;
o The acquisition of substantially all the assets and liabilities of
Imperial Canada by a wholly owned subsidiary of BDPH;
o The payment by BDPH to C&A of the cash purchase price for the Imperial
Acquisition of $71.2 million, subject to adjustment as described in the
Imperial Acquisition Agreement; and
6
<PAGE>
o The grant to C&A by BDPH of an option (the 'C&A Option') to purchase
newly issued shares of BDPH's Common Stock equal to 6.7% of BDPH's Common
Stock outstanding as of the Closing. See 'The Transactions--Imperial
Acquisition.'
At the time of the Closing, affiliates of Blackstone held approximately 40%
of the outstanding common stock of C&A. C&A is a manufacturer of component parts
and systems for the automotive industry and its common stock is traded on the
New York Stock Exchange. The Imperial Acquisition was approved by a committee
comprised solely of independent directors of C&A.
Following the Recapitalization and the Imperial Acquisition, BDPH changed
its name to 'The Imperial Home Decor Group Inc.'
THE FINANCINGS
The Recapitalization, the Imperial Acquisition and the payment of related
fees and expenses has been financed by: (i) The Equity Contribution, (ii) the
initial borrowings under the Senior Credit Facilities; and (iii) the Initial
Offering. The Senior Credit Facilities have been provided under the Credit
Agreement by a group of lenders led by The Chase Manhattan Bank, an affiliate of
one of the Initial Purchasers. See 'Description of Senior Credit Facilities.'
There will be no proceeds to the Company from the exchange of Old Notes
pursuant to the Exchange Offer. Upon the consummation of the Recapitalization,
the proceeds from the Initial Offering of $125.0 million were used, together
with the initial borrowings under the Senior Credit Facility as follows: (i)
approximately $309.5 million was paid to existing BDPH stockholders in
connection with the Merger (subject to purchase price adjustment), (ii)
approximately $71.2 million was paid pursuant to the Imperial Acquisition,
comprising $58.0 million cash purchase price plus an estimated $13.2 million
purchase price adjustment at the Closing (an additional $1.6 million was paid
subsequent to the Closing), (iii) approximately $24.3 million was used to fund
costs and expenses associated with the Recapitalization and (iv) approximately
$2.6 million was retained as excess cash.
The following table sets forth a summary of the sources and uses of funds
associated with the Transactions.
<TABLE>
<CAPTION>
AMOUNT
(IN MILLIONS)
<S> <C>
Sources of Funds:
Revolving Credit Facility............................................ $ --
Term loans........................................................... 198.0
Senior subordinated notes............................................ 125.0
Equity contribution and retained equity(1)........................... 95.0
-------------
Total............................................................. $ 418.0
-------------
-------------
Use of Funds:
Merger consideration(2).............................................. $ 309.5
Imperial acquisition(3).............................................. 71.2
Equity retained by Borden............................................ 10.4
Transaction fees and expenses........................................ 24.3
Excess cash.......................................................... 2.6
-------------
Total............................................................. $ 418.0
-------------
-------------
</TABLE>
- ------------------
(1) Includes the Equity Contribution of $84.6 million in cash by Blackstone and
the retained equity interest of Borden ($10.4 million based upon the per
share amount paid by Blackstone for the Company's Common Stock in the
Merger.)
(2) Represents the cash consideration paid to the existing BDPH stockholders of
$309.5 million in connection with the Merger subject to adjustment based on
the difference between BDPH's net working capital on the Closing and a
target working capital described in the Recapitalization Agreement.
(3) Represent the Imperial Acquisition cash purchase price of $58.0 million plus
the estimated purchase price adjustment of $13.2 million based on actual
cash balances as of the Closing and Imperial's net cash flows (as defined in
the Imperial Acquisition Agreement) between November 2, 1997 and the
Closing. Subsequent to the Closing, an additional purchase price of
adjustment of $1.6 million was paid.
7
<PAGE>
EQUITY INVESTORS
89% of the Company's Common Stock is held by Holdings and 11% of the
Company's Common Stock is held by Borden. C&A has the right, pursuant to the C&A
Option, to purchase newly issued shares of the Company's Common Stock equal to
6.7% of the Company's Common Stock outstanding as of the Closing. All of
Holdings's equity securities are held by Blackstone. Holdings was organized in
December 1997 for the purpose of consummating the Recapitalization.
Blackstone is a private investment bank based in New York and founded in
1985 by Peter G. Peterson, its current Chairman, and Stephen A. Schwarzman, its
current President and Chief Executive Officer. Blackstone's main businesses
include private equity investments, merger and acquisition advisory services,
restructuring advisory services, real estate investing and asset management. The
firm's primary private equity investment vehicle is Blackstone Capital Partners
III Merchant Banking Fund L.P. ('BCP III'), which had its final closing in
October 1997 and has approximately $3.8 billion of committed equity capital. BCP
III is the successor to Blackstone Capital Partners II Merchant Banking Fund
L.P. ('BCP II'), which was established in 1993 with approximately $1.3 billion
of committed equity capital, substantially all of which has been invested.
Beginning with Blackstone Capital Partners I Merchant Banking Fund L.P. in 1987,
Blackstone has invested approximately $2.2 billion of equity in 30 transactions
having an aggregate transaction value of approximately $19.0 billion.
Blackstone is not and will not be a party to any agreement relating to the
Recapitalization, the Imperial Acquisition, the Senior Credit Facilities, the
sale of the Notes or any related transaction. While Blackstone made the Equity
Contribution, in no event will Blackstone have any obligation or liability to
contribute additional equity capital or to provide other credit support to the
Company and Blackstone will not be liable for any loss, damage or other amounts
arising directly or indirectly in respect of the Exchange Notes or any other
obligation or liability of the Company or any of its subsidiaries.
8
<PAGE>
CORPORATE ORGANIZATION
The following chart depicts the current ownership structure of the Company
and its primary operating subsidiaries.
--------------
| Blackstone |
-------------
|
| 100%
-------------- -----------
| Holdings | | Borden |
------------- -----------
| |
| 89% | 11%
- -----------------------------------------------------------------------------
| The Company |
| (The Imperial Home Decor Group Inc.; |
| formerly Borden Decorative Products Holdings, Inc.)* |
| . Issuer of the Notes |
| . Borrower under the Senior Credit Facilities |
- -----------------------------------------------------------------------------
|
-------------------------------|--------------------------
| | |
- --------------------------------- ------------------------ -------------------
| Imperial Home Decor || U.S. and Canadian | | |
|Group Holdings I Limited (UK)** ||operating subsidiaries**| |Vernon Plastics**|
- --------------------------------- ------------------------- --------------------
|
- ----------------------------------
| Imperial Home Decor |
|Group Holdings II Limited (UK)**|
- ----------------------------------
|
- ----------------------------------
| UK operating |
| subsidiaries |
- ----------------------------------
* C & A will also have an option to acquire newly issued shares of the
Company's Common Stock equal to 6.7% of the Company's Common Stock
outstanding as of the closing.
** Imperial Home Decor Group Holdings I Limited, Vernon Plastics and the U.S.
operating subsidiaries are Subsidiary Guarantors.
9
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer........................ $1,000 principal amount of Exchange Notes in exchange for each $1,000
principal amount of Old Notes. As of the date hereof, $125,000,000
aggregate principal amount of Old Notes are outstanding. The Company
will issue the Exchange Notes on or promptly after the Expiration
Date.
Based on an interpretation by the staff of the Commission set forth
in no-action letters issued to third parties, the Company believes
that Exchange 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 which
is an 'affiliate' of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that
such Exchange Notes are acquired in the ordinary course of such
holder's business and that such holder does not intend to participate
and has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. Each holder
accepting the Exchange Offer is required to represent to the Company
in the Letter of Transmittal that, among other things the Exchange
Notes will be acquired by the holder in the ordinary course of
business and the holder does not intend to participate and has no
arrangement or understanding with any person to participate in the
distribution of such Exchange Notes.
Any Participating Broker Dealer that acquired Old Notes for its own
account as a result of market making activities or other trading
activities may be a statutory underwriter. Each Participating Broker
Dealer that receives Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating 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 Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Old Notes where
such Old Notes were acquired by such Participating Broker Dealer as a
result of market making activities or other trading activities. The
Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any
Participating Broker Dealer for use in connection with any such
resale. See 'Plan of Distribution.'
Any holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution
of the Exchange Notes cannot rely on the position of the staff of the
Commission enunciated in no-action letters and, in the absence of an
exemption therefrom, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any
resale transaction. Failure to comply with such requirements in such
instance may result in such holder incurring
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
liability under the Securities Act for which the holder is not
indemnified by the Company.
Expiration Date........................... The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998 unless the Exchange Offer is extended, in which
case the term 'Expiration Date' means the latest date and time to
which the Exchange Offer is extended.
Accrued Interest on the Exchange Notes and
the Old Notes........................... Each Exchange Note will bear interest from its issuance date. Holders
of Old Notes that are accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the issuance date of
the Exchange Notes. Such interest will be paid with the first
interest payment on the Exchange Notes. Interest on the Old Notes
accepted for exchange will cease to accrue upon issuance of the
Exchange Notes.
Conditions to the Exchange Offer.......... The Exchange Offer is subject to certain customary conditions, which
may be waived by the Company. See 'The Exchange Offer--Conditions.'
Procedures for Tendering Old Notes........ Each holder of Old Notes wishing to accept the Exchange Offer must
complete, sign and date the accompanying Letter of Transmittal, or a
facsimile thereof or transmit an Agent's Message (as defined herein)
in connection with a book-entry transfer, in accordance with the
instructions contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, such facsimile or such Agent's
Message, together with the Old Notes and any other required
documentation to the Exchange Agent (as defined herein) at the
address set forth herein. By executing the Letter of Transmittal or
Agent's Message, each holder will represent to the Company that,
among other things, the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business
of the person receiving such Exchange Notes, whether or not such
person is the holder, that neither the holder nor any such other
person (i) has any arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, (ii) is
engaging in or intends to engage in the distribution of such Exchange
Notes, or (iii) is an 'affiliate,' as defined under Rule 405 of the
Securities Act, of the Company. See 'The Exchange Offer-- Purpose and
Effect of the Exchange Offer' and '--Procedures for Tendering.'
Untendered Old Notes...................... Following the consummation of the Exchange Offer, holders of Old
Notes eligible to participate but who do not tender their Old Notes
will not have any further exchange rights and such Old Notes will
continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be
adversely affected.
Consequences of Failure to Exchange ...... The Old Notes that are not exchanged pursuant to the Exchange Offer
will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant to Rule 144A or Rule
144 under the Securities Act or pursuant to some other exemption
under the Securities Act, (iii) outside the United States to a
foreign person pursuant to the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective registration
statement
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
under the Securities Act. See 'The Exchange Offer--Consequences of
Failure to Exchange.'
Shelf Registration Statement.............. If (i) because of any change in law or applicable interpretations
thereof by the Commission's staff the Company is not permitted to
effect the Exchange Offer, or (ii) any Old Notes validly tendered
pursuant to the Exchange Offer are not exchanged for Exchange Notes
within 210 days after the Issue Date, or (iii) any Initial Purchaser
so requests with respect to Old Notes or notes not eligible to be
exchanged for Exchange Notes in the Exchange Offer and held by it
following the consummation of the Exchange Offer, or (iv) any
applicable law or interpretations do not permit any holder to
participate in the Exchange Offer, or (v) any holder that
participates in the Exchange Offer does not receive freely
transferable Exchange Notes in exchange for tendered Old Notes, or
(vi) the Company so elects, then the Company and the Subsidiary
Guarantors are required to use their reasonable best efforts to file
as promptly as practicable (but in no event more than 120 days after
the Issue Date) with the Commission and thereafter to use their
reasonable best efforts to cause to be declared effective (but in no
event more than 180 days after the Issue Date), a shelf registration
statement on an appropriate form under the Securities Act relating to
the offer and sale of the Old Notes by the holders thereof from time
to time in accordance with the methods of distribution set forth in
such registration statement (the 'Shelf Registration Statement' and,
together with any Exchange Offer Registration Statement, a
'Registration Statement') and the Company and the Subsidiary
Guarantors are required to use their reasonable best efforts to keep
the Shelf Registration Statement continuously effective in order to
permit the prospectus forming part thereof to be used by holders of
Transfer Restricted Securities (as defined) for a period ending on
the earlier of (a) two years from the Issue Date or such shorter
period that will terminate when all the Transfer Restricted
Securities covered by the Shelf Registration Statement have been sold
pursuant thereto and (b) the date on which the Old Notes become
eligible for resale without volume restrictions pursuant to Rule 144
under the Securities Act. See 'The Exchange Offer.'
Acceptance of Old Notes and Delivery of
Exchange Notes.......................... The Company will accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered promptly following the
Expiration Date. See 'The Exchange Offer--Terms of the Exchange
Offer.'
Use of Proceeds........................... There will be no cash proceeds to the Company from the exchange
pursuant to the Exchange Offer.
Exchange Agent............................ The Bank of New York (the 'Exchange Agent').
</TABLE>
12
<PAGE>
RISK FACTORS
Prospective investors should carefully consider all the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under 'Risk Factors' beginning on page 16 for certain factors
that should be considered in connection with tendering the Old Notes in exchange
for the Exchange Notes.
GENERAL INFORMATION
The Company is a Delaware corporation. The Company's principal offices are
located at 23645 Mercantile Road, Cleveland, Ohio 44122, and its telephone
number is (216) 464-3700.
13
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
FOR THE IMPERIAL HOME DECOR GROUP INC.
The following table sets forth summary unaudited pro forma operating and
other data (including selected ratio) of the Company for the year ended December
31, 1997 and the three months ended March 28, 1998 as if the Transactions
occurred on January 1, 1997. The information presented below should be read in
conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and the consolidated financial statements and notes
included elsewhere herein. The unaudited pro forma financial data set forth
below are not necessarily indicative of the results that would have been
achieved had such Transactions been consummated as of the date indicated or that
may be achieved in the future. See 'Unaudited Pro Forma Combined Financial
Information' and 'Business--North American Integration Plan' for a more detailed
presentation of, and information relating to, the pro forma adjustments.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 28, 1998
----------------- ------------------
<S> <C> <C>
OPERATING DATA:
Net sales................................................................ $ 536.5 $128.9
Cost of goods sold....................................................... 348.6 84.2
------- -------
Gross margin............................................................. 187.9 44.7
Selling, general and administrative expenses............................. 170.6 47.4
Restructuring charge..................................................... -- 9.3
------- -------
Operating income (loss).................................................. 17.3 (12.0)
Other (income) expense, net.............................................. (0.7) 0.7
Interest expense, net.................................................... 33.7 8.4
------- -------
Income (loss) before income taxes........................................ (15.7) (21.1)
Income tax expense....................................................... 2.3 1.2
------- -------
Net loss................................................................. $ (18.0) $(22.3)
------- -------
------- -------
OTHER DATA:
Cash flows from (used in):
Operating activities................................................... $ (20.1) $(28.4)
Investing activities................................................... (29.6) (78.1)
Financing activities................................................... 25.5 101.8
Depreciation and amortization(2)......................................... 14.1 3.6
Capital expenditures(3).................................................. 29.2 5.9
Product development expenditures(4)...................................... 40.0 14.4
EBITDA, as defined(5).................................................... 32.6 0.8
Cash interest expense, net............................................... 31.1 7.8
ADJUSTED EBITDA AND SELECTED RATIO:
Adjusted EBITDA(6)....................................................... 61.2 --
Adjusted EBITDA to cash interest expense(1).............................. 2.0 --
</TABLE>
- ------------------
(1) Cash interest expense does not include interest expense related to
additional indebtedness that the Company may incur.
(2) Depreciation and amortization excludes amortization of sample book and
design and engraving costs of $33.5 million and $11.5 million, but includes
amortization of cylinder bases of $0.9 million and $0.2 million for the year
ended December 31, 1997 and the three months ended March 28, 1998,
respectively.
(3) Capital expenditures does not include expenditures for product development.
See note (4).
(4) Product development expenditures include expenditures related to sample
books and design and engraving costs, but exclude expenditures related to
cylinder bases.
(Footnotes continued on next page)
14
<PAGE>
(Footnotes continued from previous page)
(5) EBITDA represents earnings before net interest expense, income taxes,
depreciation and amortization expense, restructuring charges, merger costs
and other non-cash charges relating to management options. EBITDA should not
be considered in isolation or as a substitute for net income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with United States generally accepted accounting
principles ('GAAP') or as a measure of profitability or liquidity. EBITDA is
included in this Prospectus to provide additional information with respect
to the ability of the Company to satisfy its debt service, capital
expenditure and working capital requirements and because certain covenants
in the Company's borrowing arrangements are tied to similar measures. While
EBITDA is frequently used as a measure of operations and the ability to meet
debt service requirements, it is not necessarily comparable to other
similarly titled captions of other companies due to differences in methods
of calculation.
(6) 'Adjusted EBITDA' is shown below to reflect certain benefits that may result
from head count reductions and fixed cost savings anticipated to be fully
realized in 2000 as a result of the implementation of the Company's
Integration Plan as described in 'Business--Integration Plan.' During 1997,
the Company incurred $39.0 million of fixed costs and compensation expense
relating to facilities to be closed and positions to be eliminated.
Management estimates that these costs will be eliminated by the year 2000,
but will be partially offset by $10.4 million of incremental overhead costs,
primarily at the Company's Knoxville, Tennessee facility. Total net fixed
cost savings from the Integration Plan are estimated at $28.6 million for
2000, $18.0 million for 1999 and $5.0 million for 1998. The total capital
expenditures planned by the Company for 1998 and 1999 in North America,
substantially all of which are related to implementation of the Integration
Plan, are budgeted at approximately $40.0 million. The Company anticipates
making an aggregate of approximately $23.2 million of other cash
expenditures in 1998 and 1999 to implement the Integration Plan. The
following adjustments do not give effect to other improvements in gross
margin expected to result from the Integration Plan. See 'Business--North
American Integration Plan--Additional Gross Margin Effects.' Adjusted EBITDA
is calculated as follows:
<TABLE>
<CAPTION>
AMOUNT
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
EBITDA, as defined.................................... $32.6
Rationalization of printing facilities................ 3.3
Rationalization of finishing facilities(a)............ 4.6
Paper making facility closing......................... 3.2
Rationalization of distribution facilities(b)......... 5.1
Elimination of selling, customer service and support
redundancies........................................ 12.4
------
Adjusted EBITDA....................................... $61.2
------
------
</TABLE>
- ------------------
(a) The amount shown is net of $2.5 million of estimated incremental costs
relating to the rationalization of finishing facilities.
(b) The amount shown is net of $7.9 million of estimated incremental costs
relating to the rationalization of distribution facilities.
The foregoing head count reductions and fixed cost savings estimates are
based on a number of estimates and assumptions that, while considered reasonable
in the aggregate by management of the Company, are inherently uncertain.
Accordingly, prospective investors are cautioned not to place undue reliance on
these pro forma adjustments. See 'Forward Looking Statements' and 'Risk
Factors.'
15
<PAGE>
RISK FACTORS
An investment in the Exchange Notes involves a high degree of risk. Prior
to tendering Old Notes in exchange for Exchange Notes, prospective investors
should consider carefully all the information in this Prospectus and, in
particular, the following considerations.
SUBSTANTIAL LEVERAGE; LIQUIDITY; INABILITY TO MEET FIXED CHARGES
The Company incurred a significant amount of indebtedness in connection
with the Transactions. As of March 28, 1998, the Company's total indebtedness
was approximately $329.6 million (exclusive of unused commitments) and its
stockholders' deficiency was $60.4 million.
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness will depend upon its future
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, many of which are beyond its control.
The Company anticipates that its operating cash flow, together with borrowings
under the Senior Credit Facilities, will be sufficient to meet its operating
expenses, to fund its planned capital expenditures and acquisitions and to
service its debt obligations as they become due. If the Company is unable to
generate sufficient cash flow from operations in the future or borrow under the
Senior Credit Facilities in an amount sufficient to service its indebtedness and
to meet its other commitments, the Company will be required to adopt one or more
alternatives, such as refinancing or restructuring its indebtedness, selling
material assets or operations, reducing or delaying capital expenditures or
seeking to raise additional debt or equity capital. There can be no assurance
that any of these actions could be effected, or if they are effected, that they
could be effected on a timely basis or on satisfactory terms, or that these
actions would enable the Company to continue to satisfy its cash requirements.
In addition, the terms of existing or future debt agreements, including the
Credit Agreement and the Indenture, may prohibit the Company from adopting any
of these alternatives. The failure to generate sufficient cash flow, to make
such borrowings or to effect such alternatives could significantly adversely
affect the market value of the Exchange Notes and the Company's ability to pay
the principal of, and interest on, the Exchange Notes. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations,'
'Description of the Exchange Notes' and 'Description of the Senior Credit
Facilities.'
The degree to which the Company will be leveraged could have important
consequences to holders of the Exchange Notes, including: (i) a substantial
portion of the Company's cash flow from operations must be dedicated to debt
service and will not be available for operations and other business purposes;
(ii) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, general corporate purposes or
acquisitions may be impaired; (iii) the Company's level of indebtedness could
limit its flexibility in reacting, and increase its vulnerability, to changes in
the industry, competitive pressures and economic conditions generally; (iv) the
Credit Agreement and the Indenture contain financial and restrictive covenants
with which the failure to comply would result in an event of default which, if
not cured or waived, could have a material adverse effect on the Company; (v)
the Company will be substantially more leveraged than certain of its
competitors, which may place the Company at a competitive disadvantage; (vi)
certain indebtedness under the Senior Credit Facilities will be at variable
rates of interest, which could result in higher interest expense in the event of
increases in interest rates; and (vii) the indebtedness outstanding under the
Senior Credit Facilities will be secured by assets of the Company and the
Subsidiary Guarantors and will mature prior to the maturity of the Exchange
Notes. In addition, the degree to which the Company is leveraged could prevent
it from repurchasing all the Exchange Notes tendered to it upon the occurrence
of a Change of Control. See '--Possible Inability to Repurchase Exchange Notes
Upon Change of Control' and 'Description of the Exchange Notes--Change of
Control.'
After giving pro forma effect to the Transactions, the Company's earnings
for the year ended December 31, 1997, and for the three months ended March 28,
1998, were insufficient to cover fixed charges by approximately $15.7 million
and $21.1 million, respectively. Accordingly, the Company will need to improve
operating results in order to meet its debt service obligations, including its
obligations under the Exchange Notes. While the Company has adopted a strategic
plan to improve its results of operations (see 'Business--North American
Integration Plan' and '--Business Strategy'), the ability of the Company to
improve its operating performance
16
<PAGE>
and financial results will depend upon economic, financial, competitive and
other factors beyond its control, including general economic conditions.
SUBORDINATION; UNSECURED STATUS OF EXCHANGE NOTES AND SUBSIDIARY GUARANTEES
The Exchange Notes will be general unsecured obligations of the Company
that will be subordinated in right of payment to all existing and future Senior
Indebtedness. The Subsidiary Guarantees will be general unsecured obligations of
the Subsidiary Guarantors that will be subordinated in right of payment to all
existing and future Senior Indebtedness of the Subsidiary Guarantors. As of
March 28, 1998, on a pro forma basis after giving effect to the Transactions,
(i) the aggregate outstanding amount of all Senior Indebtedness of the Company
was $198.0 million (exclusive of unused commitments), all of which was Secured
Indebtedness, and (ii) the Subsidiary Guarantors had no Senior Indebtedness
outstanding (exclusive of guarantees of the Senior Credit Facilities). Although
the Indenture contains limitations on the amount of additional indebtedness
which the Company and its subsidiaries may incur, under certain circumstances
the amount of such indebtedness could be substantial and such indebtedness could
be Senior Indebtedness. Consequently, in the event of a bankruptcy, liquidation,
reorganization or similar proceeding with respect to the Company, the assets of
the Company will be available to pay obligations on the Exchange Notes only
after all then-outstanding Senior Indebtedness has been paid in full, and there
may not be sufficient assets remaining to pay amounts due on any or all the
Exchange Notes. In addition, under certain circumstances, the Company may not
pay principal or premium, or liquidated damages, if any, or interest on the
Exchange Notes if any Senior Indebtedness is not paid when due or any other
default on any Senior Indebtedness exists. Substantially similar provisions are
applicable to the Subsidiary Guarantees. The Exchange Notes and the Subsidiary
Guarantees are also unsecured and thus, in effect, will rank junior to any
Secured Indebtedness of the Company, the Subsidiary Guarantors or any of the
Company's other subsidiaries. The indebtedness outstanding under the Senior
Credit Facilities will be secured by liens on assets of the Company and the
Subsidiary Guarantors. The Non-Guarantor Subsidiaries will be permitted to
borrow under the Revolving Credit Facility and to provide guarantees of
borrowings made by other Non-Guarantor Subsidiaries. In addition, under certain
circumstances, the Subsidiary Guarantee provided by any Subsidiary Guarantor
could be set aside under fraudulent conveyance or similar laws. See
'--Fraudulent Transfer Considerations' and '--U.K. Insolvency Law and Other
Considerations.' In any such case, the Exchange Notes would be effectively
subordinated to all liabilities of such Subsidiary Guarantor, including trade
payables. In addition, the Exchange Notes will be effectively subordinated to
all liabilities, including trade payables, of any Non-Guarantor Subsidiary. See
'Description of the Exchange Notes' and 'Description of the Senior Credit
Facilities.'
The Indenture permits the Company and the Subsidiary Guarantors to incur
certain Secured Indebtedness, including indebtedness under the Senior Credit
Facilities, which will be secured by liens on the assets of the Company and the
Subsidiary Guarantors. The Exchange Notes and the Subsidiary Guarantees are
unsecured and therefore do not have the benefit of such collateral. Accordingly,
if an event of default occurs under any Secured Indebtedness, including the
Senior Credit Facilities, the lenders thereunder may foreclose upon such
collateral to the exclusion of the holders of the Exchange Notes,
notwithstanding the existence of an event of default with respect to the
Exchange Notes. In such event, such assets would first be used to repay in full
such Secured Indebtedness, including the Senior Credit Facilities, resulting in
all or a portion of the Company's and the Subsidiary Guarantors' assets being
unavailable to satisfy the claims of the holders of the Exchange Notes and the
other unsecured indebtedness of the Company and the Subsidiary Guarantors.
RESTRICTIONS IMPOSED BY DEBT COVENANTS
The Credit Agreement and the Indenture impose certain operating and
financial restrictions on the Company. The Credit Agreement requires the Company
to comply with certain financial covenants, including: (i) a minimum interest
coverage ratio and (ii) a maximum net leverage ratio. In addition, the Credit
Agreement and/or the Indenture contain certain covenants with respect to the
Company and its Restricted Subsidiaries that will restrict, among other things,
the ability to (i) pay dividends and make distributions on, or repurchase or
redeem, capital stock or indebtedness; (ii) prepay or repay certain
indebtedness; (iii) incur certain liens and engage in sale/leaseback
transactions; (iv) make certain capital expenditures; (v) make certain loans and
investments; (vi) incur certain indebtedness and guarantees and other contingent
obligations; (vii) engage in
17
<PAGE>
certain mergers, consolidations, acquisitions and asset sales; (viii) enter into
certain transactions with affiliates; (ix) make certain changes in their lines
of business; (x) amend certain debt and other material agreements; and (xi) pay
certain fees to Blackstone and its affiliates. The aforementioned covenants will
be subject to certain materiality concepts and baskets and other exceptions to
be set forth in the definitive loan documentation and could be modified or
waived by action of the lenders. The Company will also be required to maintain
certain interest/exchange rate protection agreements satisfactory to the
Administrative Agent for the lenders under the Credit Agreement. A breach of any
of these covenants could result in a default under the Credit Agreement and/or
the Indenture. Upon the occurrence of an event of default under the Credit
Agreement, depending upon the actions taken by the lenders thereunder, the
Company could be prohibited from making any payments of principal of, or
interest on, the Exchange Notes. In addition, such lenders could elect to
declare all amounts outstanding under the Credit Agreement, together with
accrued and unpaid interest, to be immediately due and payable. If the Company
were unable to repay any such amounts, such lenders could proceed against the
collateral securing such indebtedness. If the lenders under the Credit Agreement
accelerate the payment of such indebtedness, there can be no assurance that the
assets of the Company would be sufficient to repay in full such indebtedness and
the other indebtedness of the Company, including the Exchange Notes. See
'Description of the Exchange Notes--Certain Covenants' and 'Description of the
Senior Credit Facilities.'
HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION
The Company is a holding company the principal assets of which are the
capital stock of its operating subsidiaries. As a holding company, the Company
is dependent on dividends or other intercompany transfers of funds from its
subsidiaries to meet the Company's debt service and other obligations. Claims of
creditors of the Company's subsidiaries will generally have priority as to the
assets of such subsidiaries over claims of the Company.
Although the Subsidiary Guarantees provide the holders of the Exchange
Notes with a direct claim against the assets of the Subsidiary Guarantors,
enforcement of the Subsidiary Guarantees against any Subsidiary Guarantor may be
subject to legal challenge in a bankruptcy or reorganization case or a lawsuit
by or on behalf of creditors of such Subsidiary Guarantor and would be subject
to certain defenses available to guarantors generally. See '--Fraudulent
Transfer Considerations' and '--U.K. Insolvency Law and Other Considerations.'
To the extent that the Subsidiary Guarantees are not enforceable, the Exchange
Notes would be effectively subordinated to all liabilities of the Subsidiary
Guarantors, including trade payables of the Subsidiary Guarantors, whether or
not such liabilities constitute Senior Indebtedness under the Indenture. In any
event, the Exchange Notes will be effectively subordinated to all liabilities of
the Non-Guarantor Subsidiaries, including borrowings under the Revolving Credit
Facility. The Non-Guarantor Subsidiaries generated, on a pro forma basis, 48.7%
of the Company's net sales and substantially all the Company's total
consolidated pro forma EBITDA, as defined, for the year ended December 31, 1997.
See Note 14 to 'Borden Decorative Products Holdings, Inc. Combined Financial
Statements.' As of March 28, 1998, after giving pro forma effect to the
Transactions, (i) the Company had $198.0 million aggregate principal amount of
Senior Indebtedness outstanding (exclusive of unused commitments), all of which
was Secured Indebtedness, (ii) the Company had no Pari Passu Indebtedness
outstanding other than the Old Notes and no indebtedness that is subordinate or
junior in right of payment to the Notes, (iii) the Subsidiary Guarantors had no
Senior Indebtedness outstanding (exclusive of guarantees of the Senior Credit
Facilities), (iv) the Subsidiary Guarantors had no Pari Passu Indebtedness
outstanding (exclusive of the Subsidiary Guarantees), no indebtedness that is
subordinate or junior in right of payment to the Subsidiary Guarantees and total
liabilities (excluding indebtedness and liabilities owed to the Company) of
$67.1 million, and (v) the Non-Guarantor Subsidiaries had total liabilities
(excluding liabilities owed to the Company) of $87.6 million. See 'Description
of the Exchange Notes' and 'Description of the Senior Credit Facilities.'
In addition, the payment of dividends to the Company by its subsidiaries is
contingent upon the earnings of those subsidiaries and subject to various
business considerations. The Indenture permits restrictive loan covenants to be
contained in the instruments governing the indebtedness of such subsidiaries,
including covenants that restrict in certain circumstances the payment of
dividends and distributions and the transfer of assets to the Company. See 'The
Senior Credit Facilities' and 'Description of the Exchange Notes--Certain
Covenants--Dividend and Other Payment Restrictions Affecting Subsidiaries.'
18
<PAGE>
INTEGRATION OF IMPERIAL, IMPLEMENTATION OF BUSINESS STRATEGY AND LIMITED
RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The Company and Imperial have historically operated independently, and the
success of the Company will depend in large part upon the Company's ability to
successfully implement its business strategy, particularly those components
involving its Integration Plan and the rationalization of the Company's North
American operations. See 'Business--North American Integration Plan.' The
integration of Imperial entails the reorganization of certain functions to
achieve the cost savings and to realize the full potential of the business
opportunities management believes are available to the Company. There can be no
assurance that the Company will be able to successfully integrate Imperial or
achieve such cost savings or that the Company will not encounter delays or incur
unanticipated costs in such integration. In connection with the integration of
Imperial into the Company, certain administrative functions historically
performed by Borden and C&A will continue to be performed by Borden and C&A
pursuant to transition services agreements for a period, in the case of Borden,
until March 13, 1999 and, in the case of C&A, until March 13 of 1999 or 2000
depending upon the service. See 'Certain Transactions--Transition Services
Agreements.' There can be no assurance that following the termination of the
transition services agreements the Company will be able to adequately perform
such administrative functions or obtain such services from third parties or, in
either case, at costs comparable to those historically incurred for such
services.
Implementation of the Company's business strategy (see 'Business--Business
Strategy'), including the integration of Imperial, could be affected by a number
of factors beyond the Company's control, such as operating difficulties,
increased operating costs, regulatory developments, general economic conditions
or increased competition. In addition, after gaining experience with the
Company's operations under its new strategy, the Company may decide to alter or
discontinue certain lines of business or aspects of its strategy. Any such
failure to implement its new strategy may adversely affect the Company's ability
to service its indebtedness, including its ability to make principal and
interest payments on the Exchange Notes.
The Company has reflected in Adjusted EBITDA, on a pro forma basis, certain
anticipated benefits that may result from the operating improvements and cost
reduction measures anticipated as a result of the implementation of the
Company's Integration Plan. The pro forma adjustments reflected in Adjusted
EBITDA set forth in this Prospectus are based on a number of estimates and
assumptions that, while considered reasonable by the Company, are inherently
uncertain. Accordingly, prospective investors are cautioned not to place undue
reliance on these pro forma adjustments. See 'Summary Unaudited Pro Forma
Financial Data,' 'Unaudited Pro Forma Combined Financial Information,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Business--North American Integration Plan.'
The Company operates the businesses of IHDG and Imperial on a combined
basis under a new corporate structure and a new capital structure and has
accounted for the Imperial Acquisition using the purchase method of accounting
under which Imperial's results of operations were included in the Company's
results of operations from the date of Closing. Accordingly, the historical
financial information of IHDG and Imperial presented in this Prospectus is of
limited relevance in understanding what the results of operations, financial
position or cash flows of the Company would have been for the historical periods
presented had the Recapitalization and Imperial Acquisition been consummated and
had the Company owned all of its subsidiaries for such periods. See '--History
of Net Losses,' 'Unaudited Pro Forma Combined Financial Information,' 'Selected
Historical Financial Information--IHDG,' 'Selected Historical Financial
Information--Imperial,' 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and 'Certain Transactions.'
COMPETITION
The residential wallcovering industry in North America and Western Europe
is highly competitive. The Company competes not only with other manufacturers
and distributors of wallcoverings, but with manufacturers and distributors of
wall paints as well. Particularly in the North American market, sales growth of
wall paints has out paced that of sidewall wallcoverings primarily due to a
perceived greater ease of application. The residential wallcoverings industry
outside of North America and Western Europe is highly fragmented and consists
mainly of local manufacturers. Some of the Company's competitors may have
greater financial resources available to them and are substantially less
leveraged than the Company.
19
<PAGE>
The Company believes that the principal bases of competition in the
residential market are design, style, color coordination, service and price. In
particular, service level and price are important factors, especially among the
Company's customers in the Chain Store segment, and the Company's results of
operations could be adversely affected by increasing competition in this
segment. Management believes that the Company's ability to achieve high service
levels for in-store merchandizing, long-standing relationships with the leading
Chain Stores and willingness to invest in retailer initiatives are important
competitive advantages that have enabled it to maintain its strong position in
the Chain Store segment. No assurance can be given, however, that the Company's
results of operations will not be adversely affected by increasing competition.
CONTROL BY BLACKSTONE
Blackstone, through Holdings, owns 89% of the Company's Common Stock and,
accordingly, controls the policies and operations of the Company. There can be
no assurance that the interests of Blackstone will not conflict with the
interests of the holders of the Exchange Notes. See 'Summary--Equity Investors'
and 'Security Ownership.'
HISTORY OF NET LOSSES
Imperial suffered net losses in each of fiscal 1993, 1994, 1995, 1996 and
1997 and the two and a half months ended March 13, 1998 of $25.0 million, $0.8
million, $34.7 million, $27.9 million, $37.5 million and $10.3 million,
respectively. Management believes that Imperial's financial performance over
this period is largely attributable to underutilized manufacturing capacity and
an ineffective operating strategy implemented by prior management teams. On a
pro forma basis, the Company would also have suffered net losses before the
cumulative effect of the change in accounting policies during the year ended
December 31, 1997 and the three months ended March 28, 1998 of $18.0 million and
$22.3 million, respectively. In addition, Imperial has historically experienced
and, on a pro forma basis for the year ended December 31, 1997 and the three
months ended March 28, 1998, the Company would have experienced, negative cash
flow from operations. The net cash used in operating activities by Imperial for
the 12 months ended December 31, 1997 and the two and a half months ended March
13, 1998 was $25.6 million and $16.9 million, respectively. On a pro forma
basis, the Company would have experienced negative cash flow from operations for
the year ended December 31, 1997 and the three months ended March 28, 1998 of
$20.1 million and $28.4 million, respectively. Management believes that the
competitive strengths and business strategy of the Company as well as the
operating improvements expected to result from the implementation of the
Integration Plan will enable the Company to operate profitably and to generate
sufficient cash flow to satisfy the Company's interest and principal payment
obligations and other capital needs. There can be no assurance, however, that
the Company will achieve profitability in the future or be able to generate cash
flow sufficient to meet its interest and principal payment obligations and other
capital needs. See '--Integration of Imperial, Implementation of Business
Strategy and Limited Relevance of Historical Financial Information' and
'Unaudited Pro Forma Combined Financial Information.'
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company has significant operations outside the United States and sells
its products in over 60 countries. The Company's operations outside North
America contributed substantially all the Company's total consolidated pro forma
EBITDA, as defined, for the year ended December 31, 1997. The Company has three
manufacturing facilities and two distribution facilities located outside North
America. In addition, a substantial majority of the Company's operating income
is generated by its operations outside North America. Accordingly, the Company
is subject to legal, economic and market risks associated with operating in
foreign countries, especially European Union countries, including devaluations
and fluctuations in currency exchange rates, imposition of limitations on
conversion of foreign currencies into dollars or remittance of dividends and
other payments by foreign subsidiaries, imposition or increase of withholding
and other taxes on remittances and other payments by foreign subsidiaries,
hyperinflation in certain foreign countries, imposition or increase of
investment and other restrictions by foreign governments, longer payment cycles,
greater difficulties in accounts receivable collection, the necessity of paying
import and export duties, difficulty of protecting intellectual property and the
requirement of complying with a wide variety of foreign laws. Although such
risks have not had a material adverse effect on
20
<PAGE>
either IHDG or Imperial to date, no assurance can be given that such risks will
not have a material adverse effect on the Company in the future.
ADVERSE EFFECTS OF CERTAIN FOREIGN CURRENCY FLUCTUATIONS
In 1997, sales outside of North America represented approximately 33% of
the Company's pro forma net revenues and contributed substantially all the
Company's consolidated pro forma EBITDA for the year ended December 31, 1997.
The Company expects that sales outside of North America will continue to account
for a significant portion of its net revenues and EBITDA in the future.
The Company coordinates substantially all of its exporting activities from
the U.K. The Company's policy is to denominate export shipments from the U.K. in
either pound sterling or local currencies according to agreements with local
customers. The operations outside North America generally sell products in local
or other foreign currencies, creating the risk that currency exchange rate
fluctuations could adversely affect their earnings. Foreign exchange gains and
losses are recorded as a charge against net income.
Since the Company also has substantial assets and liabilities denominated
in foreign currencies, there is a risk that fluctuations in exchange rates could
adversely affect its shareholders' equity (deficit) balance. Exchange gains or
losses on balance sheet items are taken directly into equity as a separate
component of shareholders' equity (deficit). At March 28, 1998, non-U.S.
subsidiaries of the Company, after giving effect to the Transactions, had
approximately $149.8 million in assets net of liabilities (excluding
indebtedness and liabilities owed to the Company) and, as of such date, the
Company's shareholders' deficit included accumulated foreign currency
translation losses of approximately $1.8 million.
Certain of the Company's subsidiaries currently engage in limited currency
hedging activities in order to reduce the risks associated with fluctuations in
currency exchange rates. These activities are limited to protection of sales
transactions with a known collection date that are in currency other than the
subsidiary's functional currency. The Company does not engage in hedging for
speculative purposes. There can be no assurance that any current or future
efforts to mitigate the possible adverse effects of foreign currency
fluctuations on the Company's foreign operations and its overall results of
operations will be successful.
RAW MATERIAL PRICE FLUCTUATIONS AND SUPPLY ARRANGEMENTS
The most significant raw materials used by the Company are paper, PVC
resins and plasticizers. Paper is ordered as needed by the various plants at
prices generally established under annual contracts. Paper is a commodity for
which cost and availability are determined by market factors. Historically paper
costs have represented approximately 32% of total cost of goods sold. The most
significant non-paper raw materials are PVC resin and plasticizers, which are
used in wallcoverings operations and by Vernon Plastics. PVC resin is available
to Vernon Plastics through a purchase agreement with Borden Chemical and
Plastics L.P. that provides for 'most favored nation' pricing. PVC resin and
plasticizers are supplied to the wallcoverings operations through short-term
contracts with third party suppliers. See 'Certain Transactions--PVC Supply
Agreement.' The overall supply of paper, PVC resin and plasticizers historically
has been adequate to meet the Company's needs and the Company has diversified
its suppliers so that it is not dependent on any single supply source. No
assurance can be given, however, that the Company will be able to secure
adequate supplies of these materials in the future on favorable terms or at all.
CYCLICAL NATURE OF INDUSTRY
Usage of residential wallcoverings is predominantly influenced by
expenditures on home renovations, home sales and the redecoration requirements
of existing homeowners and, to a lesser extent, new home sales. Such activity is
cyclical and can be affected by the strength of the general economy, prevailing
interest rates and other factors that could lead to cost control measures and
reduced spending by purchasers or owners of residential property.
21
<PAGE>
ENVIRONMENTAL MATTERS
The Company is subject to numerous laws and regulations in the various
jurisdictions in which it operates that (i) govern operations that may have
adverse environmental effects, such as discharges into air and water, as well as
handling and disposal practices for solid and hazardous wastes, and (ii) impose
liability for response costs and certain damages resulting from past and current
spills, disposals or other releases of hazardous materials (together,
'Environmental Laws'). The Company believes that it currently conducts its
operations in compliance in all material respects with applicable Environmental
Laws. The Company's operations may result in noncompliance with or liability for
remediation pursuant to Environmental Laws. Environmental Laws have changed
rapidly in recent years, and the Company may be subject to more stringent
Environmental Laws in the future. Although environmental matters have not to
date had a material adverse effect on the results of operations or financial
condition of either IHDG or Imperial, there can be no assurance that such
matters will not have a material adverse effect on the Company's results of
operations or financial condition or that more stringent Environmental Laws will
not be enacted which could have a material adverse effect on the Company's
results of operations or financial condition. The Company currently estimates
that it will spend approximately $10.5 million over the next two years to meet
regulatory requirements applicable to its U.K. facilities.
POSSIBLE INABILITY TO REPURCHASE EXCHANGE NOTES UPON CHANGE OF CONTROL
A Change of Control could require the Company to refinance substantial
amounts of indebtedness. Upon a Change of Control, each holder of Exchange Notes
or Old Notes will have the right to require the Company to repurchase all or a
portion of such holder's Notes at a price equal to 101% of the aggregate
principal amount thereof, together with accrued and unpaid interest, if any, to
the date of repurchase. However, the Credit Agreement will prohibit the Company
from purchasing any of the Notes in the event of a Change of Control unless and
until such time as the outstanding indebtedness under the Senior Credit
Facilities is repaid in full. Any future credit agreements or other agreements
relating to Senior Indebtedness to which the Company becomes a party may contain
similar restrictions and provisions. In the event of a Change of Control, there
can be no assurance that the Company would have sufficient financial resources
available to satisfy all its obligations under the Senior Credit Facilities and
the Notes. The Company's failure to repurchase the Notes would result in an
event of default under the Indenture and the Credit Agreement, each of which
could have adverse consequences for the Company and the holders of the Notes.
See 'Description of the Exchange Notes' and 'Description of the Senior Credit
Facilities.'
FRAUDULENT TRANSFER CONSIDERATIONS
The incurrence of indebtedness (such as the Notes) in connection with the
Transactions is subject to review under relevant federal and state fraudulent
conveyance and similar statutes in a bankruptcy or reorganization case or a
lawsuit by or on behalf of creditors of the Company. Under these statutes, if a
court were to find that obligations (such as the Notes) were incurred with the
intent of hindering, delaying or defrauding present or future creditors, that
the Company received less than a reasonably equivalent value or fair
consideration for those obligations and, at the time of the obligations, the
obligor either (i) was insolvent or rendered insolvent by reason thereof, (ii)
was engaged or was about to engage in a business or transaction for which its
remaining unencumbered assets constituted unreasonably small capital, or (iii)
intended to or believed that it would incur debts beyond its ability to pay such
debts as they matured or became due, such court could void or subordinate the
obligations in question.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair market value of its
assets or if the fair market value of its assets at that time is less than the
amount that would be required to pay its probable liability on its existing
debts as they become absolute and mature. The Company believes that, after
giving effect to the Transactions, it was (i) neither insolvent nor rendered
insolvent by the incurrence of indebtedness in connection with the Transactions,
(ii) in possession of sufficient capital to run its business effectively, and
(iii) incurring debts within its ability to pay as the same mature or become
due.
22
<PAGE>
In addition, the Subsidiary Guarantees may be subject to review under
relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
any of the Subsidiary Guarantors. In such a case, the analysis set forth above
would generally apply, except that the Subsidiary Guarantees could also be
subject to the claim that, since the Subsidiary Guarantees were incurred for the
benefit of the Company (and only indirectly for the benefit of the Subsidiary
Guarantors), the obligations of the Subsidiary Guarantors thereunder were
incurred for less than reasonably equivalent value or fair consideration. A
court could void any of the Subsidiary Guarantors' obligations under the
Subsidiary Guarantees, subordinate the Subsidiary Guarantees to other
indebtedness of a Subsidiary Guarantor or take other action detrimental to the
holders of the Exchange Notes. See 'Description of the Exchange Notes' and
'Description of the Senior Credit Facilities.'
U.K. INSOLVENCY LAW AND OTHER CONSIDERATIONS
The procedural and substantive provisions of U.K. insolvency laws generally
are more favorable to secured creditors than comparable provisions of U.S. law
and afford debtors only limited protections from such creditors. As a result,
the ability of the holders of the Exchange Notes to realize upon their claims
against IHDG UK, the Subsidiary Guarantor organized in the U.K., may be more
limited than as against the Company or any other Subsidiary Guarantor in the
U.S. Under U.K. insolvency law, the liabilities of IHDG UK in respect of its
Subsidiary Guaranty will be paid in the event of an insolvency after certain
debts of such Subsidiary Guarantor which are entitled to priority under U.K.
law. Such debts may include all or a portion of (i) amounts owed to U.K. Inland
Revenue, (ii) amounts owed to U.K. Customs and Excise, (iii) amounts owed in
respect of U.K. Social Security contributions, (iv) amounts owed in respect of
certain retirement obligations, and (v) amounts owed to employees.
A liquidator or administrator of IHDG UK could apply to the court to
rescind the issuance of its Subsidiary Guaranty if such liquidator or
administrator believed that issuance of such Subsidiary Guaranty constituted a
transaction at an undervalue (which is similar to less than fair value), if such
Subsidiary Guarantor was insolvent at the time of, or in consequence of, the
transaction and enters into a liquidation or administration within two years of
the completion of the transaction. A transaction might be so challenged if it
involved a gift by IHDG UK or if IHDG UK received consideration of significantly
less value than the consideration given by it. A court generally will not
intervene, however, if such Subsidiary Guarantor entered into the transaction in
good faith and for the purpose of carrying on its business and there were
reasonable grounds for believing the transaction would benefit the company.
Management believes that the Subsidiary Guaranty of IHDG UK was provided in a
transaction at an undervalue and that the Subsidiary Guaranty of IHDG UK will be
provided in good faith and for the purpose of carrying on the business of such
Subsidiary Guarantor and its subsidiaries and that there are reasonable grounds
for believing that the transaction benefits such Subsidiary Guarantor. There can
be no assurance, however, that the provision of the Subsidiary Guaranty of IHDG
UK will not be challenged by a liquidator or administrator or that a court would
support management's analysis. See 'Description of the Exchange Notes.'
ABSENCE OF PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange Offer,
there has not been any public market for the Old Notes. The Old Notes have not
been registered under the Securities Act and will be subject to restriction on
transferability to the extent that they are not exchanged for Exchange Notes by
holders who are entitled to participate in this Exchange Offer. The holders of
Old Notes (other than any such holder that is an 'affiliate' of the Company
within the meaning of Rule 405 under the Securities Act) who are not eligible to
participate in the Exchange Offer are entitled to certain registration rights,
and the Company is required to file a Shelf Registration Statement with respect
to such Old Notes. The Exchange Notes will constitute a new issue of securities
with no established trading market. The Company does not intend to list the
Exchange Notes on any national securities exchange or seek the admission thereof
to trading on The Nasdaq Stock Market Inc. or seek approval for quotation
through any automated quotation system. The Initial Purchasers have advised the
Company that they currently intend to make a market in the Exchange Notes, but
they are not obligated to do so and may discontinue such market making at any
time. In addition, such market making activity will be subject to the limits
imposed by the
23
<PAGE>
Securities Act and the Exchange Act and may be limited during the Exchange Offer
and the pendency of the Shelf Registration Statement. Accordingly, no assurance
can be given that an active public or other market will develop for the Exchange
Notes or as to the liquidity of the trading market for the Exchange Note. If a
trading market does not develop or is not maintained, holders of the Exchange
Notes may experience difficulty in reselling the Exchange Notes or may be unable
to sell them at all. If a market for the Exchange Notes develops, any such
market may be discontinued at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at discount from their
principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tender of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof and, upon
consummation of the Exchange Offer, certain registration rights under the
Exchange and Registration Rights Agreement will terminate. In addition, any
holder of Old Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities, and if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange 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, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See 'Plan of
Distribution.' To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered by unaccepted Old
Notes could be adversely affected. See 'The Exchange Offer.'
24
<PAGE>
THE TRANSACTIONS
The Initial Offering was consummated on March 13, 1998 and was made in
conjunction with the other Transactions.
THE RECAPITALIZATION
Pursuant to the Recapitalization Agreement, (i) substantially all the
assets and liabilities of Sunworthy were transferred to a wholly owned
subsidiary of BDPH, The Imperial Home Decor Group (Canada) ULC, and (ii)
MergerCo was merged with and into BDPH and MergerCo's common stock was exchanged
for 89% of the Company's Common Stock outstanding as of the Closing. As a result
of the Merger, Holdings owns 89% of the Company's outstanding Common Stock and
the former stockholders of BDPH received cash Merger Consideration totaling
$309.5 million (subject to purchase price adjustment). Borden retained
approximately 11% of the Company's Common Stock outstanding as of the Closing.
Prior to the Merger, Blackstone purchased all the equity interests in
Holdings, for an aggregate cash purchase price of $84.6 million and Holdings
purchased all the outstanding capital stock of MergerCo for an aggregate cash
purchase price of $84.6 million, which, as a result of the Merger, was
effectively contributed to BDPH.
The Merger was accounted for as a recapitalization of BDPH which has no
impact on the historical carrying value of BDPH's assets and liabilities.
IMPERIAL ACQUISITION
Pursuant to the Imperial Acquisition Agreement, BDPH acquired all the
outstanding common stock of Imperial U.S. and The Imperial Home Decor Group
(Canada) ULC acquired substantially all the assets and assumed substantially all
the liabilities of Imperial Canada. The purchase price for the Imperial
Acquisition was $71.2 million, comprised of $58.0 million cash purchase price
and an estimated purchase price adjustment of $13.2 million paid at the Closing.
An additional purchase price adjustment of $1.6 million was paid subsequent to
the Closing. Following the Recapitalization and the Imperial Acquisition, BDPH
changed its name to 'The Imperial Home Decor Group Inc.'
In connection with the Imperial Acquisition, C&A was granted the C&A Option
to purchase newly issued shares of the Company's Common Stock equal to 6.7% of
the Company's Common Stock outstanding as of the Closing at a price per share
equal to 130% of the per share amount of the Equity Contribution. As of the
Closing, affiliates of Blackstone held approximately 40% of the outstanding
common stock of C&A. C&A is a manufacturer of component parts and systems for
the automotive industry and its common stock is traded on the New York Stock
Exchange. The Imperial Acquisition was approved by a committee comprised solely
of independent directors of C&A.
The Imperial Acquisition was accounted for using the purchase method of
accounting. The allocation of the aggregate purchase price is preliminary. The
final purchase adjustment to reflect the fair values of the assets acquired and
liabilities assumed will be based upon appraisals and actuarial studies that are
currently in process and management's evaluation of such assets and liabilities
and, accordingly, the adjustments that have been included in the pro forma
combined financial information may change based upon the final allocation of the
total purchase cost of the Imperial Acquisition (including any purchase price
adjustment). Such allocation is not expected to differ materially from the
preliminary allocation included herein. The total purchase cost was allocated to
the Imperial assets acquired and liabilities assumed, based on their respective
fair values. See 'Risk Factors--Integration of Imperial, Implementation of
Business Strategy and Limited Relevance of Historical Financial Information' and
'Unaudited Pro Forma Combined Financial Information.'
The Recapitalization Agreement and the Imperial Acquisition Agreement
contain certain representations, warranties and covenants, including
cross-indemnification provisions that are subject to certain limitations. In
addition, the Company has entered into a number of ancillary agreements in
connection with the Recapitalization and the Imperial Acquisition, including the
Transition Services Agreements and with respect to the use of the 'Borden Home
Wallcoverings' trademark. See 'Certain Transactions.'
25
<PAGE>
THE FINANCINGS
The Recapitalization, the Imperial Acquisition and the payment of related
fees and expenses were financed by: (i) the Equity Contribution; (ii) the
initial borrowings under the Senior Credit Facilities; and (iii) the Initial
Offering. The Senior Credit Facilities are provided under the Credit Agreement
by a group of lenders led by The Chase Manhattan Bank, an affiliate of one of
the Initial Purchasers. See 'Description of the Senior Credit Facilities.'
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Old Notes
pursuant to the Exchange Offer. Upon the consummation of the Recapitalization,
the proceeds from the Initial Offering of $125.0 million were used, together
with the initial borrowings under the Senior Credit Facility as follows: (i)
approximately $309.5 million was paid to existing BDPH stockholders in
connection with the Merger (subject to purchase price adjustment), (ii)
approximately $71.2 million was paid pursuant to the Imperial Acquisition,
comprising $58.0 million cash purchase price plus an estimated $13.2 million
purchase price adjustment at the Closing (an additional $1.6 million was paid
subsequent to the Closing), (iii) approximately $24.3 million was used to fund
costs and expenses associated with the Recapitalization and (iv) approximately
$2.6 million was retained as excess cash.
The following table sets forth a summary of the sources and uses of funds
associated with the Transactions.
<TABLE>
<CAPTION>
AMOUNT
(IN MILLIONS)
<S> <C>
Sources of Funds:
Revolving Credit Facility............................................ $ --
Term loans........................................................... 198.0
Senior subordinated notes............................................ 125.0
Equity contribution and retained equity(1)........................... 95.0
-------------
Total............................................................. $ 418.0
-------------
-------------
Use of Funds:
Merger consideration(2).............................................. $ 309.5
Imperial acquisition(3).............................................. 71.2
Equity retained by Borden............................................ 10.4
Transaction fees and expenses........................................ 24.3
Excess cash.......................................................... 2.6
-------------
Total............................................................. $ 418.0
-------------
-------------
</TABLE>
- ------------------
(1) Includes the Equity Contribution of $84.6 million in cash by Blackstone and
the retained equity interest of Borden ($10.4 million based upon the per
share amount paid by Blackstone for the Company's Common Stock in the
Merger.)
(2) Represents the cash consideration paid to the existing BDPH stockholders of
$309.5 million in connection with the Merger subject to adjustment based on
the difference between BDPH's net working capital on the Closing and a
target working capital described in the Recapitalization Agreement.
(3) Represent the Imperial Acquisition cash purchase price of $58.0 million plus
the estimated purchase price adjustment of $13.2 million based on actual
cash balances as of the Closing and Imperial's net cash flows (as defined in
the Imperial Acquisition Agreement) between November 2, 1997 and the
Closing. Subsequent to the Closing, an additional purchase price of
adjustment of $1.6 million was paid.
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Exchange and Registration Rights Agreement. The Company
will not receive any cash proceeds from the issuance of the Exchange Notes
offered hereby. In consideration for issuing the Exchange Notes contemplated in
this Prospectus, the Company will receive Old Notes in like principal amount,
the form and terms of which are the same as the form and terms of the Exchange
Notes (which replace the Old Notes), except as otherwise described herein.
26
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 28, 1998:
<TABLE>
<CAPTION>
MARCH 28,
1998
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Cash and cash equivalents................................................. $ 8.1
-------
-------
Total Debt:
Revolving Credit Facility(1)............................................ $ 6.6
Term Loan A(1)(2)....................................................... 38.0
Term Loan B............................................................. 115.0
Term Loan C............................................................. 45.0
Notes................................................................... 125.0
-------
Total debt........................................................... 329.6
Shareholders' deficiency(3)(4)............................................ (60.4)
-------
Total capitalization................................................. $ 269.2
-------
-------
</TABLE>
- ------------------
(1) Represents additional cash utilized to pay for certain transaction fees and
expenses and purchase price adjustments relating to the Recapitalization and
the Imperial Acquisition.
(2) Under the terms of the Credit Agreement, the Company may borrow an
additional $27.0 million under the Deferred Draw Term Loan in addition to
the $38.0 million under the Deferred Draw Term Loan and Term Loan A borrowed
at Closing.
(3) Common equity reflects the $6.0 million estimated fair value of the C&A
Option granted to C&A as part of the consideration for the Imperial
Acquisition.
(4) As a result of the Recapitalization, the Company has negative net worth for
accounting purposes. However, Blackstone contributed $84.6 million in cash
for 89% of the Common Stock and Borden retained 11% of the Common Stock
which, based upon the price per share paid by Blackstone, would have an
implied value of approximately $10.4 million.
27
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The accompanying unaudited pro forma financial information gives effect to:
(i) the Recapitalization, including the Equity Contribution by Blackstone; (ii)
the payment of cash consideration and the issuance of the C&A Option to effect
the Imperial Acquisition; (iii) the receipt of proceeds by the Company from the
Initial Offering of the Old Notes and the initial borrowings under the Senior
Credit Facilities; and (iv) the payment of fees and expenses related to the
Transactions.
The unaudited pro forma combined statements of operations for the year
ended December 31, 1997 and the three months ended March 28, 1998 give effect to
the Transactions as if they had occurred on January 1, 1997. The adjustments,
which are based upon available information and upon certain assumptions that
management believes are reasonable, are described in the accompanying notes. The
pro forma combined financial information does not purport to represent what the
financial position or results of operations of the Company would actually have
been had the Transactions in fact occurred on January 1, 1997 or to project the
financial position or results of operations of the Company for any future period
or date.
The Merger has been accounted for as a recapitalization of IHDG, which had
no impact on the historical carrying values of its assets and liabilities. In
the Merger, the existing IHDG stockholders received cash Merger Consideration of
$309.5 million (subject to purchase price adjustment) and Borden retained an 11%
equity interest in the Company.
The Imperial Acquisition was accounted for using the purchase method of
accounting. The total purchase cost was allocated to the Imperial assets
acquired and liabilities assumed, based on their respective fair values. The
allocation of the aggregate purchase price is preliminary. The final purchase
adjustment to reflect the fair values of the assets acquired and liabilities
assumed will be based upon appraisals and actuarial studies that are currently
in process and management's evaluation of such assets and liabilities and,
accordingly, the adjustments that have been included in the pro forma combined
financial information may change based upon the final allocation of the total
purchase cost of the Imperial Acquisition (including any purchase price
adjustment). Such allocation is not expected to differ materially from the
preliminary allocation included herein.
The pro forma combined statements of operations do not include any
adjustment for future cost savings or other operating improvements. See
'Business--North American Integration Plan' and '-- Business Strategy.'
This unaudited pro forma financial information should be read in
conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations,' the Combined Financial Statements of IHDG (including
the accompanying notes thereto), the Consolidated and Combined Financial
Statements of Imperial (including the accompanying notes thereto) and other
financial information included elsewhere in this Prospectus.
28
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
BDPH IMPERIAL ADJUSTMENTS PRO FORMA
------ --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales....................................................... $372.7 $ 163.8 $ $ 536.5
Cost of goods sold.............................................. 242.7 109.1 (3.2)(a) 348.6
------ --------- ----------- ---------
Gross margin............................................... 130.0 54.7 3.2 187.9
Selling, general and administrative expenses.................... 96.6 78.4 (4.4)(a) 170.6
------ --------- ----------- ---------
Operating income (loss)......................................... 33.4 (23.7) 7.6 17.3
Other (income) expense, net..................................... -- (0.7) (0.7)
Interest (income) expense, net.................................. (0.4) 4.6 29.5(c) 33.7
------ --------- ----------- ---------
Income (loss) before income taxes............................... 33.8 (27.6) (21.9) (15.7)
Income tax expense (benefit).................................... 11.4 (0.1) (9.0)(d) 2.3
------ --------- ----------- ---------
Income (loss) before cumulative effect of change in accounting
policy(e)..................................................... $ 22.4 $ (27.5) $ (12.9) $ (18.0)
------ --------- ----------- ---------
------ --------- ----------- ---------
OTHER DATA:
Cash flows from (used in):
Operating activities....................................... $ 26.0 $ (25.6) $ (20.5) $ (20.1)
Investing activities....................................... (20.8) (8.8) (29.6)
Financing activities....................................... (8.2) 33.7 25.5
EBITDA, as defined(f)........................................... 44.0 (15.8) 4.4 32.6
Depreciation and amortization(g)................................ 10.1 7.2 (3.2) 14.1
Capital expenditures(h)......................................... 20.8 8.4 29.2
Product development expenditures(i)............................. 17.3 22.7 40.0
Cash interest expense(c)........................................ -- 4.6 26.5 31.1
Pro forma ratio of earnings to fixed charges(j)................. --
</TABLE>
See Notes to Unaudited Pro Forma Combined Statements of Operations.
29
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 28, 1998
(DOLLARS IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
IHDG IMPERIAL ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
(72
DAYS)
<S> <C> <C> <C> <C>
Net sales................................................... $ 95.9 $ 33.0 $ $ 128.9
Cost of goods sold.......................................... 63.0 23.5 (2.3)(a) 84.2
-------- -------- ----------- ---------
Gross margin........................................... 32.9 9.5 2.3 44.7
Selling, general and administrative expenses................ 31.6 17.8 (2.0)(a) 47.4
Restructuring charges(k).................................... 9.3 -- -- 9.3
-------- -------- ----------- ---------
Operating income (loss)..................................... (8.0) (8.3) 4.3 (12.0 )
Merger costs................................................ 4.0 -- (4.0)(b) --
Other (income) expense, net................................. -- 0.7 0.7
Interest (income) expense, net.............................. 1.3 1.3 5.8(c) 8.4
-------- -------- ----------- ---------
Income (loss) before income taxes........................... (13.3) (10.3) 2.5 (21.1 )
Income tax expense.......................................... 0.2 -- 1.0(d) 1.2
-------- -------- ----------- ---------
Income (loss)............................................... $ (13.5) $ (10.3) $ 1.5 $ (22.3 )
-------- -------- ----------- ---------
-------- -------- ----------- ---------
OTHER DATA:
Cash flows from (used in):................................
Operating activities................................... $ (4.7) $ (16.9) $ (6.8) $ (28.4 )
Investing activities................................... (75.9) (2.2) (78.1 )
Financing activities................................... 84.8 17.0 101.8
EBITDA, as defined(f)....................................... 6.0 (7.6) 2.4 0.8
Depreciation and amortization(g)............................ 2.7 1.4 (0.5) 3.6
Capital expenditures(h)..................................... 3.7 2.2 5.9
Product development expenditures(i)......................... 8.2 6.2 14.4
Cash interest expense(c).................................... 1.3 1.3 5.2 7.8
Pro forma ratio of earnings to fixed charges(j)............. --
</TABLE>
See Notes to Unaudited Pro Forma Combined Statements of Operations.
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS
(a) Represents the net effect of applying purchase accounting to the Imperial
Acquisition and conforming Imperial's accounting policies for sample books
and design and engraving costs to those of IHDG, as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 28, 1998
----------------- ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Depreciation expense(1).............................. $ (4.1) $ (0.7)
Conforming accounting policies(2).................... (3.5) (2.2)
Amortization of inventory step up(3)................. (1.4)
----------------- ------------------
Total adjustment................................ $ (7.6) $ (4.3)
----------------- ------------------
----------------- ------------------
</TABLE>
- ------------------
(1) Represents the decrease in depreciation expense as a result of the decrease
in property and equipment due to the application of purchase accounting for
the Imperial Acquisition. The allocation of the aggregate purchase price
reflected in the pro forma financial information is preliminary. The final
purchase adjustment to reflect the fair values of the assets acquired and
liabilities assumed will be based upon appraisals and actuarial studies that
are currently in process and management's evaluation of such assets and
liabilities. Accordingly, the adjustments that have been included in the pro
forma financial information will differ from those based on the final
allocation. Such allocation is not expected to differ materially from the
allocation included herein.
(2) Represents the adjustment required to conform Imperial's accounting policies
for sample books and designs and engravings to that of IHDG. IHDG has
historically deferred costs associated with sample books and designs and
engravings and amortized these costs over the estimated period of future
benefit. Imperial had also historically deferred these costs, but changed
the estimated period of future benefit for sample books (during fiscal 1996)
and changed its accounting policy with respect to design and engraving costs
(effective at the beginning of fiscal 1997), to expense all these costs as
incurred.
(3) The write-up of the first-in first-out cost basis inventory resulted in a
$1.4 non-recurring non-cash charge to cost of sales for the quarter period
ended March 28, 1998 and is expected to result in an additional non-
recurring non-cash charge of approximately $14.0 million in the first year
subsequent to the Imperial Acquisition.
The total adjustment that results from applying purchase accounting and
conforming accounting policies is allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 28, 1998
----------------- ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cost of goods sold................................... $ (3.2) $ (2.3)
Selling, general and administrative expenses......... (4.4) (2.0)
----------------- ------------------
Total adjustment................................ $ (7.6) $ (4.3)
----------------- ------------------
----------------- ------------------
</TABLE>
(b) Represents the elimination of non-recurring professional fees and expenses
incurred at the Closing associated with the Recapitalization.
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS--(CONTINUED)
(c) Represents the net adjustment to interest expense as a result of the
borrowings under the Senior Credit Facilities and the Old Notes, calculated
as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 28, 1998
----------------- ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Senior Credit Facilities:
Term Loan A(1)..................................... $ 3.1 $ 0.8
Term Loan B(2)..................................... 9.8 2.4
Term Loan C(3)..................................... 3.9 1.0
Commitment fee(4).................................. 0.5 0.2
Old Notes(5)......................................... 13.8 3.4
----------------- ------------------
Cash interest expense.............................. 31.1 7.8
Amortization of deferred financing costs(6).......... 2.6 0.6
----------------- ------------------
Pro forma interest expense........................... 33.7 8.4
Historical interest expense, net..................... (4.2) (2.6)
----------------- ------------------
Net interest expense adjustment...................... $ 29.5 $ 5.8
----------------- ------------------
----------------- ------------------
</TABLE>
- ------------------
(1) Represents interest on the $38.0 million of Term Loan A which was drawn down
at Closing using an interest rate of 8.25%.
(2) Represents interest on the $115.0 million Term Loan B using an interest rate
of 8.50%.
(3) Represents interest on the $45.0 million Term Loan C using an interest rate
of 8.75%.
(4) Represents a commitment fee of 0.5% applied to the pro forma $75.0 million
unused balance of the Revolving Credit Facility and the $27.0 million
Deferred Draw Term Loan.
(5) Represents interest on the $125.0 million Old Notes using an interest rate
of 11.0%.
(6) Deferred financing costs are amortized over the term of the related debt
(ten years for the Notes, six years for Term Loan A, seven years for Term
Loan B, eight years for Term Loan C and six years for the Revolving Credit
Facility).
A change of 0.125% in the assumed interest rate would have the following
effect on pro forma interest expense:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 28, 1998
----------------- ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Senior Credit Facilities............................. $0.3 $0.1
</TABLE>
(d) Represents the tax effect of the pro forma adjustments at a 41% effective
tax rate.
(e) Following the Closing, the Company expects to incur approximately $23.2
million of non-recurring cash costs to integrate the operations of IHDG and
Imperial. Of this amount, $12.4 million related to Imperial has been accrued
under purchase, accounting and the balance of $15.9 million, consisting of
$4.5 million for computer software modification and conversion, $4.1 million
for employee severance, retention and relocation, $1.1 million for lease
cancellation and $6.2 million for other integration and transition costs,
will be expensed as incurred or capitalized as appropriate. In addition, the
Company expects to expense non-cash costs of approximately $5.9 million for
inventory rationalization. See 'Business--North American Integration Plan.'
(f) 'EBITDA' represents earnings before net interest expense, income taxes,
depreciation and amortization expense, restructuring charges, merger costs
and other non-cash charges (as described below). EBITDA, as
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS--(CONTINUED)
defined below, should not be considered in isolation or as a substitute for
net income, cash flows from operating activities and other income or cash
flow statement data prepared in accordance with GAAP or as a measure of
profitability or liquidity. EBITDA, as defined, is included in this
Prospectus to provide additional information with respect to the ability of
the Company to satisfy its debt service, capital expenditure and working
capital requirements and because certain convenants in the Company's
borrowing arrangements are tied to similar measures. While EBITDA, as
defined, is frequently used as a measure of operations and the ability to
meet debt service requirements, it is not necessarily comparable to other
similarly titled captions of other companies due to differences in methods
of calculation. The calculation of pro forma EBITDA, as defined, is shown
below:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 28, 1998
----------------- ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Net loss............................................. $ (18.0) $ (22.3)
Adjustments:
Interest expense (income), net..................... 33.7 8.4
Income tax expense................................. 2.3 1.2
Depreciation and amortization(1)................... 14.1 3.6
----------------- ------------------
32.1 (9.1)
Restructuring charges.............................. 9.3
Non-cash charges relating to management options.... 0.5 0.6
----------------- ------------------
EBITDA, as defined,.................................. $ 32.6 $ 0.8
----------------- ------------------
----------------- ------------------
</TABLE>
- ------------------
(1) Depreciation and amortization excludes amortization of sample book and
design and engraving costs of $33.5 million and $11.5 million, but includes
amortization of cylinder bases of $0.9 million and $0.2 million for the year
ended December 31, 1997 and the three months ended March 28, 1998,
respectively.
The pro forma combined statements of operations and EBITDA, as defined, do
not include any adjustments for potential benefits and incremental costs that
may result from cost reduction and other measures anticipated as a result of the
implementation of the Company's Integration Plan as described in
'Business--North American Integration Plan.' During 1997, the Company incurred
$39.0 million of fixed costs and salary expense relating to facilities to be
closed and positions to be eliminated. Management estimates that these costs
will be eliminated by the year 2000, but will be partially offset by $10.4
million of incremental overhead costs, primarily at Knoxville, resulting in
estimated net cost savings of 28.6 million in 2000, as shown below:
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Rationalization of printing facilities.................................... $ 3.3
Rationalizing finishing facilities........................................ 7.1
Paper making facilities................................................... 3.2
Rationalization of distribution facilities................................ 13.0
Elimination of selling, customer services and support redundancies........ 12.4
-------
Sub-total............................................................... 39.0
Estimated incremental overhead............................................ (10.4)
-------
Estimated net cost savings................................................ $ 28.6
-------
-------
</TABLE>
The foregoing head count reductions and fixed cost savings are based on a number
of estimates and assumptions that, while considered reasonable in the aggregate
by management of the Company, are inherently uncertain. Accordingly, prospective
investors are cautioned not to place undue reliance on these estimates. See
'Forward-Looking Statements' and 'Risk Factors.'
33
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS--(CONTINUED)
(g) Pro forma depreciation and amortization includes depreciation and
amortization of property and equipment (including cylinder bases), but
excludes amortization of sample books and designs and engraving. See note
(e).
(h) Capital expenditures do not include expenditures for product development.
See note (i).
(i) Product development expenditures include expenditures related to sample
books, design and engraving, but exclude expenditures related to cylinder
bases.
(j) For purposes of determining the pro forma ratio of earnings to fixed
charges, earnings are defined as earnings before income taxes and
extraordinary items, plus fixed charges. Fixed charges include interest
expense on all indebtedness, amortization of deferred financing costs, and
one-third of rental expense on operating leases representing that portion of
rental expense deemed by the Company to be attributable to interest. On a
pro forma basis, earnings were insufficient to cover fixed charges by $15.7
million for the year ended December 31, 1997 and $21.1 million for the three
months ended March 28, 1998.
(k) In conjunction with the Imperial Acquisition, a plan to integrate the
Company and Imperial in North America has been adopted that includes the
consolidation and rationalization of operations, the closure of facilities
in Plattsburg, New York and Ashaway, Rhode Island, the write down of certain
assets to be disposed of and a reduction in the salary and hourly workforce
by approximately 730 employees, of which approximately 530 relates to
Imperial. The plan is expected to be substantially complete by the end of
1999. As a result, the Company recognized a pretax charge of $9.3 million in
the first quarter of 1998 of which $5.9 million relates to severance costs
and $0.9 million relates to asset write downs. In addition, the Company
recorded reserves of $23.8 million through the purchase accounting for the
Imperial Acquisition of which $5.6 million relates to severance and $11.4
million relates to asset write downs.
34
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION--IHDG
(DOLLARS IN MILLIONS, EXCEPT RATIOS)
The following table presents selected historical combined financial
information for the IHDG operations of Borden, including the operations of
Borden Decorative Products, Ltd., Sunworthy and Vernon Plastics for all periods
presented. The selected combined financial information of IHDG as of and for the
years ended December 31, 1995, 1996 and 1997 have been derived from the combined
financial statements of IHDG that have been audited by Deloitte & Touche LLP,
independent auditors. The selected historical combined financial information for
the years ended December 31, 1993 and 1994 were derived from the unaudited
combined financial statements of IHDG, which, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such information, except that 1993 and 1994
data do not include certain corporate allocations reflected in subsequent
periods. The selected combined financial information of IHDG as of and for the
quarters ended March 29, 1997 and March 28, 1998 has been derived from the
unaudited historical combined financial statements of the Company.
The selected financial data should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Combined Financial Statements of IHDG and the related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ----------------------
----------------------------------------------- MARCH 29, MARCH 28,
1993 1994 1995 1996(1) 1997 1997 1998
------ ------ ------ ------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................ $306.3 $320.4 $362.3 $ 365.0 $372.7 $ 96.0 $ 95.9
Cost of goods sold....................... 196.0 202.0 229.8 237.5 242.7 62.8 63.0
------ ------ ------ ------- ------ --------- ---------
Gross margin............................. 110.3 118.4 132.5 127.5 130.0 33.2 32.9
Selling, general and administrative
expenses(2)............................ 83.1 92.4 103.1 96.3 96.6 26.1 31.6
Restructuring charges.................... 9.3
------ ------ ------ ------- ------ --------- ---------
Operating income (loss).................. 27.2 26.0 29.4 31.2 33.4 7.1 (8.0)
Merger costs............................. -- -- -- -- -- -- 4.0
Interest expense (income), net........... -- (0.1) 0.9 (0.2) (0.4) (0.3) 1.3
------ ------ ------ ------- ------ --------- ---------
Income (loss) before income taxes........ 27.2 26.1 28.5 31.4 33.8 7.4 (13.3)
Income tax expenses...................... 9.5 9.3 11.2 10.6 11.4 2.7 0.2
------ ------ ------ ------- ------ --------- ---------
Net (loss) income........................ $ 17.7 $ 16.8 $ 17.3 $ 20.8 $ 22.4 $ 4.7 $ (13.5)
------ ------ ------ ------- ------ --------- ---------
------ ------ ------ ------- ------ --------- ---------
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................. $218.9 $229.3 $242.3 $ 240.8 $239.6 $ 247.7 $ 420.8
Shareholders' equity/owner's
investment............................. 151.7 159.5 161.7 154.1 166.7 160.4 (60.4)
CASH FLOWS FROM (USED IN):
Operating activities..................... $ 32.7 $ 9.1 $ 27.3 $ 43.5 $ 26.0 $ (0.7) $ (4.7)
Investing activities..................... $ (5.6) (4.1) (6.4) (21.2) (20.8) (1.8) (75.9)
Financing activities..................... (24.2) (9.0) (15.1) (28.4) (8.2) (1.4) 84.8
OTHER DATA:
EBITDA, as defined(3).................... $ 32.7 $ 31.5 $ 35.4 $ 37.8 $ 44.0 $ 9.4 $ 6.0
Depreciation and amortization(4)......... 5.5 5.5 6.0 6.6 10.1 2.3 2.7
Amortization of product development
expenditures(5)........................ 23.0 26.6 22.3 20.7 18.2 3.6 8.4
Capital expenditures(6).................. 5.6 4.1 6.4 21.2 20.8 1.8 3.7
Product development expenditures(7)...... 26.4 26.2 20.5 16.7 18.7 4.5 8.4
Ratio of earnings to fixed charges(8).... 17.2x 21.3x 13.8x 24.8x 31.9x 4.4x --
</TABLE>
(footnotes on next page)
35
<PAGE>
- ------------------
(1) Effective January 1, 1996 IHDG was formed to operate certain of Borden's
decorative products businesses. Under this structure, IHDG was granted
beneficial ownership of the Canadian decorative products operations
(Sunworthy) until such time as local tax transfer issues could be finalized.
(2) Certain administrative expenses incurred by Borden have been allocated to
IHDG generally based on a pro-rata share of Borden's total sales. Management
believes the allocation methods utilized are reasonable. In addition, a
subsidiary of Borden provides certain administrative services to IHDG at
negotiated fees. These services include processing of payroll and active and
retiree group insurance claims, administration of workers compensation
claims and securing insurance coverage for catastrophic claims. Such costs
allocated or charged to IHDG totaled $6.1 million in 1993, $6.8 million in
1994, $6.3 million in 1995, $5.3 million in 1996, $4.2 million in 1997.
Management believes that IHDG could have performed the administrative
services set forth above or obtained such services from third parties at
costs comparable to those historically allocated to IHDG by Borden.
(3) 'EBITDA' represents earnings before net interest expense, income taxes,
depreciation and amortization expense restructuring charges, merger costs
and other non-cash charges (as described below). EBITDA, as defined, should
not be considered in isolation or as a substitute for net income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with GAAP or as a measure of profitability or
liquidity. EBITDA, as defined, is included in this Prospectus to provide
additional information with respect to the ability of the Company to satisfy
its debt service, capital expenditure and working capital requirements and
because certain covenants in the Company's borrowing arrangements are tied
to similar measures. While EBITDA, as defined, is frequently used as a
measure of operations and the ability to meet debt service requirements, it
is not necessarily comparable to other similarly titled captions of other
companies due to the differences in methods of calculation. The calculation
of EBITDA, as defined, is shown below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ----------------------
----------------------------------------------- MARCH 29, MARCH 28,
1993 1994 1995 1996(1) 1997 1997 1998
------ ------ ------ ------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income............................... $ 17.7 $ 16.8 $ 17.3 $ 20.8 $ 22.4 $ 4.7 $ (13.5)
Adjustments:
Interest expense (income), net......... -- (0.1) 0.9 (0.2) (0.4) (0.3) 1.3
Depreciation and amortization(4)....... 5.5 5.5 6.0 6.6 10.1 2.3 2.7
Income tax expense..................... 9.5 9.3 11.2 10.6 11.4 2.7 0.2
------ ------ ------ ------- ------ --------- ---------
32.7 31.5 35.4 37.8 43.5 9.4 (9.3)
Restructuring charges.................. -- -- -- -- -- -- 9.3
Merger costs........................... -- -- -- -- -- -- 4.0
Non-cash charges relating to management
options............................. -- -- -- -- 0.5 -- 0.6
Non-cash amortization of
inventory step-up................... -- -- -- -- -- -- 1.4
------ ------ ------ ------- ------ --------- ---------
EBITDA, as defined....................... $ 32.7 $ 31.5 $ 35.4 $ 37.8 $ 44.0 $ 9.4 $ 6.0
------ ------ ------ ------- ------ --------- ---------
------ ------ ------ ------- ------ --------- ---------
</TABLE>
(4) Depreciation and amortization does not include amortization of sample book,
design and engraving and cylinder bases costs.
(5) Amortization of product development expenditures includes amortization of
sample book, design and engraving and cylinder bases. The amounts applicable
to sample book, design and engraving costs were $22.7 million for 1993,
$26.2 million for 1994, $21.8 million for 1995, $20.1 million for 1996,
$17.4 million for 1997 and $8.4 million for the three months ended March 28,
1998. The amounts applicable to cylinder bases were $0.3 million for 1993,
$0.4 million for 1994, $0.5 million for 1995, $0.6 million for 1996 and $0.9
million for 1997 and $0.2 million for the three months ended March 28, 1998.
(6) Capital expenditures does not include expenditures for product development.
(7) Product development includes expenditures for sample books, design and
engravings and cylinder bases.
(8) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes plus fixed charges. Fixed
charges include interest expense on all indebtedness, amortization of
financing costs and one-third of rental expense representing that portion of
rental expense deemed to be attributable to interest. For the three months
ended March 28, 1998 earnings were insufficient to cover fixed charges by
$13.3 million.
36
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION--IMPERIAL
(DOLLARS IN MILLIONS, EXCEPT RATIOS)
The following table presents selected historical financial information for
Imperial, which includes Imperial U.S., Imperial Canada, Marketing Service Inc.
and Imperial Wallcoverings Limited. At January 27, 1996, Imperial U.S. and
Imperial Wallcoverings Limited were separate indirect subsidiaries of C&A. On
December 5, 1996, Imperial U.S. purchased Imperial UK from Collins & Aikman
United Kingdom Limited at its net book value. For financial reporting purposes,
this transfer between related entities has been treated in a manner similar to a
pooling of interests. Currently, Imperial U.S. owns approximately 24% of
Imperial Canada while another C&A subsidiary owns the remainder. As part of the
Imperial Acquisition, substantially all of the assets and liabilities of
Imperial Canada will be transferred with Imperial U.S. to the Company. For
purposes of the selected financial information, Imperial Canada has been
presented as if it was wholly owned. The selected consolidated and combined
financial information of Imperial as of and for the years ended January 27,
1996, December 28, 1996 and December 27, 1997 have been derived from the
consolidated and combined financial statements for Imperial Wallcoverings, Inc.
and Subsidiaries with Affiliate and have been audited by Arthur Andersen LLP,
independent public accountants. The selected historical financial information
for the years ended January 29, 1994 and January 28, 1995 was derived from the
unaudited financial statements of Imperial, which, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such information.
The selected financial data should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Consolidated and Combined Financial Statements of Imperial
and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------
JAN. 29, JAN. 28, JAN. 27, DEC. 28, DEC. 27,
1994 1995 1996 1996(1) 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(52 WEEKS) (52 WEEKS) (52 WEEKS) (48 WEEKS) (52 WEEKS)
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $214.7 $212.8 $197.7 $157.6 $163.8
Cost of goods sold(2).............................. 132.9 135.7 141.1 105.6 109.1
---------- ---------- ---------- ---------- ----------
Gross profit....................................... 81.8 77.1 56.6 52.0 54.7
Selling, general and administrative expenses(3).... 72.3 69.7 67.9 71.5 78.4
Goodwill amortization and write-off(4) 30.5 -- -- -- --
Restructuring charge (5)........................... -- -- 12.9 -- --
---------- ---------- ---------- ---------- ----------
Operating income (loss)............................ (21.0) 7.4 (24.2) (19.5) (23.7)
Other expense (income), net........................ 0.1 (0.6) (0.2) 0.4 (0.7)
Interest expense, net.............................. 3.1 6.5 7.9 5.7 4.6
Loss on sale of receivables(6)..................... -- 1.3 4.3 2.6 --
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes.................. (24.2) 0.2 (36.2) (28.2) (27.6)
Income tax expense (benefit)(7).................... 0.8 1.0 (1.5) (0.3) (0.1)
---------- ---------- ---------- ---------- ----------
Loss before change in accounting principle......... (25.0) (0.8) (34.7) (27.9) (27.5)
Cumulative effect of change in accounting for
designs and engravings(8)........................ -- -- -- -- (9.9)
---------- ---------- ---------- ---------- ----------
Net loss........................................... $(25.0) $ (0.8) $(34.7) $(27.9) $(37.5)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets....................................... $141.7 $116.6 $119.2 $145.3 $144.0
Total debt, including current maturities........... 29.4 102.0 66.8 56.1 32.3
Investments and advances from (to) C&A............. 58.8 (41.2) (17.3) 17.0 41.9
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------
JAN. 29, JAN. 28, JAN. 27, DEC. 28, DEC. 27,
1994 1995 1996 1996(1) 1997
---------- ---------- ---------- ---------- ----------
(52 WEEKS) (52 WEEKS) (52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN):
Operating activities............................... $ 20.9 $ 35.5 $(13.5) $(30.2) $(25.6)
Investing activities............................... (13.1) (16.3) (23.8) (22.8) (8.8)
Financing activities............................... (7.8) (19.3) 37.7 53.4 33.7
OTHER DATA:
EBITDA, as defined(9).............................. $ 15.0 $ 13.3 $ 5.6 $(14.6) $(15.8)
Depreciation and amortization(10).................. 5.6 5.3 5.9 5.3 7.2
Amortization of product development
expenditures(1)(8)............................... 11.8 15.9 13.9 11.6 16.2
Capital expenditures(11)........................... 5.4 5.3 15.5 16.4 8.4
Product development expenditures(12)............... 13.1 19.4 13.8 11.3 22.7
Ratio of earnings to fixed charges (13)............ -- 1.0x -- -- --
</TABLE>
- ------------------
(1) During fiscal 1996, Imperial changed its fiscal year to end on the last
Saturday in December. Fiscal 1996 was a 48-week period which ended on
December 28, 1996. If fiscal 1996 were adjusted to reflect a 52-week period
ended December 28, 1996, net sales would have been $174.9 million and
EBITDA, as defined, would have been negative $13.9 million after adding back
non-recurring and non-cash items of $12.9 million and $10.8 million,
respectively, recorded in the month ended January 27, 1996. Fiscal 1995 was
a 52-week period which ended on January 27, 1996. Prior to fiscal 1996,
Imperial deferred certain costs relating to the assembly of sample books
until the sample books were released, at which time the costs were fully
expensed. During fiscal 1996, Imperial prospectively changed its method of
accounting for sample books and is currently expensing these costs as
incurred. Imperial had $2.7 million of sample book costs capitalized at
January 27, 1996 and no amounts capitalized at December 28, 1996 or December
27, 1997 relating to sample books.
(2) During fiscal 1995, as part of a plan to reengineer its business, Imperial
reevaluated its various product offerings and developed plans to reduce the
number of SKUs in certain distribution channels. In view of these plans and
the then-existing conditions in the wallpaper business, Imperial recorded a
charge of approximately $10.8 million for inventory write-downs. This charge
is included in cost of goods sold in fiscal 1995.
(3) C&A has historically performed certain services for Imperial including tax,
treasury, risk management, employee benefits, legal and other general
corporate services. The cost of the services provided by C&A has been
allocated to Imperial based on a combination of estimated use and the
relative sales of the Imperial business. Corporate costs allocated to
Imperial totaled $1.4 million in fiscal 1993, $1.5 million in fiscal 1994,
$2.7 million in fiscal 1995, $2.5 million in fiscal 1996 and $2.1 million in
fiscal 1997. Management believes that Imperial could have performed the
administrative services set forth above or obtained such services from third
parties at costs comparable to those historically allocated to Imperial by
C&A.
(4) In the third quarter of 1993, C&A determined that the goodwill related to
Imperial was impaired and wrote-off all the remaining balance of $30.5
million.
(5) During the month ended January 27, 1996, Imperial provided $12.9 million for
the cost to exit one manufacturing facility and three distribution centers.
The closings affected approximately 200 employees with severances totaling
$1.4 million. Other costs to close and dispose of idled facilities totaled
$2.8 million. In addition, certain property, plant and equipment was
determined to be impaired as a result of the restructuring and was written
down by $8.7 million.
(Footnotes continued on next page)
38
<PAGE>
(Footnotes continued from previous page)
(6) Under the terms of a receivables sale agreement with Carcorp, Inc.
('Carcorp'), Imperial sold receivables to Carcorp at their face amount less
a defined discount. The discount percentage included a yield factor, factors
for Carcorp's servicing and processing expenses, as well as factors, which
were subject to variation, based upon the collectibility and aging of the
receivables purchased. Imperial Canada was terminated as a seller effective
January 29, 1995, and Imperial Wallcoverings, Inc. was terminated as a
seller on September 21, 1996. In connection with the sale of the receivables
to Carcorp, Imperial recorded losses in fiscal 1994, 1995 and 1996. Imperial
retained the responsibility of servicing the receivables sold to Carcorp,
and was compensated by Carcorp for its servicing activities. Servicing fee
income, which has been included as an offset to selling, general and
administrative expenses was $0.3 million for fiscal 1994, $0.6 million for
fiscal 1995, $0.6 million for fiscal 1996.
(7) Imperial's U.S. operations are included in the consolidated federal income
tax return of C&A; however, federal, state and foreign income taxes have
been provided on a separate return basis.
(8) Prior to fiscal 1997, Imperial deferred costs associated with the design and
development of patterns and engraving used in the printing process. These
costs were amortized over a three-year period representing the approximate
life of the related wallpaper line. Effective December 29, 1996, Imperial
changed its method of accounting for such costs and began expensing them as
incurred. The cumulative effect of the change in accounting for designs and
engravings resulted in $9.9 million of expense for fiscal 1997. There was no
income tax benefit or expense recorded in conjunction with this change.
(9) 'EBITDA' represents earnings before net interest expense, loss on sale of
receivables, income taxes, depreciation and amortization expense,
restructuring charge and non-recurring items. EBITDA, as defined, should not
be considered in isolation or as a substitute for net income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with GAAP or as a measure of profitability or
liquidity. EBITDA, as defined, is included in this Prospectus to provide
additional information with respect to the ability of the Company to satisfy
its debt service, capital expenditure and working capital requirements and
because certain covenants in the Company's borrowing arrangements are tied
to similar measures. While EBITDA, as defined, is frequently used as a
measure of operations and the ability to meet debt service requirements, it
is not necessarily comparable to other similarly titled captions of other
companies due to differences in methods of calculation. The calculation of
EBITDA, as defined, is shown below:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------
JANUARY 29, JANUARY 28, JANUARY 27, DECEMBER 28, DECEMBER 27,
1994 1995 1996 1996(A) 1997
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(52 WEEKS) (52 WEEKS) (52 WEEKS) (48 WEEKS) (52 WEEKS)
Loss before cumulative effect of change in
accounting for designs and engraving....... $ (25.0) $ (0.8) $ (34.7) $(27.9) $(27.5)
Adjustments:
Interest expense (income), net............. 3.1 6.5 7.9 5.7 4.6
Income tax expense (benefit)............... 0.8 1.0 (1.5) (0.3) (0.1)
Depreciation and amortization.............. 5.6 5.3 5.9 5.3 7.2
----------- ----------- ----------- ------------ ------------
(15.5) 12.0 (22.4) (17.2) (15.8)
Loss on sale of receivables................ -- 1.3 4.3 2.6 --
Restructuring charge....................... 12.9
Goodwill amortization and write-off........ 30.5
Non-recurring items........................ 10.8
----------- ----------- ----------- ------------ ------------
EBITDA, as defined........................... $ 15.0 $ 13.3 $ 5.6 $(14.6) $(15.8)
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
</TABLE>
(Footnotes continued on next page)
39
<PAGE>
(Footnotes continued from previous page)
(a) EBITDA, as defined, has not been adjusted for $2.7 million of non-cash
charges included in the 48-week period ended December 28, 1996 as
discussed in note (1). If fiscal 1996 were adjusted to reflect a 52-week
period ended December 28, 1996, net sales would have been $174.9 million
and EBITDA, as defined, would have been negative $13.9 million after
adding back non-recurring and non-cash items of $12.9 million and $10.8
million, respectively, recorded in the month ended January 27, 1996.
(10) Depreciation and amortization does not include amortization of goodwill,
sample books, design or engraving costs.
(11) Capital expenditures does not include expenditures for product development.
(12) Product development expenditures include expenditures related to sample
books, designs and engraving, but exclude expenditures relating to cylinder
bases.
(13) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes plus fixed charges.
Fixed charges include interest expense on all indebtedness, loss on sale of
receivables, amortization of deferred financing costs and one-third of
rental expense representing that portion of rental expense deemed to be
attributable to interest. Earnings were insufficient to cover fixed charges
by $24.2 million in fiscal 1993, $36.2 million in fiscal 1995, $28.2
million in fiscal 1996, $27.6 in fiscal 1997 and $10.3 million for the
three months ended March 28, 1998.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations of each
of IHDG and Imperial covers periods before the consummation of the Initial
Offering and the other Transactions. Accordingly, the discussion and analysis of
such periods does not fully reflect the significant impact the Transactions will
have on the Company. See 'Risk Factors,' 'Unaudited Pro Forma Combined Financial
Information,' '--Liquidity and Capital Resources' and 'Business--North American
Integration Plan' for further discussion relating to the impact of the
Transactions on the Company. The following discussion should be read in
conjunction with 'Selected Historical Financial Information--IHDG,' 'Selected
Historical Financial Information--Imperial' and the financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
The Company is the result of the combination of the residential
wallcoverings and PVC sheeting businesses of IHDG, which were previously
substantially wholly owned by Borden, with the Imperial wallcoverings business
previously owned by C&A. This combination was accomplished through the
Recapitalization and the Imperial Acquisition. The Recapitalization, the
Imperial Acquisition and the payment of related fees and expenses was financed
by: (i) the Equity Contribution by Blackstone; (ii) the initial borrowings under
the Senior Credit Facilities; and (iii) the proceeds from the Initial Offering.
As of March 28, 1998, after giving effect to the Transactions, the Company's
consolidated indebtedness was approximately $329.6 million.
The Company is the world's largest producer and marketer of residential
wallcoverings based on pro forma net sales for fiscal 1996. The Company designs,
manufactures and markets its residential wallcoverings products under various
recognized brand names, including Crown, Sunworthy, Imperial and Albert Van
Luit, as well as under exclusive licensing and distribution agreements with
leading designers and consumer brands such as Ralph Lauren, Lenox, Nautica,
Laura Ashley, Alexander Julian, Eddie Bauer and the NCAA schools.
The Company has adopted its Integration Plan to integrate IHDG and
Imperial, the principal components of which are the rationalization of the
Company's North American manufacturing and distribution facilities and
operations and employee head count reductions through the elimination of
redundancies in selling, customer service and other support operations.
Management estimates that total cost savings from the Integration Plan will be
$28.6 million, net of $10.4 million of incremental cost (as compared to total
pro forma costs for 1997), by 2000, the first year in which the effects of the
cost savings are expected to be fully realized. See 'Business-- North American
Integration Plan.'
In addition to the substantial improvement in the Company's financial
performance expected to result from the Integration Plan, the Company intends to
capitalize upon its position as the world's largest supplier of residential
wallcoverings to enhance its sales and profitability by implementing its
business strategy which consists of the following five components: (i) grow with
leading Chain Stores; (ii) leverage exclusive licensing agreements and
distribution agreements and build in-house brand name recognition; (iii) rebuild
revenue share in the high-end, independent dealer segment in North America; (iv)
pursue add-on acquisitions and strategic joint ventures; and (v) increase share
in growing international markets. The Company's future revenues and
profitability will principally be affected by the Company's ability successfully
to implement its Integration Plan and, more generally, its business strategy.
Historical financial information with respect to IHDG includes its U.K. and
U.S. decorative products operations, Sunworthy and Vernon Plastics. In 1997,
approximately 86.1%, 4.7% and 9.2% of IHDG's net sales were generated from sales
of wallcoverings, heat transfer paper and flexible vinyl film, respectively.
Historical financial information with respect to Imperial includes Imperial
U.S., Imperial Canada and their respective subsidiaries. Substantially all of
Imperial's 1997 net sales were generated from sales of wallcoverings.
41
<PAGE>
RESULTS OF OPERATIONS--IHDG
THREE MONTHS ENDED MARCH 28, 1998 COMPARED TO THREE MONTHS ENDED MARCH 29, 1997
As a result of the Imperial Acquisition on March 13, 1998, IHDG's 1998
first quarter results were impacted by approximately two weeks of Imperial
sales, cost of sales, and other expenses.
Net Sales. Net sales for the quarter ended March 28, 1998 were $95.9
million, of which the Imperial Acquisition accounted for sales of $6.9 million.
Ignoring the acquisition, the $7.0 million (7.3%) decline in sales compared to
the quarter ended March 29, 1997 was due partially to a decline in North
American trade sales of $2.8 million. The decline resulted from Kmart's and
Walmart's decisions to reduce their wallcovering inventories. In addition, trade
sales for the U.K. business declined $3.8 million due mainly to weakness in the
export market where the strength of the pound sterling hurt price
competitiveness. In addition, poor economic conditions in Eastern Europe and
Asia hurt export sales.
Sales of flexible vinyl films and sheeting at Vernon Plastics fell $0.7
million to $12.0 million in the first quarter of 1998. Customer demand shifted
somewhat to lower priced commodity products in the pool liner and industrial
fabrics product lines.
Gross Profit. Gross profit of 34.4% remained relatively static for the
quarter ended March 28, 1998 compared to the same period in 1997. An increase in
North American gross margins resulting from improved gravure production
efficiencies was offset by reduced margins in flexible vinyl films. Gross
margins fell in vinyl films as demand shifted to lower margin products.
Furthermore, raw material increases were not recovered by increased selling
prices.
Selling, general, and administrative expenses. Selling, general, and
administrative expenses were 46.8% of sales in the first quarter of 1998
compared to 27.2% of sales for the same period in 1997. Without the
restructuring charge and transaction fees discussed below, 1998 first quarter
selling, general, and administrative expenses would have been 32.9% of sales.
The increase over 1997 was partially due to compensation expense on stock
options for IHDG's management that became exercisable upon the closing of the
Recapitalization and sales bonuses together totaling $1.1 million. Increased
costs of approximately $0.5 million relating to professional fees and increased
spending on information systems of $0.8 million to consolidate and improve the
Company's computer systems impacted the first quarter of 1998. Finally,
increased pension expense and increased employee costs in sales force and
distribution impacted the first quarter of 1998.
Restructuring. In the first quarter of 1998, the Company recorded a
restructuring charge of $9.3 million in anticipation of the Company's planned
exit of two distribution centers and the finishing and bookmaking operations at
one manufacturing facility. The charge also provided for the restructuring of
the Company's headquarters and sales force. The charge included asset
write-downs of $0.8 million for impaired assets at the impacted distribution
centers and $8.5 million primarily for severance and lease termination costs.
The restructuring affected approximately 320 employees.
Transaction costs. Merger costs totaling $4.0 million were incurred in the
first quarter of 1998. The costs consisted of professional fees and expenses.
Income Tax Expense. Income tax expense for the first quarter of 1998 was
$2.5 million lower than income tax expense for the same period in 1997 due
primarily to the loss before income taxes reported in 1998 compared to income
before income taxes reported in 1997. The reduction in income tax expense
between the two periods is not proportional to the reduction in income before
income taxes primarily because the income tax benefit of the loss on domestic
operations in 1998 was reduced by a valuation allowance.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales. Net sales for the year ended December 31, 1997 increased by
$7.7 million, or 2.1%, to $372.7 million from $365.0 million for the comparable
period in 1996. Trade sales in Europe increased $8.1 million, or 4.5%, to $189.2
million for the year ended December 31, 1997 from $181.1 million in the
comparable period in 1996. This increase was due primarily to a favorable
currency translation of the U.K. operations' sales from pound sterling into U.S.
dollars. In local currency terms, sales in Europe in fiscal 1997
42
<PAGE>
were substantially unchanged from 1996 with a decline in sales in the U.K.
offset by an increase in export sales particularly to Eastern Europe.
Wallcovering trade sales in North America of $134.2 million for the year
ended December 31, 1997 were comparable to sales of $134.4 million for the same
period in 1996.
Net sales of flexible vinyl films and sheeting at Vernon Plastics for the
year ended December 31, 1997 were $49.3 million, which were comparable to sales
of $49.4 million for the same period in 1996.
Gross profit. Gross profit percentage remained static between the years
ended December 31, 1996 and 1997 at 34.9%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased slightly for the year ended December 31, 1997
to $96.6 million from $96.3 million for 1996. As a percent of sales, however,
expenses decreased to 25.9% in 1997 from 26.4% in 1996. This decline resulted
from the closure in 1997 of two distribution centers and the one-time start up
costs incurred in 1996 associated with the establishment of a major account with
Kmart.
Net income. Net income increased $1.6 million, or 7.7%, to $22.4 million
for the year ended December 31, 1997 from $20.8 million for the comparable
period in 1996. This increase was primarily due to the factors discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales. Net sales increased $2.7 million, or 0.7%, to $365.0 million
for 1996 from $362.3 million for 1995. Sales of wallcoverings increased $0.6
million, or 0.2%, to $292.4 million in 1996, from $291.8 million in 1995 due
primarily to increases in export sales of wallcoverings to Eastern Europe,
partially offset by decreases in North American sales and a management
initiative to rationalize low volume and unprofitable accounts. Heat transfer
paper sales for 1996 increased $2.1 million, or 10.0%, to $23.2 million from
$21.1 million in 1995 primarily due to increases in export sales. For both
wallcoverings and heat transfer paper, a price increase in 1996 was partially
offset by unfavorable currency translation of U.K. sales from pound sterling to
U.S. dollars. Net sales of flexible vinyl film and sheeting at Vernon Plastics
of $49.4 million in 1996 was unchanged from 1995.
Gross profit. Gross profit decreased $5.0 million, or 3.8%, to $127.5
million for 1996 from $132.5 million for 1995. As a percentage of net sales,
gross profit declined in 1996 to 34.9% from 36.6% in 1995. In wallcoverings,
these decreases were primarily due to lower sales volumes, reduced factory
throughput and changes in sales mix in North America, partially offset by
increased prices and improved factory efficiencies in the U.K. Gross margins, in
part, were reduced due to increased costs of new products and costs relating to
the acquisition of printing cylinders from a U.K. competitor. Gross margins at
Vernon Plastics declined to 17.6% in 1996 from 17.9% in 1995 primarily due to
increased costs for insurance and unemployment taxes.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $6.8 million, or 6.6%, in 1996 to $96.3
million from $103.1 million in 1995. This decrease was primarily due to a $4.4
million reduction in one-time selling and merchandising costs incurred in 1995
associated with obtaining the Kmart account.
Net income. Net income increased $3.5 million, or 20.2%, to $20.8 million
in 1996 from $17.3 million in 1995 due to the factors discussed above.
RESULTS OF OPERATIONS--IMPERIAL
FISCAL YEAR ENDED DECEMBER 28, 1996 COMPARED TO FISCAL YEAR ENDED JANUARY 27,
1996
As a result of Imperial's decision to change its fiscal year-end from
January to December in fiscal 1996, the fiscal year ended December 28, 1996
('fiscal 1996') was a 48-week period as compared to the fiscal year ended
January 27, 1996 ('fiscal 1995') which was a 52-week period. Therefore,
comparisons of sales and related costs and expenses between the two periods are
impacted by the different lengths of the periods.
43
<PAGE>
Net sales. Net sales for fiscal 1996 were $157.6 million, a 20.3% decrease
from $197.7 million in fiscal 1995. Comparing corresponding 52-week periods
(including January 1996 in both periods), net sales for fiscal 1996 were $174.9
million, a decline of $22.8 million, or 11.5%, from fiscal 1995.
This decline in sales was primarily attributable to residential
wallcovering sales which accounted for over 88% of net sales in both fiscal 1996
and fiscal 1995 (with the remaining 12% representing commercial wallcovering
sales). Comparing 52-week periods, residential sales for fiscal 1996 decreased
$21.6 million from fiscal 1995. The decrease in sales was primarily due to poor
consumer acceptance of product lines and a decline in converter sales of $4.1
million. Sales to converters were negatively impacted by production problems
resulting in delayed shipments and a decline in demand in the converter market.
Partially offsetting these declines was an increase in sales to Chain Stores of
$1.7 million and an increase in international sales due to growth in Europe.
Gross profit. Gross profit for fiscal 1996 was $52.0 million as compared
to $56.6 million in fiscal 1995, an 8.1% decrease. As a percentage of sales,
gross profit increased to 33.0% in 1996 compared to 28.6% in 1995. Excluding a
$10.8 million inventory write-down taken in 1995, however, the gross margin in
1995 would have been 34.1%. This decrease as a percentage of sales, excluding
the inventory adjustment, was primarily attributable to manufacturing absorption
losses due to a decrease in sales volume, partially offset by a reduction of
inefficiencies associated with the implementation of new manufacturing systems.
The inventory write-down was taken in connection with Imperial's restructuring.
At that time, Imperial implemented an inventory tracking method which management
believes tracks obsolete inventory by identifying slow moving inventory by SKU
each quarter.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $71.5 million in 1996 as compared to $67.9 million
in 1995, increasing as a percentage of sales to 45.4% in 1996 from 34.3% in
1995. Distribution expenses were $11.8 million for fiscal 1996 as compared to
$10.4 million for fiscal 1995. This increase was primarily due to operating
multiple distribution centers while consolidating inventories to the new
distribution center in Knoxville, Tennessee. Consolidation to the Knoxville
distribution center began in the second quarter of 1996 and shipping began from
that facility in October 1996. Selling expenses were $36.4 million in fiscal
1996 as compared to $38.4 million in fiscal 1995. This increase from 19.4% to
23.1% as a percentage of sales is due to investments in collections made to
increase and improve product lines. General and administrative expenses were
$23.3 million in fiscal 1996 as compared to $19.1 million in fiscal 1995. This
increase was attributable to increased employee expenses.
In fiscal 1995, Imperial's results included a $12.9 million restructuring
charge for the consolidation of distribution activities and the closure of one
manufacturing facility. This charge included an $8.7 million write-down of
certain assets, $2.8 million of costs to close these facilities and $1.4 million
of costs for severance benefits.
Other income (expense). Other income (expense) fluctuated as a result of
foreign exchange losses of $0.4 million recorded in fiscal 1996 compared to
gains of $0.2 million recorded in fiscal 1995.
Interest income (expense). Interest expense was $7.9 million and $5.7
million in fiscal 1995 and fiscal 1996, respectively, primarily as a result of
C&A's allocated debt to fund Imperial's operating and working capital needs.
Interest expense decreased due to reductions in the average outstanding debt
balance and a shorter fiscal year in 1996.
Loss on sale of receivables. Beginning in 1994, Imperial sold all of its
U.S. receivables to Carcorp, Inc. under the terms of a receivables sales
agreement. In connection with the sale of the receivables, Imperial recorded
losses of $4.3 million and $2.6 million in fiscal 1995 and fiscal 1996,
respectively. This decrease resulted from a shorter fiscal year in 1996 and an
overall decrease in the accounts receivables sold under the facility due to a
decrease in sales.
Net income (loss). Net loss was $34.7 million for the period ending
December 28, 1996 compared to $27.9 million for fiscal 1995 due primarily to the
factors mentioned above.
44
<PAGE>
CAPITAL EXPENDITURES AND PRODUCT DEVELOPMENT EXPENDITURES
IHDG. Capital expenditures for the year ended December 31, 1997 were $20.8
million. Significant capital expenditures in 1997 included $2.1 million for a
vinyl base coating line which increases capacity and reduces production costs in
the U.K., $2.3 million to increase capacity at the flexible vinyl film plant in
Haverhill, Massachusetts and to expand Vernon Plastics's product base and $1.3
million to complete two new gravure lines in the U.K. Capital expenditures in
1996 were $21.2 million compared to $6.4 million in 1995. Significant capital
expenditures in 1996 included $11.7 million to install two new gravure lines at
the facility in Morecambe, U.K., which has provided additional capacity of
approximately ten million bolts per year. Expenditures for sample books and
design, engraving and cylinder costs totaled $16.7 million and $20.5 million for
the year ended December 31, 1997 and the years 1996 and 1995, respectively.
Imperial. Imperial's capital expenditures for the year ended December 27,
1997 were $8.4 million. Approximately $1.3 million in the 1997 period was
attributable to the Knoxville distribution facility. In the 1997 period, $22.7
million was expensed as cost of goods sold and selling expenses for sample books
and design and engraving costs. Imperial's capital expenditures for property,
plant and equipment were $16.4 million in fiscal 1996 as compared to $15.5
million in fiscal 1995. Approximately $14.0 million and $7.9 million in fiscal
1996 and fiscal 1995, respectively, were associated with Imperial's Knoxville
distribution facility. Additional spending included $1.5 million in fiscal 1995
for improvements to finishing machinery. Expenditures for sample books and
design and engraving costs were $11.3 million and $13.8 million in fiscal 1996
and 1995, respectively.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity requirements are for debt service under the
Senior Credit Facilities and the Notes, and for working capital, product
development (sample books and design and engraving) and other capital
expenditures. IHDG historically funded these requirements through internally
generated cash flow. Imperial historically funded these requirements through
borrowings under its credit facilities and advances from C&A. At March 28, 1998,
the Company's consolidated indebtedness was $329.6 million, consisting of $198.0
million in Term Loans, $6.6 million under the Revolving Credit Facility and
$125.0 million of the Old Notes. To provide additional financing to fund the
Recapitalization and the Imperial Acquisition, Blackstone contributed $84.6
million to the Company through the Equity Contribution.
The Company's outlook for total capital expenditures for 1998 and 1999 of
approximately $35.0 million and $44.0 million, respectively. In 1998, the
Company anticipates capital expenditures of (i) approximately $20.0 million in
North America, substantially all of which is related to implementation of the
Integration Plan, (ii) approximately $12.7 million in the U.K., approximately
$6.5 million of which will be used to upgrade the Company's U.K. facilities in
order to comply with new Environmental Laws, and (iii) approximately $2.3
million relating to Vernon Plastics and the commercial wallcovering operations.
In 1999, the Company anticipates capital expenditures of (i) approximately $20.8
million in North America, substantially all of which is related to
implementation of the Integration Plan, (ii) approximately $20.7 million in the
U.K., and (iii) approximately $2.5 million relating to Vernon Plastics and the
commercial wallcovering operations. Management estimates that upon completion of
the Company's integration of IHDG and Imperial in North America, the annual
capital expenditures required to maintain the Company's facilities will be
between $7.0 million and $10.0 million per year. The Company's ability to make
capital expenditures is subject to certain restrictions under the Senior Credit
Facilities. See 'Description of the Senior Credit Facilities.'
In addition, the Company expects to incur approximately $23.2 million of
non-recurring cash costs to integrate the North American operations of IHDG and
Imperial. Of this amount, $12.4 million related to Imperial and has been accrued
under purchase accounting, and $8.5 million was incurred in the first quarter of
1998 as a restructuring charge. Included in the $8.5 million restructuring
charge was a charge of $5.9 million for employee severance, retention and
relocation and $2.0 million for lease termination costs. The remainder of the
$23.2 million, or $2.3 million, will be expensed as incurred or capitalized as
appropriate.
The Company's principal source of cash to fund its liquidity needs will be
net cash from operating activities and borrowings under the Revolving Credit
Facility and the Deferred Draw Term Loan. As of March 28, 1998, after giving
effect to the Transactions, the Revolving Credit Facility and the Deferred Draw
Term Loan would have provided $94.6 million of additional borrowings available
to be drawn, subject to the satisfaction of
45
<PAGE>
customary conditions. Amounts available under the Revolving Credit Facility and
the Deferred Draw Term Loan may be used for working capital and general
corporate purposes, subject to certain limitations under the Senior Credit
Facilities. Assuming the successful implementation of its Integration Plan, the
Company believes that these funds will be sufficient to meet its current and
future financial obligations, including the payment of principal and interest on
the Notes, working capital, capital expenditures and other obligations. No
assurance can be given, however, that this will be the case. The Company's
future operating performance and ability to service or refinance the Notes and
to repay, extend or refinance the Senior Credit Facilities will be subject to
future economic conditions and to financial, business and other factors, many of
which are beyond the Company's control. See 'Risk Factors.'
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently issued two new
accounting standards, Statement No. 131, 'Disclosures About Segments of an
Enterprise and Related Information,' Statement No. 132, 'Employees' Disclosures
about Pensions and Other Postretirement Benefits,' Statement No. 133 'Accounting
for Derivative Instruments and Hedging Activities,' and SOP98-1 'Accounting for
the Costs of Computer Software Developed for or Obtained for Internal-Use.'
These statements will affect the disclosure requirements for the 1998 reporting
period. The Company is currently evaluating the effect of these new statements.
INFLATION
The Company does not believe that inflation has had a material affect on
past results of operations of either IHDG or Imperial.
YEAR 2000 COMPLIANCE
The Company utilizes a significant number of computer software programs and
operating systems, including applications in product design, manufacturing,
financial and various administrative functions. The Company is in the process of
performing a study of its software systems, including both internally developed
systems and software programs purchased from outside vendors, and preliminary
results have indicated that these systems are substantially year 2000 compliant.
Management anticipates that any support systems which are not currently year
2000 compliant will be modified by the end of 1998. The ability of third parties
with whom the Company transacts business to adequately address their year 2000
issues is outside the Company's control. There can be no assurance that the
failure of such third parties to adequately address their year 2000 issues would
not have a material adverse effect on the Company.
46
<PAGE>
BUSINESS
Unless reference is made specifically to IHDG or Imperial, the discussions
in this section refer to the Company on a pro forma combined basis, after giving
effect to the Transactions.
COMPANY OVERVIEW
The Company believes it is the world's largest producer and marketer of
residential wallcoverings based on pro forma net sales for fiscal 1996. The
Company is the result of the combination of the residential wallcoverings and
PVC sheeting businesses of IHDG, which were previously substantially wholly
owned by Borden, with the Imperial wallcoverings business previously owned by
C&A. On a pro forma basis for 1996, the Company estimates it would have had a
38.1% and 19.3% share of manufacturer sales of residential wallcoverings in
North America and the U.K., respectively. The Company's estimated 31.9% share of
the combined 1996 North American and U.K. residential wallcoverings sales is
believed to be over three times the level of sales of the next largest
residential wallcoverings manufacturer in North America and the U.K. The Company
designs, manufactures and markets its residential wallcoverings products under
various recognized brand names, including Crown, Sunworthy, Imperial and Albert
Van Luit, as well as under exclusive licensing and distribution agreements with
leading designers and consumer brands such as Ralph Lauren, Lenox, Nautica,
Laura Ashley, Alexander Julian, Eddie Bauer and the NCAA schools. Due to the
differences in market conditions and competitive factors in North America and
Europe, the Company operates its residential wallcoverings business as two
separate geographic divisions, North America and Europe, each of which will
coordinate its manufacturing, sales, marketing and distribution activities.
Vernon Plastics is a leading manufacturer of calendered, flexible PVC sheeting,
printed sheeting and laminated products that operates as a separate line of
business distinct from the Company's residential wallcoverings business. On a
pro forma basis, for the year ended December 31, 1997, the Company had net sales
of $536.5 million and EBITDA, as defined, of $32.6 million. On a pro forma basis
for the year ended December 31, 1997, the Company's total sales in North America
and Europe represented approximately 67.3% and 29.3% of the Company's total
sales, respectively. The Company's operations outside North America have
recently contributed substantially all the Company's total consolidated pro
forma EBITDA, as defined.
Residential wallcoverings are decorative products produced from paper,
fabric, vinyl and other substrates that are printed, embossed and laminated and
are applied to walls using specially designed adhesives applied to the back of
the wallcovering during the manufacturing process. Residential wallcoverings are
of two types, sidewalls and borders. Sidewalls are produced in broad sheets and
are designed to cover the entire wall. Borders are produced in narrower sheets
and are intended to be applied to the top of the wall or above the wall molding
as a complement to the painted or sidewall covered surface. Residential
wallcoverings compete with paint products for a 'share of the wall' in the
residential decorating market.
COMPETITIVE STRENGTHS
Leading Market Position. In 1996, on a pro-forma basis, the Company
generated over three times the revenue of the next largest residential
wallcoverings manufacturer in North America and the U.K. and held a 38.1% share
of manufacturer sales in North America and 19.3% in the U.K. Based on 1996 pro
forma net sales, IHDG and Imperial were the first and second leading
manufacturers of residential wallcoverings in North America, with approximately
19.1% and 19.0% shares, respectively, of the manufacturer revenues in North
America and IHDG was the leading manufacturer of residential wallcoverings in
the U.K., with approximately 19.1% of the U.K. manufacturer revenues. The
Company serves all segments of the residential wallcoverings industry and has
one of the most comprehensive product offerings in the industry. The Company's
wallcovering products include both sidewalls and borders, and are manufactured
using a variety of substrates including paper, fabric and vinyl. The Company
currently maintains approximately 45,000 active SKUs. Management believes that
the Company's ability to supply this full product line is a particular advantage
because many retailers are consolidating their suppliers. The Company's in-house
brands, including Crown, Sunworthy, Imperial and Albert Van Luit, are among the
leading names in the residential wallcoverings industry. Management believes
that consumers associate the Company's brands with superior design, quality and
service.
47
<PAGE>
Exclusive Licensing and Distribution Agreements with Leading Brands. As
the worldwide revenue share leader in the residential wallcoverings industry,
the Company believes it is uniquely suited to leverage the substantial marketing
power of leading fashion designers and 'name' brands and has secured exclusive
long-term licensing and distribution agreements for wallcovering products in
North America with several of these, including Ralph Lauren, Lenox, Nautica,
Laura Ashley, Alexander Julian, Eddie Bauer and the NCAA schools. The majority
of these licensing agreements have been entered into or renewed during 1997 and
typically have a term of not less than two years. The Company also has
relationships with several leading home textiles producers, such as Fieldcrest
Cannon, Croscill, J.P. Stevens, Crown Crafts and West Point, which enable it to
provide pattern and color schemes that are coordinated with the bedding and
window treatments offered by these producers.
Strong Relationships with Leading Chain Stores. The Company has
particularly strong relationships with Chain Stores in North America and the
U.K. Management believes that these Chain Stores have captured, and are expected
to continue to capture, sales from both smaller Chain Stores and the
lower-priced and middle-priced segments of the independent dealer channel. The
Company has enjoyed long-standing relationships of more than ten years with each
of its top ten Chain Store customers, which together generated approximately
25.8% of its residential wallcoverings sales in North America and Europe in
1997. In the home center channel, the Company is the leading supplier to the
three largest U.S. home center chains, The Home Depot, Lowes and Menards, and is
the first or second leading supplier to each of the five largest chains in the
U.K. The Company is the sole residential wallcoverings supplier to Kmart and the
leading supplier to Wal-Mart and Target. The Company is also the leading
supplier of residential wallcoverings to Sherwin-Williams, the largest specialty
paint and wallpaper chain in the U.S. The Company believes that it is uniquely
suited to attract and retain these large and fast growing retail customers due
to its (i) highly efficient, modern production and distribution facilities, (ii)
strong portfolio of in-house and licensed brands, (iii) willingness to invest in
co-op advertising, in-store fixtures and category management initiatives, and
(iv) ability to achieve consistently high service levels for in-stock
merchandise.
Low Cost, Technologically Advanced Manufacturer. The Company believes that
it is the highest-volume manufacturer of residential wallcoverings in the world,
which, combined with its fully integrated operation across design, manufacturing
and distribution functions, enables it to capitalize upon economies of scale in
purchasing, manufacturing and distribution. The Company also believes that its
key technological and manufacturing process advances in rapid manufacturing line
changeover, batchless production, 'in-register' embossing and CAD/CAM technology
have contributed to its low-cost position and enhanced its ability to produce a
broad range of SKUs cost efficiently. As a result of its high production
efficiencies and technological leadership, management believes that the Company
is one of the lowest-cost producers of residential wallcoverings in North
America and Europe. Management expects that the implementation of the
Integration Plan, which entails the closure of two of the Company's four North
American printing plants and consolidation of 11 U.S. distribution and finishing
operations into the Company's state-of-the-art Knoxville, Tennessee facility,
will further enhance the Company's low-cost position by maximizing utilization
of the Company's most modern, efficient assets and facilitating substantial head
count reductions. See '--North American Integration Plan.'
Significant Investment in Manufacturing and Distribution
Assets. Management believes that the Company's recent significant investments
in modernizing its manufacturing equipment and distribution facilities provide
it with a competitive advantage. From 1995 through 1997, the Company has
invested approximately $90.0 million primarily to improve the efficiency of its
existing operations, including: (i) a $14.0 million investment by IHDG in two
new high-speed gravure print lines and associated finishing equipment at its
facility in Morecambe, U.K., which are achieving productivity levels
significantly greater than that of the prior generation of printing technology;
(ii) a $6.4 million investment by IHDG in batchless production, 'in-register'
embossing and CAD/CAM technology in the U.K., which has contributed to its
low-cost position and enhanced its ability to produce a broad range of SKUs cost
efficiently; (iii) a $23.3 million investment by Imperial in a state-of-the-art
finishing and distribution facility in Knoxville, Tennessee, which is expected
to reduce annual distribution expense; and (iv) a $9.0 million investment by
Imperial in printing equipment, in-line finishing, CAD/CAM technology and
information systems at the Sherbrooke, Canada manufacturing facility, which is
expected to improve manufacturing gross profit. Management anticipates achieving
higher operating margins in
48
<PAGE>
future years as it achieves full utilization of these modern, highly efficient
assets by absorbing the capacity of redundant and less efficient facilities.
Experienced Management Team. The Company has a senior management team with
a wide range of experience in the residential wallcoverings and related
industries. The Company's President and Chief Executive Officer, James P.
Toohey, had 32 years of experience in a primarily marketing oriented
business--Hallmark Cards, where he was most recently President of Hallmark
International--prior to joining Imperial in October 1996 and becoming an
employee of the Company as of March 13, 1998. The Company also benefits from the
industry expertise of its President--North American Marketing, Michael Landau,
who has 28 years of experience in the wallcovering industry, most recently as
President of F. Schumacher & Co. Wallcoverings, a position he held from 1990 to
1997. During his tenure as President at F. Schumacher & Co., revenues grew from
approximately $10.0 million to over $100.0 million. The remainder of the senior
management team has been drawn from the management of both Imperial and IHDG and
from outside the Company. The Company's senior managers will be awarded options
or other equity rights, subject to certain performance-based and other vesting
provisions. See 'The Transactions,' 'Management,' 'Executive Compensation' and
'Security Ownership.'
Product Innovation. The Company has developed a new self-adhesive border
product, 'Stick 'n Play' in cooperation with 3M, which is currently being
test-marketed in anticipation of its planned introduction in the Fall of 1998.
Other product innovations introduced by the Company include 'Sculptured Edge'
and 'Outlines' borders that have one edge die-cut to follow the printed design,
thus producing an effect with enhanced visual appeal. Self-adhesive and
special-cut wallcoverings command higher sales prices and better margins and
appeal to a segment of consumers that might not otherwise consider purchasing
wallcoverings.
NORTH AMERICAN INTEGRATION PLAN
Cost-Savings Measures. The Company has adopted a plan to integrate IHDG
and Imperial in North America (the 'Integration Plan'), the principal components
of which are: (i) closing Imperial's inefficient, limited capacity paper making
and coating facilities in Plattsburgh, New York in favor of leveraging the
combined Company's ability to purchase substrate at a lower cost than either
Imperial's present manufacturing cost level or IHDG's outside purchase cost
level; (ii) rationalizing the Company's printing facilities by consolidating
four presently five-day per week, non-continuous printing plants into two
seven-day continuous operations; (iii) rationalizing the Company's finishing
function by consolidating all finishing activities from the four printing
facilities at which they are presently located to the Company's state-of-the-art
finishing and distribution facility in Knoxville, Tennessee; (iv) rationalizing
the Company's distribution network by consolidating seven existing distribution
warehouses into the Knoxville facility; and (v) substantial employee head count
reductions in North America through the elimination of redundancies in selling,
customer service and other support operations.
Management estimates head count reduction and fixed cost savings from the
Integration Plan to be $28.6 million, net of $10.4 million of incremental
overhead costs (as compared to estimated total pro forma costs for 1997),
comprised of the following components:
<TABLE>
<CAPTION>
INTEGRATION PLAN COMPONENT
- ------------------------------------------------------------------------------------ COST SAVINGS
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Rationalization of printing facilities.............................................. $ 3.3
Rationalization of finishing facilities(1).......................................... 4.6
Paper making facility closing....................................................... 3.2
Rationalization of distribution facilities(2)....................................... 5.1
Elimination of selling, customer service and support redundancies................... 12.4
------
Total.......................................................................... $28.6
------
------
</TABLE>
- ------------------
(1) The amount shown is net of $2.5 million of estimated incremental costs
relating to the rationalization of finishing facilities.
(2) The amount shown is net of $7.9 million of estimated incremental costs
relating to the rationalization of distribution facilities.
49
<PAGE>
The Company's head count reduction plan is as follows:
<TABLE>
<CAPTION>
HEAD COUNT
AT THE EXPECTED
ACQUISITION DATE HEAD COUNT
---------------- ----------
<S> <C> <C>
Printing facilities...................................................... 629 475
Finishing facilities..................................................... 276 201
Substrate/paper making facility.......................................... 115 33
Distribution facilities.................................................. 280 220
Selling, customer service and support operations......................... 541 355
------ ----------
Total............................................................... 1,841 1,284
------ ----------
------ ----------
</TABLE>
The foregoing actions will each be commenced in the current year and are
expected to be substantially completed by the end of 1999. Accordingly, 2000 is
the first year in which their effects are expected to be fully realized. The
total head count and fixed cost savings estimates of the Integration Plan in
1998 and 1999 are presently estimated at $5.0 million and $18.0 million,
respectively. The head count reduction and fixed cost savings estimates do not
give effect to margin improvements expected to result from implementation of the
Integration Plan and new capital budgeted for investment at the rationalized
facilities, as well as the planned revenue improvements expected to result from
the Company's planned product development and remerchandising plan described in
'--Business Strategy.' While there necessarily can be no assurance that any
particular level of cost savings will be achieved (see 'Forward-Looking
Statements' and 'Risk Factors-- Integration of Imperial, Implementation of
Business Strategy and Limited Relevance of Historical Financial Information'),
management believes that the parallel structure of Imperial and IHDG's Sunworthy
operations in North America and their substantial recent capital investments in
modern production and distribution assets, which management believes were
underutilized prior to the Transactions, will facilitate the achievement of
these cost savings.
Budgeted Capital Expenditures and Rationalization Expenses. Management has
adopted a North American capital budget of approximately $40.0 million in the
aggregate for 1998 and 1999, substantially all of which relates to the
implementation of the Integration Plan. The Integration Plan will not require
any material capital expenditures in the U.K. In addition, management estimates
that it will incur one-time severance and other cash expenditures of
approximately $23.2 million during 1998 and 1999 relating to the head count
reduction, facility consolidation and other components of the Integration Plan.
Additional Gross Margin Effects. In addition to the head count reduction
and fixed cost savings expected to be achieved through the rationalization of
facilities and operations as described above, the rationalization of the
manufacturing asset base coupled with significant recent and planned capital
expenditures at the facilities are intended to drive North American gross
margins from 47% in 1997 to approximately 59% by 2001. If successfully
implemented, this would create an additional $17.0 million of gross profit
(based on the Company's pro forma fiscal 1997 net sales) in addition to the
$28.6 million of head count reduction and fixed cost savings.
o Printing: The Company's objective for its printing operations is to
improve cost effectiveness by consolidating its printing facilities and
closing redundant operations, investing in state-of-the-art, high-speed
printing presses, relocating its finishing operations to Knoxville,
focusing the plants on printing only, and enhancing its position as a
technology leader in the manufacture of wallcoverings. As discussed in
'--Cost-Savings Measures' above, the Company plans to reduce its four
printing facilities which are non-continuous, five day per week
operations into two printing facilities which are run on a continuous,
around the clock basis. This is expected to produce annual fixed cost
savings of $3.3 million and to decrease head count from 629 to 475 upon
implementation. In addition, the Company plans to add state-of-the-art
gravure color printing equipment, designed specifically to facilitate
quick changeover times, high run speeds and lower scrap rates to replace
obsolete equipment at its Brampton and Sherbrooke printing facilities.
The Company presently has 24 gravure printing presses which are largely
antiquated with an average run speed of 239 feet per minute, an average
changeover time of 85 minutes and an average scrap rate of 16.1%. This
asset base will be replaced by the end of the Integration Plan by 14
gravure printing presses (two new and 12 modernized) with an average run
speed of 472 feet per minute, an average change over time of 49 minutes
and an average scrap rate of 9.5%, at a budgeted capital cost
50
<PAGE>
of $19.0 million in 1998 and 1999. The goal of this element of the
Integration Plan is to reduce the variable unit cost of printing, which
is the largest cost component in the Company's production chain, from
21.5 cents per yard produced to 16.5 cents by 2001, resulting by that
year in $8.7 million of annual profit improvement (based on the Company's
pro forma 1997 net sales) in addition to the $3.3 million of cost savings
discussed above.
o Finishing: The Integration Plan for the Company's finishing function
entails the removal of finishing and converting activities from its four
existing printing facilities and consolidating the entire function in a
stand-alone facility in Knoxville, Tennessee, the relocation of modern
and efficient equipment to that site and the purchase of new equipment to
complement the single finishing facility structure. Historically,
finishing and converting have been associated with individual printing
locations and equipment has been specified to meet demands placed on the
individual plants, leading to a higher number of low speed lines with
limited capability for cost reduction running on five day operating
cycles. As discussed in '--Cost-Savings Measures' above, the fixed cost
savings from the facility closures are expected to be $4.6 million and
the head count is expected to decline from 276 to 201 by 2000.
In addition to these cost-saving measures, the Company plans to purchase
three new high-speed finishing lines and relocate five existing finishing
lines from the Company's four existing facilities to its Knoxville
facility. This will effectively decouple printing from finishing in North
America and is designed to permit the Company to better optimize the
trade-off between printing run length and inventory carrying cost by (i)
utilizing the shorter time and lower costs associated with changeovers on
the automated, stand-alone finishing lines relative to printing lines to
insulate the printing lines from short run fluctuations in the market
demand, thereby permitting efficient, leveled printing production
scheduling and (ii) shifting the reserve stock function upstream to the
unfinished printed reels instead of finished goods to lower inventory
carrying costs. The Company plans $7.0 million of capital expenditures
during 1998 and 1999 on the finishing operations to effectuate the
consolidation plan and purchase of new equipment, with the objective of
reducing the cost per yard produced for finishing from 11.5 cents to 6.5
cents by 2000, producing by that year $7.4 million of annual profit
improvement (based on 1997 pro forma net sales) in addition to the $4.6
million of cost savings discussed above.
o Substrate/Paper Making: As discussed in '--Cost-Savings Measures' above,
the Company's Integration Plan contemplates that Imperial's papermaking
facility in Plattsburgh will be closed in the second quarter of 1998 and
that the Company will use its critical mass to source all its substrate
requirements from outside vendors. Third-party substrate sourcing is
expected to be more cost-effective than Imperial's historically
integrated costs (due to its high-cost and antiquated facilities) as well
as IHDG's historical outside sourcing (due to the larger purchasing scale
of the Company), and the fixed costs alone attributable to Imperial's
Plattsburgh papermaking facility were $3.2 million in 1997 and the head
count is expected to be reduced from 115 to 33. The Company intends to
implement a new vinyl coating capacity which will utilize 33 employees at
one of the Company's remaining printing facilities. The substrate
sourcing aspect of the Integration Plan includes approximately $3.5
million of capital investment in new vinyl coating capacity during 1998
and 1999, which if combined with the above-discussed rationalization
benefits, is designed to reduce the unit cost per yard produced from 15.5
cents in 1997 to 14.0 cents by 2000, resulting in $0.8 million of annual
profit improvement by 2000 in addition to the $3.2 million of cost
savings discussed above.
o Distribution: The Company's Integration Plan entails the consolidation
of its seven distribution facilities into its Knoxville facility. From
1995 to 1997, Imperial spent approximately $23.3 million of capital on
this state-of-the-art facility, which is expected to replace all existing
warehouses by 1999. The Knoxville distribution facility was built to
accommodate large incremental volume at low additional cost due to its
modular setup and therefore is expected to be able to process the
Company's distribution function at significantly lower cost than separate
regional warehousing systems. As discussed in '--Cost-Savings Measures'
above, the fixed cost savings are estimated at $5.1 million by 2000 and
the head count is expected to be reduced from 280 to 220. It is expected
that the Company will spend $7.0 million of additional capital in 1998
and 1999 to consolidate and expand its distribution facilities at
Knoxville, which the Company believes will further enhance its
productivity and contribute to additional margin improvement in the
future.
51
<PAGE>
o Rationalization of Sales Force, Customer Service and Other Support
Functions. The Company's Integration Plan contemplates the
rationalization of the sales forces from IHDG and Imperial, which have
significant overlaps in North America. At the end of 1997, the Company
had a head count in this area of 158 and a total sales force expense of
$14.9 million. It is expected that the sales force head count will be
reduced to 99 by 1999, which will result in annual cost savings of $4.4
million.
The Integration Plan also contemplates the consolidation of IHDG's and
Imperial's customer service and credit functions, which directly overlap
in North America. In 1997, the Company had a head count of 200 in this
area and total expense of $8.4 million for these functions. It is
expected that the head count will be reduced to 131 by 1999, which would
result in annual cost savings of $2.9 million.
The remaining overhead functions of the Company include information
systems, finance/treasury, research and development, human resources,
audit and other corporate functions. The total head count and expense of
these functions in 1997 were 183 and $24.1 million, respectively. As with
the other support functions, there is significant overlap between the two
companies in each of these areas. It is expected that the head count will
be reduced from 183 to 125 by 1999, which would result in annual cost
savings of $5.1 million.
BUSINESS STRATEGY
In addition to improvements in the Company's financial performance expected
to result from head count reductions and fixed cost savings associated with the
Integration Plan, the Company intends to capitalize upon its position as the
world's largest supplier of residential wallcoverings to enhance its sales and
profitability by implementing a growth strategy comprised of the following five
components:
Grow with Leading Chain Stores. The Company intends to maintain and expand
its position as the leading supplier to large, fast-growing Chain Stores in the
U.S. and U.K., especially home centers, and grow along with them as they
continue to roll out new stores and capture sales from both smaller Chain Stores
and the lower-priced and middle-priced segments of the independent dealer
channel. The Company's exclusive licensing and distribution agreements with
well-recognized name brands, ability to consistently achieve high service levels
for in-stock merchandise and willingness to invest in co-op advertising,
in-store fixtures and category management initiatives, such as the in-store
gallery concept, are central components of this strategic initiative. The
Company's gallery concept is designed to showcase a selection of both collection
books and in-stock residential wallcoverings products organized by color and
pattern style using a dedicated space within the store to facilitate display,
stocking and consumer selection. The Company is testing the concept at
Sherwin-Williams and plans to initiate a rollout at selected Chain Stores later
this year. In Western Europe, where the Company's sales to the large Chain
Stores have historically been restricted to those with central warehousing, the
Company plans to develop local sales and distribution networks to serve Chain
Stores that require store-by-store service.
Leverage Exclusive Licensing and Distribution Agreements and Build In-House
Brand Recognition. The Company intends to: (i) continue to leverage its
existing licensing and distribution agreements with Ralph Lauren, Lenox,
Nautica, Laura Ashley, Alexander Julian, Eddie Bauer and the NCAA schools to
provide clear design direction, increase the Company's share of retail shelf
space and exploit joint merchandising and promotional opportunities, thereby
maximizing sales per collection; (ii) rationalize its in-house product offering
to reduce the amount of duplicate SKUs between the Imperial and Sunworthy
brands; and (iii) increase advertising dollars from $3.2 million in 1997 to $6.3
million in 1998 and focus expenditures on the Imperial brand to develop consumer
recognition and differentiate the product. Management expects that the rollout
of existing licenses and continued addition of new licensed brands will provide
a platform for sustainable, long-term growth and increase licensed products'
share of the Company's residential wallcoverings sales.
Rebuild Sales in the High-End, Independent Dealer Segment in North
America. Management believes that the substantial size, premium prices and
highly fragmented nature of the manufacturer base serving the high-end
residential wallcoverings market in the independent dealer channel make it a
structurally attractive segment. The Company's gross margin on its Albert Van
Luit product line in this segment was approximately 76% in 1997 versus the less
than 50% average for its overall North American residential sales. Management
also believes that the Company's highly efficient distribution facility and
network, ability to manufacture short runs of custom SKUs cost effectively and
brand recognition provide it with a competitive advantage in recapturing a
leading
52
<PAGE>
position in this segment after having reduced its presence in the early 1990's
as part of a cost cutting program. The Company's high-end strategy will consist
of the following initiatives: (i) build on its well recognized Albert Van Luit,
Sterling and Katzenbach & Warren brands by increasing the number of active
high-end collections from 23 to 72 over the next four years and improving the
quality of product introduced under these names; (ii) develop a design studio
presence in New York; (iii) build a regional network of sales agents to service
the designer/dealer community; and (iv) selectively pursue add-on acquisitions
of, and/or strategic joint ventures with, competing high end brands.
Pursue Add-on Acquisitions and Strategic Joint Ventures. The Company
intends to pursue selected add-on acquisitions of, and/or strategic joint
ventures with, small, niche manufacturers' important product lines and retail
accounts that will increase utilization of its existing manufacturing and
distribution assets. The ongoing consolidation of fragmented North American and
European wallcoverings markets should provide multiple acquisition
opportunities, especially in the high-end product segment.
Increase Share in Growing International Markets. The Company plans to
expand its 32 member export sales team and leverage established contracts with
key distributors in order to continue to increase its sales in the high growth
markets of Eastern Europe, to which the Company's sales have increased from
approximately $2.6 million in 1993 to $51.0 million in 1997. The Company expects
to establish a strong consumer brand position as these markets mature and
develop more sophisticated retail environments. Management believes that as the
major U.S. home improvement chains expand internationally, there will be a
growing need for high-quality, dependable suppliers such as the Company to
establish a direct presence overseas in areas not already fully served by the
European division of the Company.
INDUSTRY OVERVIEW
Overview. Management estimates that approximately $3.9 billion of
wallcoverings were sold worldwide in 1996, approximately $2.7 billion of which
were sold in North America and Europe. Of the total value of wallcoverings sold
in these two regions, residential products accounted for approximately $2.0
billion, 74% of the total, and product designed for usage in commercial
applications such as office buildings and hotels accounted for the remaining
$0.7 billion. Substantially all of the Company's wallcoverings sales are
concentrated in the residential markets of North America and Europe.
The residential wallcoverings industry worldwide is highly fragmented and
consists mainly of local manufacturers. It is common practice for wallcoverings
industry participants to sub-contract various steps in the supply chain to other
industry participants. Multiple retail distribution channels exist for
residential wallcoverings, including mass merchants, home centers, specialty
chains and independent dealers. Independent dealers generally carry limited
in-stock merchandise, but do maintain a large number of 'collection' books
published by wallcoverings manufacturers that each contain approximately 100
different wallcoverings color and pattern combinations. Because of their limited
selection of product available for immediate purchase at the point of sale,
these dealers depend on manufacturers to quickly fulfill orders made from their
collection books, delivering directly to the dealer or customer. Consumers
purchasing high-end residential wallcoverings generally rely upon interior
decorators and designers to help customers select wallcoverings and fabric from
the dealers' collection books. Mass merchandisers, such as Kmart and Target
generally carry only in-stock merchandise and focus on a limited number of
high-volume SKUs. Home centers, such as The Home Depot and Menards, and
specialty chains, such as Sherwin-Williams and Wallpapers to Go, generally carry
both in-stock merchandise and collection books. The relative importance of these
retail distribution channels varies by country.
The manufacturing and marketing of residential wallcoverings is a mature
industry in North America and Western Europe. Usage of residential wallcoverings
is predominantly influenced by expenditures on home renovations, the economy in
general, existing home sales and the redecoration requirements of existing
homeowners, and, to a lesser extent, with new home sales. Consumer decisions on
which wallcoverings product to use are largely a function of color and design,
followed by price. Manufacturers attempt to stimulate demand by offering new
styles and colors and marketing these to the trade through exhibitions and
directly to consumers through advertisements primarily in women's and home
decorating magazines.
Wallcoverings compete primarily with paint for a 'share of the wall' in the
residential decorating market. Although growth in paint sales has exceeded that
of wallcoverings in recent years, due in part to consumer
53
<PAGE>
perception that paint is more durable and easier to apply, wallcoverings offer
consumers a greater range of fashion and personalization than paint at a
comparable installed price, and continues to achieve modest sales growth. In
addition, improved self-adhesive wallcoverings are being introduced to better
compete with paint's perceived advantage in ease of application and to spur
growth in wallcoverings sales.
Management believes that wallcoverings have generally been a poorly
marketed and merchandised product, due in part to the high level of
fragmentation among wallpaper manufacturers and dealers, which has resulted in a
proliferation of weak brands, limited marketing support and lack of product
innovation. The Company believes that the industry trends toward manufacturer
and distribution channel consolidation, combined with increasing affiliation
with well-recognized designer brand names should have a favorable impact on
these historical marketing and merchandising weaknesses and stimulate industry
growth in the future.
North America. In the United States, manufacturer sales of residential
wallcoverings experienced 3.0% compound annual growth over the ten year period
from 1986 to 1996, from $510.0 million to $687.0 million, and 2.9% compound
annual growth over the five year period from 1991 to 1996, from $595.0 million
to $687.0 million, according to data compiled by Sullivan Marketing Group.
Compound annual growth in unit volume over these periods has been relatively
flat at 1.2% and 0.5%, respectively, with the majority of the growth in revenues
coming from increases in the average manufacturer selling price due to changing
product mix in favor of higher margin borders (see 'Industry Trends--Growth of
Borders'). Including the estimated $83.0 million Canadian consumption of
residential wallcoverings, the total value (at manufacturer selling prices) of
North American residential wallcoverings consumption is estimated by Sullivan
Marketing Group and management to be approximately $770.0 million in 1996. Net
imports of wallpaper, primarily from U.K. and, to a lesser extent, other Western
European countries, are estimated by management to provide approximately 20% of
North American consumption volume, a percentage that has remained relatively
constant over the five-year period from 1991 to 1996.
Europe. Management estimates that manufacturer sales of residential
wallcoverings in Europe were approximately $1.3 billion in 1996, essentially
unchanged from 1991. During this period, management believes that industry sales
declined slightly in the U.K. and Western Europe, due in part to the sluggish
economy in these regions, but that this decline was largely offset by the rapid
growth of the residential wallcoverings sales in Eastern Europe. The incremental
Eastern European demand has provided opportunities for the larger wallcoverings
manufacturers of North America and Western Europe to increase export sales to
these countries. In total, the dollar value of sales of residential
wallcoverings in Europe is approximately 1.6 times the value of North American
sales. Unit consumption of residential wallcoverings per capita in the U.K. and
Western Europe is generally higher than in North America, as building materials
and fashion tastes in these two regions have resulted in a greater acceptance of
wallpaper as a standard home decorative product. However, management estimates
that unit prices of residential wallcoverings are generally lower in the U.K.
and Western Europe than in North America, due to the lower percentage that
borders and higher-value vinyl backed product represent of the total product
sales mix.
INDUSTRY TRENDS
Growth of Borders. There are two primary types of wallcoverings for the
residential market, sidewalls and borders. Sidewalls are intended to cover the
entire wall while borders are generally placed on top of the wall where it meets
the ceiling or above a moulding on the wall. Borders may be placed over a
sidewall as a complement or directly on a painted surface. Consumers are
attracted to borders because of this flexibility and because they are perceived
as being easier to install and remove than sidewalls. Borders are significantly
more profitable to produce than sidewalls, as manufacturers capture
approximately twice the price per square foot for borders than for a sidewall of
comparable quality and realize a substantially higher gross margin. Sales of
borders in the United States have grown at a compound annual rate of
approximately 14% from 1991 to 1996, increasing the percentage of total
residential wallcoverings sales in the U.S. attributable to borders from 24.5%
to 35.5% over the same period. The popularity of borders is a trend that
management expects to continue in the United States and gain momentum in Europe,
where borders have yet to penetrate a meaningful share of residential
wallcoverings sales, as these products are utilized both as part of coordinating
decor schemes in conjunction with sidewalls and increasingly as freestanding
items of decoration by consumers who would not otherwise choose to apply
wallcoverings.
54
<PAGE>
Manufacturer Consolidation. The residential wallcoverings industry is
consolidating, especially in North America, where management estimates that the
top five manufacturers held a 62.9% share of the $770.0 million sales of the
product in 1996, pro forma for the Transactions. The consolidation among
manufacturers is the result of increasing economies of scale that have been and
continue to be driven by the following three trends, which are described in
greater detail below: (i) increasing application of popular designer brand names
to home fashion and textiles through licensing agreements with wallcoverings
manufacturers; (ii) consolidation of retail distribution channels; and (iii)
advancements in manufacturing technology and design software. These trends have
reinforced each other as they have developed. Continued consolidation should
create opportunities for larger competitors to selectively acquire the important
product lines and retail accounts of small, niche manufacturers.
Licensing. The Company believes that association with home textile
manufacturers, fashion designers and 'name' brands through licensing and
distribution agreements is a growing trend in both North America and Europe that
is fundamentally changing the way wallpaper is marketed. Licensing is being
driven by consumer desire for coordinated color schemes for wallpaper, paint,
bedding and window treatments. The endorsement of wallcoverings by these well
recognized consumer brands is expected to enhance consumers' perception of
wallcoverings as a fashionable decorating tool. These well-recognized name
brands are seeking out wallpaper suppliers with the market share and
distribution service capability to maximize the value of their substantial
marketing power.
Consolidation of Retail Distribution Channels. Similar to the trend
experienced by several categories of both durable and non-durable consumer
products, the leading Chain Stores, especially home centers, have been capturing
an increasing share of total wallpaper sales at the expense of smaller Chain
Stores and independent dealers. Management sees this trend most advanced in the
U.S. and U.K., where many dealers have been forced to relinquish a substantial
portion of the lower-end and middle market business and retreat to a defensible
niche in higher-end products. The Company believes that the relatively higher
importance Chain Stores place on maintaining high service levels for in-stock
merchandise has created a need for larger manufacturers with the production
capacity and distribution efficiency capable of servicing their needs. In
addition, Chain Stores are increasingly asking their suppliers to take on
responsibility for 'category management'--choosing which patterns and styles to
stock, investing in fixtures and merchandising displays and servicing these
displays to ensure product availability.
PRODUCT OFFERINGS AND DESIGN
Management believes that the Company has one of the most comprehensive
product offerings in the industry. The Company designs, manufactures and markets
its residential wallcoverings products under various recognized in-house brand
names, as well as under exclusive license and distribution agreements with
leading designers and consumer brands. Management believes that consumers
associate the Company's brands with superior design, quality and service. The
Company maintains approximately 45,000 active SKUs. Management believes that the
Company maintains the broadest active design inventory in the industry and that
its ability to supply this full product line is a particular advantage because
of the trend among major retailers to consolidate their suppliers.
The Company has been an innovator and has developed several new products,
including: (i) self-adhesive products, such as its 'Impact' and 'Stick 'n Play'
borders, which are easy to apply; (ii) 'Sculptured Edge' and 'Outlines' borders
which have one edge die-cut to follow a printed design, thus producing an
enhanced aesthetic appeal; (iii) products that are coordinated with the colors
and patterns of the products of major home textile manufacturers; (iv) the first
washable wallcoverings; (v) the first strippable substrate; and (vi) Teflon
coated products. The Company's current research and development projects
include: (i) self-adhesive sidewalls; (ii) direct digital printing, which
eliminates the need for cylinder engraving; and (iii) batchless printing
technology.
Product design, color and style are important factors for consumer
acceptance of wallpaper as a decorating alternative. The Company's extensive
in-house design group utilizes many resources to design product including (i)
designs provided by or developed in cooperation with licensors; (ii) research of
other interior fashion businesses to identify emerging color and design trends
among competitors, furniture, fabrics and carpeting; (iii) input from customers,
management and designers during product reviews; and (iv) membership in fashion
55
<PAGE>
organizations and alliances with bedding and home fashion companies such as
Fieldcrest Cannon, Croscill, Crown Craft, J.P. Stevens and West Point.
North America
The North American division markets its residential wallcovering products
under various recognized in-house brand names such as Sunworthy, Imperial,
United, Albert Van Luit and Katzenbach & Warren, as well as under exclusive
license and distribution agreements with leading designers and consumer brands
such as Ralph Lauren, Lenox, Nautica, Laura Ashley, Alexander Julian, Eddie
Bauer and the NCAA schools. The North American division maintains 31,000 active
SKUs and introduces approximately 9,300 new SKUs annually.
The market positioning of the North American division's most important
brands is depicted in the following table.
NORTH AMERICAN RESIDENTIAL PRODUCT MARKET POSITIONING*
<TABLE>
<CAPTION>
PERCENTAGE
BRAND OF SALES MARKET POSITIONING RETAIL CHANNEL FOCUS
- --------------------------------------- 1996 ---------- --------------------- --------------------
COMPANY SALES
-------------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C> <C>
Imperial Fashion Point................. $ 15.9 5.4% Lower-Middle Mass/Home Center
Borden Home............................ 47.4 16.1 Lower-Middle Mass/Home Center
United................................. 11.3 3.8 Lower-Middle Home Center/Dealer
Sunworthy.............................. 55.9 19.0 Middle-High Dealer/Home Center
Imperial............................... 53.3 18.1 Middle-High Dealer/Home Center
Katzenbach & Warren.................... 7.2 2.5 High End Dealer
Van Luit............................... 3.7 1.3 High End Dealer
Other In-House Brands.................. 16.3 5.5
------------- ----------
Subtotal In-House Brands............... $ 211.0 71.8%
National Brand Distributors(1)......... 20.6 7.0 Middle
Other Private Label(2)................. 26.1 8.9 Middle
------------- ----------
Subtotal Private Label................. $ 46.7 15.9% Middle
Licensed Brands........................ 21.6 7.4 Middle Mass/Dealer/Home
Center
Distributed Product(3)................. 14.4 4.9 Middle Mass/Dealer/Home
Center
------------- ----------
Subtotal Other Brands.................. $ 36.0 12.3%
------------- ----------
Total Residential Wallcoverings........ $ 293.7 100.0%
------------- ----------
------------- ----------
</TABLE>
- ------------------
* Source: Management estimates.
(1) Private label product designed and manufactured by the Company for selected
distributors. Excludes $2.0 million of product exported by Sunworthy.
(2) Includes $14.8 million of product imported from IHDG's European operations.
(3) Other manufacturers' brands distributed by the Company.
The Company also manufactures a decorative paper and vinyl surfacing
materials for use in commercial applications. Sales of these products were $21.1
million in 1996, or 3.9% of the Company's pro forma 1996 sales.
56
<PAGE>
Europe
The European division markets its residential wallcovering products under
various recognized in-house brand names such as Crown, Shand Kydd and Storeys.
The European division maintains 14,000 active SKUs and introduces 3,500 new SKUs
annually. Due to the differences in the Company's market share and competitive
factors, management segments the European market into three geographic regions:
(i) the U.K.; (ii) Western Europe; and (iii) Eastern Europe.
The market positioning of the European division's most important brands in
the U.K. is depicted in the following table.
U.K. RESIDENTIAL PRODUCT MARKET POSITIONING*
<TABLE>
<CAPTION>
1996 PERCENTAGE
BRAND COMPANY SALES OF SALES MARKET POSITIONING RETAIL CHANNEL FOCUS
- --------------------------------------- ------------- ---------- --------------------- --------------------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C> <C>
Crown.................................. $ 48.0 65.2% Middle All channels
Shand Kydd............................. 9.5 12.9 Middle-High Dealers
Other In-House Brands.................. 0.7 1.0 Lower-Middle All channels
------------- ----------
Subtotal In-House Brands............... $ 58.2 79.1%
Private Label(1)....................... 15.4 20.9 Middle
------------- ----------
Total Residential Wallcoverings........ $ 73.6 100.0%
------------- ----------
------------- ----------
</TABLE>
- ------------------
* Source: Management estimates.
(1) Includes $0.8 million of sales of product imported from the United States by
Imperial.
In the U.K., Crown and Shand Kydd are well known wallcoverings brands.
Crown is a strong mass market brand that is well-recognized by consumers and is
sold through all distribution channels. Shand Kydd is targeted at the upper
middle market sector and is distributed via dealers. In other parts of Western
Europe and in Eastern Europe, both brands are well known by distributors and
retailers but consumer recognition of the Company's brands, and wallcoverings
brands in general, is limited.
The European division also produces transfer paper, printed by the gravure
or flexographic processes, which is sold to textile converters throughout the
world for heat transfer onto polyester fabrics. The range of products to which
this process is applied consists mainly of ladies' dresswear, furnishing
fabrics, sportswear and uniform workwear. Sales of heat transfer paper were
$23.2 million in 1996, 4.3% of the Company's pro forma sales.
RETAIL DISTRIBUTION CHANNELS
The Company believes that one of its greatest strengths is its
long-standing customer relationships and market share with key accounts in all
channels of distribution in North America and the U.K. The Company distributes
its wallcovering products to over 16,000 customers worldwide consisting
primarily of home centers, mass merchants, specialty/national chains and
independent dealers. Approximately 55.8% of the pro forma Company's sales of
residential wallcoverings in North America for 1996 were through Chain Stores,
38.3% through independent dealers and the remaining 16.1% to non-retail
customers such as wholesale distributors or to other manufacturers.
57
<PAGE>
NORTH AMERICAN RETAIL DISTRIBUTION CHANNELS*
<TABLE>
<CAPTION>
NUMBER OF
OUTLETS
1996 INDUSTRY PERCENTAGE OF 1996 COMPANY PERCENTAGE OF CARRYING
CHANNEL TYPE SALES (MSP) SALES SALES SALES WALLCOVERINGS WALLCOVERINGS DISPLAY
- ------------------- ------------- ------------- ------------ ------------- ------------- ---------------------
(DOLLARS IN (DOLLARS IN
MILLIONS) MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Mass Merchants..... $ 75.0 9.7% $ 46.3 18.8% 7,100 Fixtures displaying
sidewalls and borders
Home Centers....... 112.0 14.5 39.7 16.1 2,100 Fixtures displaying
sidewalls, borders
and collection books
Specialty/National
Chains........... 212.0 27.5 47.8 19.4 2,400 Fixtures displaying
sidewalls, borders
and collection books
Independent
Dealers.......... 371.0 48.2 112.6 45.7 15,000 Fixtures displaying
sidewalls, borders
and collection books
------------- ------ ------------ ------ -------------
Total.............. $ 770.0 100.0% $246.3(1) 100.0% 26,600
<CAPTION>
AVERAGE
SKUS IN
CHANNEL TYPE STOCK
- ------------------- --------
<S> <C>
Mass Merchants..... 200
Home Centers....... 400
Specialty/National
Chains........... 400
Independent
Dealers.......... 700
Total..............
</TABLE>
- ------------------
* Source: Management estimates.
(1) Does not include approximately $47.4 million of contract manufacturing,
national brand distributor sales and product exported to distributors in the
U.S. by the Company's European division.
There are four main channels of distribution in North America. Mass
merchants and home centers cater to younger consumers interested in saving money
by installing wallcoverings themselves. Specialty/national chains and
independent dealers cater to consumers who desire greater selection, variety,
quality and service and who are generally less price sensitive. The Company
operates multiple sales organizations to address the needs of each specific
channel it serves in the most effective way.
Mass Merchants. The mass merchant channel consists of approximately 7,100
outlets stocking wallcoverings with major participants including Kmart, Target,
Wal-Mart, Sears, J.C. Penney and Zellers in Canada. The importance of this
channel has decreased since 1991 due to the closure of a number of marginal
discount chains and shift in merchandising strategy to focus on in-stock, border
products. The Company is the sole supplier in the U.S. to all Kmart stores and
the largest supplier to Target and Wal-Mart stores.
Home Centers. The home center channel consists of approximately 2,100
outlets stocking wallcoverings. The Company is the leading supplier to the three
leading retailers in this segment: The Home Depot, Lowes and Menards. This
channel is presently experiencing the highest growth rate, and has taken share
from the independent dealer and mass merchant channels.
Specialty/National Chains. The predominant retailers in this channel of
distribution include Sherwin-Williams, Wallpapers to Go, Wallpapers for Less, as
well as Color Your World in Canada. These chains are committed to wallcoverings
as an essential part of their product mix. The Company has a significant
presence in this channel and is presently testing a new retail
concept--'galleries'-- in Sherwin-Williams stores. See 'Business--Sales,
Marketing and Distribution.' Other retailers in this category include hardware
stores, floor covering stores, telemarketing and catalog affiliates of
retailers, factory and outlet stores.
Independent Dealers. Independent dealers include approximately 15,000
retail outlets consisting of single outlet local stores to multi-store regional
retailers. The channel has historically been the leading distribution channel in
the industry offering substantial customer service and a large product
selection. However, while the value of product sold through this channel has
increased since 1991, its share of total product sold has decreased due
primarily to the growth of the home center channel. The Company has developed a
unique category management approach for independent dealer stores emphasizing
visual merchandising. Designers and decorators influence consumer decision
making for high-end product sold in this channel, helping their clients select
wallcoverings from the collection books in the dealer and trade only showrooms.
Historically, the Company generated over $50.0 million in sales of high-end
product to this channel, but substantially diminished its high-end presence in
the early 1990s as part of a cost-cutting program. The Company plans to increase
its number of
58
<PAGE>
active collections in the high-end segment of the independent dealer channel
from 23 to 72 over the next four years.
EUROPE
U.K. RETAIL DISTRIBUTION CHANNELS*
<TABLE>
<CAPTION>
NUMBER OF
OUTLETS
1996 INDUSTRY PERCENTAGE OF 1996 COMPANY PERCENTAGE OF CARRYING
CHANNEL TYPE SALES (MSP) SALES SALES SALES WALLCOVERINGS WALLCOVERINGS DISPLAY
- ------------------- ------------- ------------- ------------ ------------- ------------- ---------------------
(DOLLARS IN (DOLLARS IN
MILLIONS) MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Mass Merchants..... -- -- -- -- -- --
Home Centers....... $ 183.4 48.0% $ 38.0 51.6% 1,043 Mainly in stock racks
Specialty/National
Chains........... 57.3 15.0 9.0 12.2 334 Mainly in stock racks
Independent
Dealers.......... 141.3 37.0 26.6 36.1 4,000 Mainly in stock racks
------------- ------ ------------ ------ -------------
Total.............. $ 382.0 100.0% $ 73.6 100.0% 5,377
------------- ------ ------------ ------ -------------
------------- ------ ------------ ------ -------------
<CAPTION>
AVERAGE
SKUS IN
CHANNEL TYPE STOCK
- ------------------- --------
<S> <C>
Mass Merchants..... --
Home Centers....... 700
Specialty/National
Chains........... 750
Independent
Dealers.......... 475
Total..............
</TABLE>
- ------------------
* Source: Management estimates.
Unlike North America, the portion of total residential wallcoverings sales
generated by collection books, as opposed to sales of in-stock product, is
consistent across U.K. retail distribution channels and relatively small in
aggregate. The retail sale of residential wallcoverings in the U.K. is dominated
by four home center chains, B&Q, Homebase, Do It All and Wickes, and one
specialty/national chain, FADS, which together command over 60% of the category.
The Company is the first or second largest supplier of residential wallcoverings
to each of these five important retailers. The independent dealers seek to offer
different SKUs and in some cases different brands than the large Chain Stores.
Import penetration due to the pound sterling's strength and aggressive marketing
by U.K. manufacturers who have lost share in the national chains are increasing
competition in this sector. Management believes that the Company's Shand Kydd
brand and innovative merchandising techniques provide a substantial measure of
assurance that its market position will be at least maintained in the
independent dealer sector.
Western Europe is increasingly dominated by large home centers and
specialty/national chains. In France, an important market for the Company, Chain
Stores have significantly increased their share of retail sales with the top six
Chain Stores commanding approximately 55% of sales in the category. The Company
has strong, long-standing relationships with several of the home centers in
Western Europe.
The Company has maintained its relationships with specialty/national chains
in Western Europe by relying upon brand differentiation.
In Eastern Europe, including Poland, Russia and the Ukraine, the retail
environment is comprised of small independent retailers supplied by a limited
number of distributors. Locally supplied products are generally low quality. The
Company intends to continue to supply upper end products via local distributors
in Eastern Europe and increasingly design the product specifically to meet the
market needs. As the market becomes more sophisticated, the Company expects that
branding will be strengthened and in store merchandising introduced. The Company
is working to extend its distribution relationships in Eastern Europe, Asia and
Latin America. In 1997, approximately 31.8% of the European Division's sales
were generated by product exported to Eastern Europe and other developing
countries.
SALES, MARKETING AND DISTRIBUTION
In North America, the Company's sales to Chain Stores are made through its
own direct sales force and the dealer channel is serviced through a mix of
direct sales and through distributors. The Company's products held in-stock at
Chain Stores are replenished automatically via direct electronic linkages from
the retailer's inventory management system and the Company's central
distribution facility in Knoxville, Tennessee. Products selected by customers
from collection books ('room lot') are either phoned or faxed in by the dealer
to the central distribution facility in Knoxville, where the automated order
fulfillment system picks, packages and ships the order to the dealer or directly
to the customer, usually within 24 hours. The Company also manufactures private
label product for a select group of distributors and other manufacturers.
59
<PAGE>
The Company supports its retail products with media advertising, primarily
in consumer magazines, and also participates in trade exhibitions to expose its
new collections to prospective retailers. The Company spent $1.6 million and
$3.2 million on advertising in 1996 and 1997, respectively, and expects to spend
$6.3 million for advertising in 1998. The Company plans to establish a New York
studio and marketing center to coordinate design and marketing for high end
collections and to facilitate New York based licensing arrangements. Traditional
collection books (used by consumers to select wallcoverings not stocked
in-store) and in-stock merchandising fixtures are a critical part of the
Company's sales and marketing effort. In order to make its collection books more
consumer friendly, the Company has recently introduced a larger (16' X 16')
collection book format and CD-ROM versions. The Company has also developed a
'gallery' merchandising concept designed to showcase a selection of both
collection books and in-stock residential wallcoverings products organized by
color and pattern style using a dedicated space within the store to facilitate
display, stocking and consumer selection. Management believes that Chain Stores,
which sell largely or exclusively in-stock products, will find the gallery
concept attractive. The Company is testing the concept at Sherwin-Williams and
plans to initiate a roll out at selected specialty/national chains and
independent dealers later this year.
In the U.K. the Company has a field sales force of 32. Each of the major
accounts has a dedicated sales and marketing and design staff. Product is
delivered to retailers from the Company's warehouse, in carton quantities only,
to individual stores or indirectly to a customer's central warehouse. The
collection book sector of the market is supplied indirectly via a small number
of distributors.
The Company was the U.K.'s leading exporter of wallcoverings in 1996 with
sales to over 60 countries. These exports have been generated by a specialist
sales and marketing group based in the U.K. which has strong multi-lingual and
administrative skills and long-established connections with some of the world's
leading importers and distributors of residential wallcoverings. The export
field sales force, backed by sales administration, marketing and design
functions, is divided into teams of regional specialists. The skills of this
team were recognized in 1996 when it was named the U.K. Financial Times Exporter
of the Year.
In Western Europe (excluding the U.K.) product is mainly delivered to
either the central warehouses of national chains or to distributors. During
1998, distribution on a store-by-store basis for national chains will commence,
thereby increasing the Company's sales potential. In Eastern Europe and the rest
of the world, sales are generally to the central warehouses of
importer/distributors. A substantial part of this business is large orders which
are specially made and shipped in full containers.
MANUFACTURING
The Company believes that it is the highest-volume manufacturer of
residential wallcoverings in the world, which, combined with its fully
integrated operation across design, manufacturing and distribution functions,
enables it to capitalize upon economies of scale in manufacturing, purchasing
and distribution. The Company also believes that its key technological and
manufacturing process advances in rapid manufacturing line changeover, batchless
production, 'in-register' embossing and CAD/CAM technology have contributed to
its low-cost position and enhanced its ability to produce a broad range of SKUs
cost efficiently. As a result of its high production efficiencies and
technological leadership, management believes that the Company is one of the
lowest-cost major producers of residential wallcoverings in North America and
Europe. Management expects that the implementation of the Integration Plan,
which entails the closure of the two least efficient North American printing
plants and consolidation of all U.S. distribution into the Knoxville facility,
will further enhance the Company's low-cost position by maximizing utilization
of the Company's most modern, efficient assets and facilitating substantial
headcount reductions. See '--North American Integration Plan.'
The production processes for all the Company's wallcoverings are similar,
allowing the Company to enjoy significant manufacturing efficiencies. Most of
the Company's residential wallcoverings are produced by feeding rolls of
substrate (generally paper or vinyl-coated paper) into printing presses, which
applies the design, color and texture onto the substrate. The product is then
'finished' by trimming the edges to achieve the correct width and pattern match,
rolled and cut into the required retail lengths and shrinkwrapped. The Company
manufactures its products using four main printing processes, the most
significant of which is gravure printing, whereby ink is applied to the
substrate using engraved copper cylinders. The following diagram depicts the
primary stages of the manufacturing process employed by the Company.
60
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
----------------
|Color Matching|
|and Ink Mixing| -------------
---------------- | Standard |
| ---- | Embossing |---- -------------------------------
| | ------------- | | |
| | | | -----------------
- ----------------- ---------------- | | | ---------------- | Inspecting, |
|Paper, Vinyl or|------- | Printing |----------------------------------- | Applying |----- | Finishing and |
|other substrate| | | | | | Paste(1) | | Packaging |
- ----------------- ---------------- | | ---------------- ------------------
| | |
| | ---------------- |
| |-- | In-register |--
---------------- | Embossing |
| Engraving | ----------------
| Cylinders |
----------------
- ------------------
(1) Applies to North American division products only. The application of paste
to wallpaper manufactured in the U.K. takes place at the vinyl-base coating
stage.
In recent years, several advancements have been made in both printing
technology and in the software used in the design process. The Company has been
a leader in the adaptation of these advancements to the manufacture of
wallcoverings and has capitalized upon the scale provided by its production
volume to justify the up-front fixed investment required to reduce unit costs
within the existing product line and to provide a greater range of custom colors
and patterns required by consumers in a cost-efficient manner. The Company has
been a leader in the four primary innovations:
(i) Batchless production ensures that two rolls of the same SKU from
different manufacturing runs will have exactly matching color and pattern,
which allows retailers to continually replenish bins without fear of
obtaining 'mixed' and therefore unsaleable batches in their bins. The
Company believes that it is a leader in the use of statistical process
controls, computer-aided design and tightly specified raw materials, in
combination with advanced printing and color mixing technology, in order to
achieve true batchless production.
(ii) Computer-aided manufacturing involves the use of statistical
process controls that continually monitor color consistency, alignment and
other variations, thereby reducing waste and improving the quality of the
finished product.
(iii) Computer-aided design involves the standardization of the color
palette and database storage of designs, which links the design studio with
print cylinder engravers and the manufacturing facility and allows
designers to copy elements of existing designs to create others, scan
patterns from fabrics or paintings onto wallcoverings, ensure accurate
color replication and minimize manufacturing set-up time, thereby lowering
the cost of creating designs and prototypes.
(iv) Digital printing technology avoids the expense of printing
cylinders and set up waste. The technology is not yet fully developed, but
the Company believes it leads the industry in this field and is currently
installing a digital printer for limited production purposes and for
technical development work.
Management believes that the Company's recent significant investments in
modernizing its manufacturing equipment and distribution facilities provide it
with a competitive advantage. From 1995 through 1997, the
61
<PAGE>
Company has invested approximately $90.0 million primarily to improve the
efficiency of its existing operations, including (i) a $14.0 million investment
by IHDG in two new high-speed gravure print lines and associated finishing
equipment at its facility in Morecambe, U.K., which are achieving productivity
levels significantly greater than that of the prior generation of printing
technology; (ii) a $6.4 million investment by IHDG in batchless production,
'in-register' embossing and CAD/CAM technology in the U.K., which has
contributed to its low-cost position and enhanced its ability to produce a broad
range of SKUs cost efficiently; (iii) a $23.3 million investment by Imperial in
a state-of-the-art finishing and distribution facility in Knoxville, Tennessee,
which is expected to reduce annual distribution expense; and (iv) a $9.0 million
investment by Imperial in printing equipment, in-line finishing, CAD/CAM
technology and information systems at the Sherbrooke, Canada manufacturing
facility, which is expected to improve manufacturing gross profit. Management
anticipates achieving higher operating margins in future years as it achieves
full utilization of these modern, highly efficient assets by absorbing the
capacity of redundant and less efficient facilities. The 1998 outlook for
capital expenditures for the Company is approximately $35.0 million,
approximately $20.0 million of which relates to North America, substantially all
of which is related to the implementation of the Integration Plan, and the
remainder of which relates to the U.K., Vernon Plastics and the commercial
wallcovering operations. Management estimates that upon completion of the
integration the annual capital expenditures required to maintain the Company's
facilities will be between $7.0 million and $10.0 million per year. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Pro Forma Liquidity and Capital Resources.'
COMPETITION
The residential wallcoverings market worldwide is highly competitive and
fragmented, consisting primarily of local manufacturers. It is common practice
for firms to sub-contract various steps in the supply chain to other industry
participants. The Company faces substantial competition across its product lines
from a number of business having varying degrees of geographic scope and
participating in various segments of the supply chain. Suppliers of residential
wallcoverings compete on the basis of style, quality, breadth of product
selection, service (timely replenishment of in-stock merchandise and fulfillment
of orders placed from collection books) and price. The Company believes these
competitive factors favor suppliers who have significant revenue share relative
to their competitors. In 1996, on a pro forma basis, the Company held a 38.1%
share of North American wallcoverings sales and 19.3% of U.K. wallcoverings
sales. Management believes that the Company's leading position and modern asset
base enable it to capitalize upon economies of scale in purchasing,
manufacturing, distribution and product licensing and provide it a competitive
advantage.
FACILITIES
The Company currently operates manufacturing, distribution and office
facilities in the United States, United Kingdom and Canada. The table below
summarizes certain information about these facilities as of March 31, 1998.
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SIZE IN
LOCATION FACILITIES SQ. FT. MAJOR PRODUCTS/SERVICES OWNERSHIP EMPLOYEES
- ---------------------------------- --------- ------- ---------------------------------- --------- ---------
<S> <C> <C> <C> <C> <C>
MANUFACTURING FACILITIES:
Darwen, U.K....................... 1 250,000 Residential wallcovering Owned 942
Morecambe, U.K.................... 2 261,000 Residential wallcovering; Owned 529
Heat transfer paper Engraved
cyclinders
Toronto, Canada................... 1 350,000 Residential wallcovering Leased 560
Bridlington, U.K.................. 2 100,000 Engraved cylinders; Wallcovering Leased 123
sample books
Adams, MA......................... 1 27,000 Hand screen printed residential Owned 34
wallcoverings
Ashaway, RI....................... 1 175,000 Residential wallcoverings Owned 152
Plattsburgh, NY................... 1 553,000 Residential wallcoverings; Owned 293
Paper mill
Galt, Canada...................... 1 72,500 Residential wallcoverings Owned 199
Woodward, Canada.................. 1 185,000 Residential wallcoverings Owned 221
Streater, IL...................... 2 60,000 Wallcovering sample books Leased 118
New Castle, IN.................... 1 90,400 Commercial wallcoverings Owned 81
Haverhill, MA..................... 1 182,000 Flexible PVC films and sheeting Owned 268
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SIZE IN
LOCATION FACILITIES SQ. FT. MAJOR PRODUCTS/SERVICES OWNERSHIP EMPLOYEES
- ---------------------------------- --------- ------- ---------------------------------- --------- ---------
WAREHOUSE AND DISTRIBUTION
FACILITIES/OTHER:
<S> <C> <C> <C> <C> <C>
Cleveland, OH..................... 1 73,000 Headquarters, studio and customer Leased 321
service center
Knoxville, TN..................... 1 252,000 Distribution center Owned 71
Nottingham, England............... 1 10,000 Outside warehouse Leased 3
Laval, Canada..................... 1 10,000 Distribution center Leased 10
Duluth, GA........................ 1 93,000 Distribution center; Customer Leased 115
service; U.S. administration
Columbus, OH...................... 1 100,000 Distribution center Leased 109
Middleton, England................ 1 155,000 Distribution center Leased 77
Scarborough, Canada............... 1 19,500 Distribution center Leased 16
New York, NY...................... 1 3,500 Showroom Leased 3
</TABLE>
VERNON PLASTICS
Management estimates that the flexible vinyl film and sheeting industry had
1997 sales in North America of approximately $410.0 million. Vernon Plastics is
a leading manufacturer of calendered flexible PVC sheeting, industrial fabric,
supported vinyls and laminated products used to fabricate: (i) pool liners; (ii)
outdoor advertising materials; (iii) domestic and marine upholstery and tractor
headlinings; and (iv) book bindings. The Company believes that these four
product categories are among the more attractive categories in the industry. The
Company believes that Vernon Plastics currently holds the number one or two
revenue share position in each of its four product categories. Total sales and
EBITDA for Vernon Plastics were $49.3 million and $5.3 million, respectively, in
1997.
Vernon Plastics has identified substantial growth opportunities through new
products and technologies as well as through geographical expansion. The launch
of Vernon Plastics's new products, including the new Vernoguard-X'treme pool
liner and PVC Alloy Sheeting, has allowed it to participate in several of the
industry's growing and/or higher margin segments. The Company believes that
Vernon Plastics is well positioned to exploit significant opportunities in the
Far East and Latin America, particularly in industrial fabrics.
The Company believes that, as a result of Vernon Plastics's technology
leadership, high production efficiency and capacity utilization, Vernon Plastics
has become one of the lowest cost producers of flexible vinyl films and
sheeting. Vernon Plastics is vertically integrated and can provide custom
formulations, calender, print and laminate all at one plant. Vernon Plastics's
formulation expertise and calendering experience combine to make it a low cost
producer with an enhanced ability to supply technically superior and high value
added products. The Company believes that Vernon Plastics is also able to take
new product concepts from design to the marketplace more rapidly than most of
its competitors.
EMPLOYEES AND LABOR RELATIONS
As of March 31, 1998, the Company employed 4,195 full-time employees, 2,814
of whom are subject to collective bargaining agreements. The Company has 1,314
employees covered by such agreements in North America. Each such agreement
covering North American employees expires on or before November, 2001.
On March 1, 1998, a new three year contract with the United Auto Workers
('UAW') covering employees at its Adams, Massachusetts facility was ratified by
such employees. The new contract expires on February 28, 2001. WARN notices were
issued on May 1, 1998 to the first round of employees to be laid off in July of
1998 at the Company's Ashaway, Rhode Island facility and the Company has advised
the United Paperworkers International Union ('UPIU') (representing Ashaway
employees) that the plant will be closed later in 1998. The Company and the UPIU
have been negotiating the amount of severance the Company is willing to pay to
Ashaway employees but have not yet been able to reach agreement. The Company
negotiated a new contract with the Communications, Energy and Paperworkers Union
representing employees at its Brampton, Ontario, Canada facility, which contract
was ratified by such employees on May 8, 1998. A new agreement between the
Company and the UPIU, representing workers at the Plattsburgh, New York facility
was ratified by employees on May 26, 1998. This agreement provides for certain
benefits and severance pay in anticipation of the facility's shutdown. On March
18, 1998, a new contract with the United Needletrades, Industrial & Textile
Employees Union representing employees at Vernon Plastics in Haverhill,
Massachusetts was ratified by such employees. The new contract expires on
October 31, 2001.
63
<PAGE>
The next material labor agreement expires in 2000. Each agreement covering
employees in North America prohibits strikes by employees during the applicable
contract period. The Company has 1,500 U.K. employees subject to collective
bargaining agreements involving four different U.K. unions. Historically, the
Company has experienced no material difficulties in renewing such collective
bargaining agreements. The Company has not experienced any work stoppages in the
last ten years in either the U.K. or North America. The Company believes that
its relations with its employees are satisfactory.
PATENTS, COPYRIGHTS, TRADEMARKS AND LICENSING ARRANGEMENTS
The Company owns numerous patents and copyrights and has numerous rights to
use registered and unregistered trademarks in the United States and various
other countries, including the United Kingdom and Canada, relating to its
manufacturing processes and products. The Company considers its know-how and
technology to be more important to its current business than patents and
copyrights and, accordingly, believes that expiration of existing patents and
copyrights or nonissuance of patents or copyrights under pending applications
would not have a material adverse effect on its operations. However, the Company
maintains an active patent and trade secret program in order to protect its
proprietary technology, know-how and trade secrets. The Company also has the
right to use designs and brand names under numerous licensing agreements and is
currently negotiating additional licenses.
ENVIRONMENTAL MATTERS
The Company is subject to numerous laws and regulations in the various
jurisdictions in which it operates that (i) govern operations that may have
adverse environmental effects, such as discharges into air and water, as well as
handling and disposal practices for solid and hazardous wastes, and (ii) impose
liability for response costs and certain damages resulting from past and current
spills, disposals or other releases of hazardous materials. The Company believes
that it currently conducts its operations in compliance in all material respects
with applicable Environmental Laws. The Company's operations, however, may
result in noncompliance with or liability for remediation pursuant to
Environmental Laws. Environmental Laws have changed rapidly in recent years, and
the Company may be subject to more stringent Environmental Laws in the future.
Although environmental matters have not to date had a material adverse effect on
the results of operations or financial condition of either IHDG or Imperial,
there can be no assurance that such matters will not have a material adverse
effect on the Company's results of operations or financial condition or that
more stringent Environmental Laws will not be enacted which could have a
material adverse effect on the Company's results of operations or financial
condition. The Company currently estimates that it will spend approximately $9.8
million over the next two years to meet regulatory requirements applicable to
its U.K. facilities.
The Company has been named as a potentially responsible party (a 'PRP') at
the Solvents Recovery Service of New England Superfund Site in Southington,
Connecticut. The site is named on the U.S. Environmental Protection Agency's
(the 'US EPA') National Priorities List, the agency's inventory of contaminated
sites designated for ranking and cleanup under the federal Superfund law. There
are over a hundred PRPs that have been named by the US EPA with respect to this
site. The Company and other PRPs have entered into consent agreements with the
US EPA to perform necessary remediation at the site. The Company's portion of
the currently projected remediation costs is approximately $1 million.
The Company has also been identified as a PRP by the Massachusetts
Department of Environmental Protection earlier this year at the H&M Drum sites
in Freetown, Massachusetts and Dartmouth, Massachusetts. There are at least 30
other PRPs named with respect to these sites. The Company received notice
because of its connection to the ReSolve site where the Company has previously
entered into a de minimis settlement agreement providing for payment of
approximately $100,000. Because investigation and remediation activities at this
site are in preliminary stages, the Company cannot estimate with any certainty
the costs it may incur to resolve its involvement in this case. Based on current
information about materials sent to the sites and the fact that the Company has
certain statutory rights against other PRPs, the Company does not expect these
matters to have material adverse effect on the Company's operations, liquidity
or financial condition.
LEGAL PROCEEDINGS
The combined Company is a party to various litigation matters incidental to
the conduct of its business. Management believes that the outcome of any of the
matters in which it is currently involved is not reasonably likely to have a
material adverse effect on the Company's consolidated financial condition or
results of operations.
64
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN OTHER OFFICERS
The following table sets forth certain information regarding each of the
Company's directors, executive officers and certain other officers after giving
effect to the Recapitalization and Imperial Acquisition.
<TABLE>
<CAPTION>
DIRECTORS AGE
- ----------------------------------------------------- ---
<S> <C> <C>
David A. Stockman, Chairman of the Board............. 50
James P. Toohey...................................... 56
Michael Landau....................................... 52
Anthony Grillo....................................... 42
David Blitzer........................................ 28
David I. Foley....................................... 30
<CAPTION>
EXECUTIVE OFFICERS AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
James P. Toohey...................................... 56 President, Chief Executive Officer and Director
Keith T. McAslan..................................... 42 Vice President--Finance and Chief Financial Officer
<CAPTION>
CERTAIN OTHER OFFICERS AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Michael Landau....................................... 52 President--North American Marketing and Director
Gerald E. Klein...................................... 52 Executive Vice President--Sales/Retail Development
Ronald R. Soeder..................................... 43 Executive Vice President--Manufacturing--
North America
Neil Sharrock........................................ 55 Chief Executive Officer--European Division
William J. Fenstermaker.............................. 42 Vice President--Corporate Development
Tracey E. Kooser..................................... 38 Vice President--Human Resources
</TABLE>
David A. Stockman has served as Chairman of the Board and Director of the
Company since March 13, 1998. Mr. Stockman has been a member of the general
partner of Blackstone Group Holdings L.P. since 1988. Mr. Stockman is also a
Co-Chairman of the board of directors of C&A and a director of Haynes
International, Inc., Clark USA, Inc. and Bar Technologies, Inc.
James P. Toohey, President, Chief Executive Officer and Director, joined
Imperial in October, 1996 and became an employee of the Company as of March 13,
1998. Prior to joining Imperial, Mr. Toohey was with Hallmark Cards, Inc. for 32
years in various marketing positions, most recently as President of Hallmark
International, a $700 million sales division with 5,500 employees worldwide.
Michael Landau, President--North American Marketing and Director, joined
Imperial in February, 1998 and became an employee of the Company as of March 13,
1998. Prior to joining Imperial, he served as President of F. Schumacher & Co.
Wallcoverings since 1990, having become Corporate Vice President of Schumacher
in 1983. Mr. Landau has worked in the wallcoverings industry for 28 years.
Anthony Grillo has served as a Director of the Company since March 13,
1998. Mr. Grillo is a Senior Managing Director of The Blackstone Group L.P. and
a member of Blackstone's Principal Group. Previously, he was the co-leader of
Blackstone's Restructuring and Reorganization Group and was Chief Operating
Officer of the firm's Mergers and Acquisitions practice. He currently serves on
the board of directors of Littlefuse, Tracer, Joule and Bar Technologies, Inc.
65
<PAGE>
David Blitzer has served as Vice President and Director of the Company
since March 13, 1998. Mr. Blitzer is a Vice President at The Blackstone Group
L.P., which he joined in 1991. He currently serves on the board of directors of
Haynes International and Volume Services, Inc.
David I. Foley has served as Vice President and Director of the Company
since March 13, 1998. Mr. Foley is an Associate at The Blackstone Group L.P.,
which he joined in 1995. Prior to joining Blackstone, Mr. Foley was a member of
AEA Investors, Inc. and The Monitor Company. He currently serves on the board of
directors of Prime Succession, Inc., Rose Hills Company and Clark USA, Inc.
Keith T. McAslan, Vice President--Finance and Chief Financial Officer,
joined Imperial in July, 1994 and became an employee of the Company as of March
13, 1998. Prior to joining Imperial, Mr. McAslan was employed by Square D
Company where he was Director of Finance and Operations Support for its
distribution services division. Previously, he was with Rockwell International
as Senior Financial Officer for Rockwell's Service Parts division.
Gerald E. Klein, Executive Vice President--Sales/Retail Development, joined
Imperial in February, 1997 and became an employee of the Company as of March 13,
1998. Mr. Klein served as President--International Collections for The Enesco
Corporation from 1994 until joining Imperial. Previously, he was with Hallmark
Cards, Inc. for 20 years, where he held various sales managerial positions, and
from 1992 was President, Evenson and Vice President, Hallmark Retail.
Ronald R. Soeder, Executive Vice President--Manufacturing--North America,
joined Imperial in February, 1977 and became an employee of the Company as of
March 13, 1998, and over a 20-year period held key management positions in a
number of key segments of the business, including District Manager--Chicago,
General Manager--Independent Division, Vice President--Dealer Sales, Vice
President--General Manager-- Residential and Vice President--Marketing, Product
Development and Strategic Planning. Mr. Soeder has worked in the wallpaper
industry for 21 years.
Neil Sharrock, Chief Executive Officer--European Division, has served as
Chief Executive of IHDG's European operations since 1995. Prior to assuming this
position, Mr. Sharrock served as Managing Director of Crown Wallcoverings since
1990. Mr. Sharrock started his career in 1964 in management services at Storeys
and Crown Paints and held various positions there until he was named a Managing
Director of Storeys Decorative Products in 1983. Mr. Sharrock has worked in the
wallpaper industry for 29 years.
William J. Fenstermaker, Vice President--Corporate Development, joined
Collins & Aikman in 1982 and became an employee of the Company as of March 13,
1998. His responsibilities have included strategic planning and budgeting for
Imperial's parent company, as well as the acquisition and divestiture program of
the parent, which has included nine transactions over the past two years. Mr.
Fenstermaker has worked in the wallpaper industry for 12 years.
Tracey E. Kooser, Vice President-Human Resources, joined Imperial in July,
1993 and became an employee of the Company as of March 13, 1998. Prior to
joining Imperial, Mrs. Kooser was Eastern Division Human Resources Manager for
Harris Wholesale Company, based in Solon, Ohio. At Harris, she provided guidance
and counseling to Division Managers and managed Harris's labor relations,
training, staffing, workers compensation and unemployment compensation programs.
Under the Stockholders Agreement, Borden has the right to designate one
member of the Company's Board of Directors, subject to certain conditions.
Borden has informed the Company that it does not presently intend so to
designate a director. Accordingly, all of the directors identified above have
been designated by Holdings.
66
<PAGE>
EXECUTIVE COMPENSATION
The following tables set forth certain information regarding the
compensation paid to each of the executive officers of the Company for the year
ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM COMPENSATION AWARDS
COMPENSATION ------------------------------
---------------- RESTRICTED
NAME AND SALARY BONUS STOCK AWARDS
PRINCIPAL POSITION YEAR ($) ($) ($)
- -------------------------------- ---- ------- ------ -------------------
<S> <C> <C> <C> <C>
Ian G. Collins ................. 1997 260,576 91,530 (1)
Chief Executive Officer and 1996 224,539 --
President 1995 187,569 56,344
Denis Leong .................... 1997 148,528 38,785 (1)
Chief Financial Officer 1996 126,615 --
1995 94,991 19,571
</TABLE>
1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(#) AT FISCAL YEAR-END ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------------------------------------- ------------------------- -------------------------
<S> <C> <C>
Ian G. Collins.................................................. 80,000/100,000 (1)
Denis Leong..................................................... 32,000/48,000 (1)
</TABLE>
- ------------------
(1) Shares of IHDG were offered to and purchased by certain executives of the
Company during 1996. Mr. Collins purchased 40,000 shares and Mr. Leong
purchased 16,000 shares. These shares were purchased at $5.00 per share,
which price represented full value at that time. Concurrently, options were
also granted at $5.00 per share at the rate of five options per share
purchased. All options were cancelled in connection with the
Recapitalization.
67
<PAGE>
BORDEN UK PENSION PLAN
PENSION PLAN TABLE (1) (2) (3)
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------
REMUNERATION--$US 15 20 25 30 35
- --------------------------------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000............................... $22,474 $ 29,965 $ 37,456 $ 44,948 $ 52,439
$150,000............................... $27,161 $ 36,215 $ 45,269 $ 54,323 $ 63,377
$175,000............................... $31,849 $ 42,465 $ 53,081 $ 63,698 $ 74,314
$200,000............................... $36,536 $ 48,715 $ 60,894 $ 73,073 $ 85,252
$225,000............................... $41,223 $ 54,965 $ 68,706 $ 82,448 $ 96,189
$250,000............................... $45,911 $ 61,215 $ 76,519 $ 91,823 $107,127
$300,000............................... $55,286 $ 73,715 $ 92,144 $110,573 $129,002
$400,000............................... $74,036 $ 98,715 $123,394 $148,073 $175,752
$450,000............................... $83,411 $111,215 $139,019 $166,823 $194,627
$500,000............................... $92,786 $123,715 $154,644 $185,573 $216,502
</TABLE>
- ------------------
(1) Table applies to pensions of Messrs. Collins, Sharrock and Swarbrick. As of
December 31, 1997, Mr. Collins was credited with 34 years and eight months
of service; Mr. Sharrock was credited with 35 years and six months of
service; and Mr. Swarbrick was credited with 39 years and one month of
service.
(2) Under the Borden UK Pension Plan (the 'UK Plan'), UK Plan compensation is
calculated as follows: 1/80 x final average pensionable pay x Pensionable
Service plus a defined contribution top-up, under which the Company matches
voluntary contributions paid by the member, within prescribed limits.
(3) Under the UK Plan, Messrs. Collins and Sharrock are subject to an earnings
cap set at pounds 84,000/year for the 1997-8 tax year. Retirement benefits
provided from the UK Plan may not exceed 2/3rds of the earnings cap.
EMPLOYMENT AGREEMENT SUMMARY
The Imperial Home Decor Group (US) LLC (the 'US Sub') and Michael Landau,
President--North American Marketing of the Company, are parties to an employment
agreement, dated February 1, 1998. Mr. Landau is entitled under the agreement to
be elected as a director of US Sub. His compensation under the agreement
includes a $400,000 initial base salary, a $750,000 signing bonus, and
guaranteed bonuses for the first three years of his employment of $200,000,
$130,000 and $125,000, respectively. He is also entitled to options to purchase
up to 2% of the Company's common stock at the same price per Company share as
the per share contribution to the Company's equity by Blackstone in connection
with the Transactions. Mr. Landau may be terminated voluntarily with one month's
prior written notice and involuntarily without advance notice with or without
Cause (as defined in the agreement). Upon termination for death or physical or
mental disability, all options then exercisable shall remain exercisable for
nine months from the date of termination, otherwise such options shall remain
exercisable for six months from the date of termination (unless terminated for
Cause).
EXECUTIVE COMPENSATION POLICY
REPORT OF THE COMPENSATION COMMITTEE OF IHDG FOR THE FISCAL YEAR ENDED DECEMBER
31, 1997
The Company reviews its compensation and benefits policy on an annual basis
and summarizes that policy in an internal paper (the 'Compensation and Benefits
Strategy'). The purpose of the Company's compensation and benefits policy is to
support the achievement of the Company's mission to be the world's most
successful supplier in its markets and to achieve the Company's 'Critical
Success Factors,' including: industry superiority in design and color, market
share growth and total quality, as set out in the Compensation and Benefits
Strategy. These goals should be reached by way of the effective recruitment and
retention of skilled, motivated and committed associates. The Company's
compensation and benefit programs recognize the international nature of the
Company's operations and are targeted to the characteristics of the local
markets of particular operations rather than uniformly across national
boundaries.
68
<PAGE>
Cross-national comparisons within the Company are strictly limited in
assessing compensation and benefits but include: (i) a sample comparison of
'benchmark' management positions drawn from all Company operations, (ii)
creation of job grade structures for each main operation, and (iii) comparison
of job grade structures with local market competitors which structures are
maintained and reviewed on a regular basis.
Base pay is targeted at competitive levels for each local market while
incentive and bonus compensation is used to provide an opportunity for earnings
significantly above each market place median. The Company uses this compensation
and benefits structure because it recognizes that premium compensation is
necessary to attract and retain key staff from limited markets and,
consequently, to achieve product superiority. The Company seeks to insure that
employees who perform their jobs with excellence have the opportunity to earn
compensation at the highest levels available with competitors in each of the
Company's local markets. The Company's measure of employee performance is
rigorous.
The Company's benefit programs are intended to match the median benefit
provision offered by competitors in each of the Company's local markets.
Enhanced benefits are provided only in recognition of superior financial
performance by the Company.
It is the Company's long term objective to make performance related
benefits rewards available to all associates. Such rewards are considered only
where: (i) the Company enjoys superior financial performance, (ii) local market
conditions support such rewards, and (iii) Company Board approval is obtained.
Such rewards programs are to remain flexible in order to enable management to
take actions necessary in achieving key business goals. The Company makes
exceptions in benefits allocations only with rigorous consideration, reporting
and control.
UK PROFIT RELATED PAY (PRP)
Profit related pay is a scheme established by the State in the late 1980's
and aimed to encourage the linking of an element of pay to the profitability of
the company for which an employee works.
It is for individual companies to determine whether the PRP element: (i)
replaces an existing bonus scheme, (ii) is a part of a wage settlement, or (iii)
is offered as an additional incentive.
The 'profit' is taken always as profit after tax of the activities of the
whole employment unit.
PRP requires that 80% of the total employees within the profit unit must
agree to join the scheme, although some exclusions are allowed. The greater the
number of exclusions, of course, the more difficult it becomes to achieve the
80% figure (which remains based on total employees in the unit).
PRP allows the Company to pay an element of pay to participating employees
free of income tax. At present, the maximum pay which can be treated in this way
is the lower of 20% or pounds 4,000.
There are a number of different structural PRP options which could be
utilized and the method selected by the Company is as follows:
1. Each participant agrees to a wage reduction and continues to pay
tax on that lower wage/salary;
2. The Company pays an advance of PRP to participants each week/month
such that each participant's take home pay is slightly in excess of the
current level. This is achieved because the PRP element is free of tax at
the normal 20%/40% band rates.
3. At the end of the profit period, actual profits are compared with
forecast profits and, if they are ahead of forecast, an additional bonus is
paid.
4. Not all the benefits of the scheme are passed on to the
participants unless the Company decides to do so. In fiscal 1997, the
Company passed about 60% of the benefit to participants and retained the
balance. The benefit to participants produced an increase in annual
earnings of about 4%.
69
<PAGE>
SECURITY OWNERSHIP
Holdings owns 89% of the Company's Common Stock and Borden owns 11% of the
Company's Common Stock. Blackstone owns all the equity securities of Holdings.
In addition, in connection with the Imperial Acquisition, C&A holds the C&A
Option to purchase newly issued shares of the Company's Common Stock equal to
6.7% of shares of Common Stock of the Company outstanding as of the Closing.
The following table and the accompanying notes set forth certain
information concerning the beneficial ownership of the Common Stock of the
Company after giving pro forma effect to the Recapitalization and Imperial
Acquisition by: (i) each person who is known by the Company to own beneficially
more than 5% of the Common Stock of the Company, (ii) each director and each
executive officer who is the beneficial owner of shares of Common Stock of the
Company and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS
- ------------------------------------------------------------------------------ ---------------- ----------------
<S> <C> <C>
Blackstone Management Associates III L.L.C.(a) ............................... 5,284,375 89.0%
345 Park Avenue
New York, New York 10154
Borden, Inc.(b) .............................................................. 653,125 11.0%
180 East Broad Street
Columbus, Ohio 43215
Collins & Aikman Products Co.(c) ............................................. 397,812 6.7%
701 McCullough Drive
Charlotte, NC 28262
All directors and executive officers as a group(d)............................ 0 0.0%
</TABLE>
- ------------------
(a) The 5,284,375 shares beneficially owned by Blackstone are directly held by
Holdings. All the issued and outstanding shares of Holdings are held by
Blackstone Capital Partners III Merchant Banking Fund L.P., Blackstone
Offshore Capital Partners III L.P. and Blackstone Family Investment
Partnership III L.P., of each of which Blackstone Management Associates III
L.L.C. is the general partner having voting and dispositive power.
(b) The 653,125 shares beneficially owned by Borden are directly held by BDH
One, Inc., a wholly-owned subsidiary of Borden.
(c) The 397,812 shares beneficially owned by C&A are subject to the C&A Option
which were granted to C&A in connection with the Imperial Acquisition. See
'Certain Transactions--Option Agreement.'
(d) See 'Executive Compensation' for a discussion of options to purchase Common
Stock or other equity rights which may be granted to certain officers of the
Company.
70
<PAGE>
CERTAIN TRANSACTIONS
PAYMENT OF CERTAIN FEES AND EXPENSES
In connection with the Recapitalization and Imperial Acquisition,
Blackstone received a $4.0 million fee and the Company reimbursed Blackstone for
all out-of-pocket expenses incurred in connection with the Recapitalization and
Imperial Acquisition. In addition, pursuant to a monitoring agreement (the
'Monitoring Agreement') entered into between Blackstone and the Company,
Blackstone receives an annual $1.5 million monitoring fee and is reimbursed for
certain out-of-pocket expenses. In the future, affiliates of Blackstone may
receive customary fees for advisory and other services rendered to the Company
and its subsidiaries. If such services are rendered in the future, the fees will
be negotiated from time to time and will be based on the services performed and
the prevailing fees then charged by third parties for comparable services.
STOCKHOLDERS AGREEMENT
The Company, Borden, BDH One, Inc., an indirect wholly owned subsidiary of
Borden (the 'Borden Investor'), and Holdings entered into a Stockholders
Agreement on the date of the Closing (the 'Stockholders Agreement'). Pursuant to
the Stockholders Agreement, Holdings has 'drag-along' rights and a right of
first offer, and the Borden Investor has registration rights and 'tag-along'
rights, with respect to sales of the Company's Common Stock owned by the Borden
Investor. In addition, subject to certain conditions and exceptions, the Borden
Investor is entitled to designate one member of the Board of Directors of the
Company and transfers of the Company's Common Stock by the Borden Investor are
restricted.
Drag-along, Tag-along Rights. The Stockholders Agreement provides that if
Holdings or any of its affiliates receives an offer from a third party other
than from an affiliate of Blackstone to purchase at least a majority of the
outstanding shares of Common Stock of the Company and such offer is accepted by
Holdings, then the Borden Investor will transfer a proportionate number of
shares of the Company's Common Stock owned by it to such third party on the
terms and conditions of the offer as accepted by Holdings. The Stockholders
Agreement also provides that, if Holdings or its affiliates propose to transfer
any of the Company's Common Stock owned by it to a third party other than in a
public offering or to an affiliate of Blackstone, the Borden Investor will have
the right to require Holdings to require the proposed transferee to purchase a
proportionate number of its shares of the Company's Common Stock on the same
terms and conditions as Holdings's sale.
Right of First Offer. Prior to the earlier of (i) consummation of an
initial public offering of Common Stock by the Company (an 'IPO') and (ii) a
date that is on or about the fifth anniversary of the Closing, before
transferring any shares of the Company's Common Stock to any third party, the
Borden Investor will be required to offer to sell such shares to Holdings.
Holdings will have 30 days to exercise its right to purchase such shares.
Board Representation. The Borden Investor is entitled pursuant to the
Stockholders Agreement, subject to certain conditions and exceptions, to
designate one member of the Board of Directors of the Company so long as the
Borden Investor owns at least 75% of the shares of Common Stock of the Company
retained by it in the Recapitalization. Such right will terminate at any time
following an IPO after which the Borden Investor owns less than 5% of the then
outstanding Common Stock of the Company.
Restrictions on Transfer. The Borden Investor is not permitted to transfer
the Company's Common Stock other than to affiliates who become bound by the
Stockholders Agreement or pursuant to the 'drag-along,' 'tag-along' or
right-of-first-offer provisions of the Stockholders Agreement and may not
transfer the Company's Common Stock to competitors of the Company.
Registration Rights. The Stockholders Agreement provides that the Borden
Investor will be entitled to have shares of the Company's Common Stock owned by
it included in other registrations of the Company's Common Stock and will be
entitled on one occasion to require the Company to file a registration statement
in connection with a proposed sale of all shares of Common Stock of the Company
owned by it at any time following 180 days after an IPO, subject to customary
limitations.
71
<PAGE>
OPTION AGREEMENT
The Company, Holdings and C&A entered into an agreement on the date of the
Closing (the 'Option Agreement') whereby C&A has been granted the C&A Option to
purchase 397,812 shares of the Company's Common Stock from the Company
(representing 6.7% of the issued and outstanding Common Stock after giving
effect to the Recapitalization) for $20.80 per share (130% of the amount per
share indirectly paid by Holdings for the Company's Common Stock through the
Merger). The C&A Option is exercisable in whole or in part, will not be
transferrable and will expire on the fifth anniversary of the Closing. The C&A
Option Agreement contains restrictions on transfer of shares issuable upon
exercise of the C&A Option ('Option Shares') and 'drag-along,' 'tag-along,'
right-of-first-offer and registration rights provisions with respect to the C&A
Option Shares that are substantially the same as those contained in the
Stockholders Agreement.
TRANSITION SERVICES AGREEMENTS
Pursuant to the Recapitalization Agreement, Borden entered into a
transition services agreement with the Company (the 'Borden Transition Services
Agreement') as of the date of the Closing pursuant to which Borden is providing
certain management support services to the Company for a period of one year
following the Closing. Pursuant to the Imperial Acquisition Agreement, C&A
entered into a transition services agreement with the Company (the 'C&A
Transition Services Agreement' and, together with the Borden Transition Services
Agreement, the 'Transition Services Agreements') as of the date of the Closing
pursuant to which C&A is providing certain management support services to the
Company for periods ranging from one to two years following the Closing. The
fees for services provided under the Borden Transition Services Agreement are
billed to the Company at the same rate Borden billed IHDG from January 1, 1997
through June 30, 1997 for such services. The fees for services provided under
the Imperial Transition Services Agreement are as set forth in the agreement and
are based on historical rates charged to Imperial by C&A.
PVC SUPPLY AGREEMENT
Pursuant to the Recapitalization Agreement, Borden Chemical and Plastics
L.P. ('BC'), an affiliate of Borden, and the Company entered into an agreement
regarding the purchasing and processing of PVC resins on terms at least as
favorable to the Company as the terms of the purchase agreements under which
Borden formerly purchased PVC from BC. Borden's former purchase agreement, which
expires in November 2002, requires BC to supply to Borden up to 100%, and
requires Borden to purchase at least 85%, of the quantities of PVC resins
required by Borden to use in its plants in the continental United States. The
price for PVC resins is generally the average price that BC charges its
lowest-priced major customer (other than Borden). The existing purchase
agreements also provide that BC is required to meet competitive third-party
offers or allow Borden to purchase the lower-priced product from third parties
in lieu of purchases under purchase agreements.
TRADEMARK LICENSE AGREEMENT
Pursuant to the Recapitalization Agreement, Borden, BDH Two, Inc. and the
Company entered into a Trademark License Agreement as of the date of the Closing
pursuant to which the Company has a 33 month exclusive license to use the
registered trademark 'Borden Home Wallcoverings' in connection with wallpaper,
vinyl wallcoverings, borders and coordinating fabrics and accessories sold in
the home consumer market through retail channels. Following such 33-month
period, the Company will no longer be able to use the 'Borden Home
Wallcoverings' registered trademark.
NON-COMPETITION, NONSOLICITATION AGREEMENTS
The Recapitalization Agreement provides that Borden will not, subject to
certain exceptions, solicit any employees of the Company or manufacture or sell
any products currently manufactured or sold by the Company or own an equity
interest in an entity engaged in such business for a period of two years after
the date of the Closing. Pursuant to the Imperial Acquisition Agreement, C&A and
the Company entered into a Non-Competition Agreement on the date of the Closing
pursuant to which, subject to certain exceptions, C&A may not solicit certain
employees of the Company for a period of five years after the date of the
Closing or compete
72
<PAGE>
with the Company in the paper and vinyl decorative surface products and related
products businesses for two years following the date of the Closing.
INDEMNIFICATION AGREEMENT
The Company and Holdings have entered into an agreement providing for the
indemnification and payment of all related costs and expenses of Holdings and
its affiliates, including Blackstone and any Blackstone employee, in the event
of any action, suit, proceeding or investigation arising out of any action or
inaction by the Company or any of its subsidiaries or affiliates, except and
only to the extent that it is finally judicially determined that the loss for
which indemnity or the payment of costs and expenses is sought resulted from
actual fraud as a result of which the indemnified party received a financial
benefit to which the indemnified party was not legally entitled. In addition,
pursuant to the agreement, Holdings (and its transferees) will be entitled to up
to five demand and unlimited piggyback registration rights.
RELATIONSHIPS BETWEEN IHDG AND BORDEN AND BETWEEN IMPERIAL AND C&A
See Note 2 to the Combined Financial Statements of IHDG for a discussion of
certain historical information regarding relationships between IHDG and Borden
and see Notes 2 and 14 to Consolidated and Combined Financial Statements of
Imperial for a discussion of certain historical information regarding
relationships between Imperial and C&A.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on March 13, 1998 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes to (i) qualified institutional buyers in
reliance on Rule 144A under the Securities Act and (ii) a limited number of
institutional accredited investors (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act). As a condition of the Purchase Agreement, the
Company and the Subsidiary Guarantors entered into the Exchange and Registration
Rights Agreement with the Initial Purchasers pursuant to which the Company and
the Subsidiary Guarantors have agreed, for the benefit of the holders of the Old
Notes, at the Company's cost, to (i) file with the Commission the Exchange Offer
Registration Statement with respect to the Exchange Offer for the Exchange Notes
not later than 120 days after the date of the original issue of the Old Notes;
(ii) use their reasonable best efforts to cause the Exchange Offer Registration
Statement to be become effective under the Securities Act no later than 180 days
after the date of the original issuance of the Old Notes and to cause the
Exchange Offer to be consummated no later than 210 days after the original issue
of the Old Notes and (iii) use their reasonable best efforts to cause the
Exchange Offer Registration Statement to be effective for not less than 30 days
(or longer if required by applicable law) after the date on which notice of the
Exchange Offer is mailed to the Holders. Upon the Exchange Offer Registration
Statement being declared effective, the Company will offer the Exchange Notes in
exchange for surrender of the Old Notes. For each Old Note surrendered to the
Company in conformity with the Exchange Offer, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note. Interest on each Old Note will accrue from the last
interest payment date on which interest was paid on the Old Note surrendered in
exchange therefor or, if no interest has been paid on such Old Note, from the
date of its original issue. Interest on each Exchange Note will accrue from the
date of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Company believes that the
Exchange Notes will in general be freely tradeable after the Exchange Offer
without further registration under the Securities Act. However, any purchaser of
Old Notes who is an 'affiliate' of the Company or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes (i) will
not be able to rely on the interpretation of the staff of the Commission, (ii)
will not be able to tender its Old Notes in the Exchange Offer and (iii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Old Notes, unless
such sale or transfer is made pursuant to an exemption from such requirements.
73
<PAGE>
As contemplated by these no-action letters and the Exchange and
Registration Rights Agreement, each holder participating in the Exchange Offer
shall be required to represent to the Company that at the time of the
consummation of the Exchange Offer (i) any Exchange Notes to be received by such
holder will be acquired in the ordinary course of business, (ii) such holder
will have no arrangements or understanding with any person to participate in the
distribution of the Old Notes or the Exchange Notes within the meaning of the
Securities Act, (iii) such holder is not an affiliate of the Company or, if it
is such an affiliate, such holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable,
(iv) if such holder is not a broker-dealer, that it is not engaged in, and does
not intend to engage in, the distribution of Exchange Notes and (v) if such
holder is a broker-dealer that will receive Exchange Notes for its own account
(a 'Participating Broker-Dealer') in exchange for Old Notes that were acquired
as a result of market-making or other trading activities, that it will deliver a
prospectus in connection with any resale of such Exchange Notes. As indicated
above, each Participating Broker-Dealer that receives Exchange Notes for its own
account in exchange for Old Notes must acknowledge that it (i) acquired the Old
Notes for its own account as a result of market-making activities or other
trading activities, (ii) has not entered into any arrangement or understanding
with the Company or any 'affiliate' of the Company (within the meaning of Rule
405 under the Securities Act) to distribute the Exchange Notes to be received in
the Exchange Offer and (iii) will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such Exchange Notes. For
a description of the procedures for resales by Participating Broker-Dealers, see
'Plan of Distribution.'
If (i) because of any change in law or applicable interpretations thereof
by the Commission's staff the Company is not permitted to effect the Exchange
Offer, or (ii) any Old Notes validly tendered pursuant to the Exchange Offer are
not exchanged for Exchange Notes within 210 days after the Issue Date, or (iii)
any Initial Purchaser so requests with respect to Old Notes or notes not
eligible to be exchanged for Exchange Notes in the Exchange Offer and held by it
following the consummation of the Exchange Offer, or (iv) any applicable law or
interpretations do not permit any holder to participate in the Exchange Offer,
or (v) any holder that participates in the Exchange Offer does not receive
freely transferable Exchange Notes in exchange for tendered Old Notes, or (vi)
the Company so elects, then the Company and the Subsidiary Guarantors shall use
their reasonable best efforts to file as promptly as practicable (but in no
event more than 120 days after the Issue Date) with the Commission and
thereafter shall use their reasonable best efforts to cause to be declared
effective (but in no event more than 180 days after the Issue Date), a shelf
registration statement on an appropriate form under the Securities Act relating
to the offer and sale of the Old Notes by the holders thereof from time to time
in accordance with the methods of distribution set forth in such registration
statement (the 'Shelf Registration Statement' and, together with any Exchange
Offer Registration Statement, a 'Registration Statement') and the Company and
the Subsidiary Guarantors shall use their reasonable best efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be used by holders of Transfer Restricted
Securities (as defined) for a period ending on the earlier of (i) two years from
the Issue Date or such shorter period that will terminate when all the Transfer
Restricted Securities covered by the Shelf Registration Statement have been sold
pursuant thereto and (ii) the date on which the Old Notes become eligible for
resale without volume restrictions pursuant to Rule 144 under the Securities
Act.
The Exchange and Registration Rights Agreement provides that if (i) the
applicable Registration Statement is not filed with the Commission on or prior
to 120 days after the Issue Date; (ii) the Exchange Offer Registration Statement
or the Shelf Registration Statement, as the case may be, is not declared
effective within 180 days after the Issue Date; (iii) the Exchange Offer is not
consummated on or prior to 210 days after the Issue Date or (iv) the Shelf
Registration Statement is filed and declared effective within 180 days after the
Issue Date but shall thereafter cease to be effective (at any time that the
Company is obligated to maintain the effectiveness thereof) without being
succeeded within 60 days by an additional Registration Statement filed and
declared effective (each such event referred to in clauses (i) through (iv), a
'Registration Default'), the Company will be obligated to pay liquidated damages
to each holder of Transfer Restricted Securities, during the period of one or
more such Registration Defaults, in an amount equal to $0.192 per week per
$1,000 principal amount of the Old Notes constituting Transfer Restricted
Securities held by such holder until the applicable Registration Statement is
filed, the Exchange Offer Registration Statement is declared effective and the
Exchange Offer is consummated or the Shelf Registration Statement is declared
effective or again becomes effective, as the case may be. All accrued liquidated
damages shall be paid to holders in the same manner as interest payments on the
Old Notes on semi-
74
<PAGE>
annual payment dates which correspond to interest payment dates for the Old
Notes. Following the cure of all Registration Defaults, the accrual of
liquidated damages will cease.
For the purposes of the Exchange and Registration Rights Agreement,
'Transfer Restricted Securities' means each Old Note until the earliest of the
date of which (i) such Old Note is exchanged in the Exchange Offer and entitled
to be resold to the public by the holder thereof without complying with the
prospectus delivery requirements of the Securities Act, (ii) such Old Note has
been disposed of in accordance with the Shelf Registration Statement, (iii) such
Old Note is disposed of by a broker-dealer pursuant to the 'Plan of
Distribution' contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (iv) such Old Note
is distributed to the public pursuant to Rule 144 under the Securities Act or is
salable pursuant to Rule 144(k) under the Securities Act.
The summary herein of certain provisions of the Exchange and Registration
Rights Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by, all the provisions of the Exchange and
Registration Rights Agreement, a copy of which is filed as an exhibit to the
Exchange Offer Registration Statement of which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such 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, the Company 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. The Company will issue $1,000 principal amount of Exchange
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 form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B designation,
(ii) the Exchange Notes have been registered under the Securities Act and hence
will not bear legends restricting the transfer thereof and (iii) the holders of
the Exchange Notes will not be entitled to certain rights under the Exchange and
Registration Rights Agreement, including the provisions providing for an
increase in the interest rate on the Old Notes in certain circumstances relating
to the timing of the Exchange Offer, all of which rights will terminate when the
Exchange Offer is terminated. The Exchange Notes will evidence the same debt as
the Old Notes and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $125,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has 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 and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or in the Indenture in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
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, the certificates for 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
75
<PAGE>
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, 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 the Company, in its sole discretion, extends the
Exchange Offer, in which case the term 'Expiration Date' shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under '--Conditions'
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on September 15, 1998 to persons who are registered holders of
the Exchange Notes on September 1, 1998. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each March 15
and September 15 commencing on September 15, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal or transmit an Agent's
Message in connection with a book-entry transfer, and mail or otherwise deliver
such Letter of Transmittal or such facsimile or Agent's Message, together with
the Old Notes and any other required documents, to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date. To be tendered
effectively, the Old Notes, Letter of Transmittal or Agent's Message and other
required documents must be completed and 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. Delivery of the Old Notes may be made by
book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange Agent
prior to the Expiration Date.
The term 'Agent's Message' means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the Old Notes that such participant has
received and agrees: (i) to participate in the Automated Tender Option Program
('ATOP'); (ii) to be bound by the terms of the Letter of Transmittal; and (iii)
that the Company may enforce such agreement against such participant.
By executing the Letter of Transmittal or Agent's Message, each holder will
make to the Company the representations set forth above in the third paragraph
under the heading '--Purpose and Effect of the Exchange Offer.'
76
<PAGE>
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal or Agent's Message.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL OR
AGENT'S MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND SOLE RISK OF THE HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY CONFIRMED BY THE EXCHANGE AGENT. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. 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. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
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. See 'Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner' included with the Letter of Transmittal.
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 below)
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 the
Medallion System (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
with the signature thereon guaranteed by an Eligible Institution.
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 evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the book-entry transfer facility, The Depository Trust Company
(the 'Book-Entry Transfer Facility'), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereto, 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 such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, unless an Agent's Message is received by the Exchange Agent
in compliance with ATOP, an appropriate Letter of Transmittal properly completed
and duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for
77
<PAGE>
the Company, be unlawful. The Company also reserves the right in its sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
holders of defects or irregularities with respect to tenders of Old Notes,
neither the Company, the Exchange Agent nor any person shall incur any liability
for failure to give such notification. Tender 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 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.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, 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 received 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) (or, in the case of a book-entry transfer, an Agent's Message)
together with the certificate(s) representing the Old Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility), and any other
documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) the certificate(s) representing all tendered Old Notes in proper form
for transfer (or a confirmation of a book-entry transfer of such Old
Notes into the Exchange Agent's account at the Book Entry Transfer
Facility), together with a Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required
signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message) 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
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
'Depositor'), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited), (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 person withdrawing the tender and (iv) specify the name in
which
78
<PAGE>
any such Old Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. 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.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer, or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Company, might materially impair the ability of the
Company to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering holders, (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.
EXCHANGE AGENT
The Bank of New York 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 Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<CAPTION>
By Registered or Certified Mail: Fascimile Transmission Number: By Hand/Overnight Delivery:
<S> <C> <C>
The Bank of New York The Bank of New York
101 Barclay Street, Floor 7E (212) 815-6339 Corporate Trust Services Window
New York, New York 10286 (For Eligible Institutions Only) Ground Level
Attn.: Reorganization Section 101 Barclay Street
New York, New York 10286
Attn: Reorganization
Section-Floor 7E
Confirm by Telephone:
(212) 815-5788
For Information Call:
(212) 815-5788
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
79
<PAGE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, 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 the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange 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 exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted. Accordingly, such Old Notes may be resold
only (i) to the Company (upon redemption thereof or otherwise), (ii) so long as
the Old Notes are eligible for resale pursuant to Rule 144A, to a person inside
the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, in accordance with Rule 144
under the Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to the Company), (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who received Exchange Notes,
whether or not such person is the holder (other than a person that is an
'affiliate' of the Company within the meaning of Rule 405 under the Securities
Act), in exchange for Old Notes in the ordinary course of business and who is
not participating with any person to participate, in the distribution of the
Exchange Notes, will be allowed to resell the Exchange Notes to the public
without further registration under the Securities Act and without delivering to
the purchasers of the Exchange Notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that received
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
80
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued under an Indenture, dated as of March 13,
1998, among the Company, the Subsidiary Guarantors and The Bank of New York, as
trustee (the 'Trustee'). The terms of the Exchange Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the 'Trust Indenture Act') as in effect on
the date of the Indenture. The Exchange Notes are subject to all such terms, and
holders of the Exchange Notes are referred to the Indenture and the Trust
Indenture Act for a statement of them. The form and terms of the Exchange Notes
are the same as the form and terms of the Old Notes (which they replace) except
that (i) the Exchange Notes bear a Series B designation, (ii) the Exchange Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and (iii) the holders of Exchange
Notes will not be entitled to certain rights under the Exchange and Registration
Rights Agreement, including the provisions providing for the payment of
Liquidated Damages in certain circumstances relating to the timing of the
Exchange Offer, which rights will terminate when the Exchange Offer is
consummated. The following is a summary of the material terms and provisions of
the Exchange Notes. As used herein, 'Notes' refers both to the Exchange Notes
and the Old Notes. This summary describes all material terms of the Notes and is
subject to the detailed provisions of, and qualified in its entirety by
reference to, the Notes and the Indenture (including the definitions contained
therein). A copy of the form of Indenture may be obtained from the Company by
any holder or prospective investor upon request. Definitions relating to certain
capitalized terms are set forth under '--Certain Definitions' and throughout
this description. Capitalized terms that are used but not otherwise defined
herein have the meanings set forth in the section '--Certain Definitions.' As
used in this 'Description of the Exchange Notes' section, the 'Company' means
The Imperial Home Decor Group Inc.
GENERAL
The following summary of certain provisions of the Indenture and the Notes
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
TIA. Capitalized terms used in this 'Description of the Exchange Notes' section
and not otherwise defined have the meanings set forth in the section '--Certain
Definitions.' As used in this 'Description of the Exchange Notes' section, the
'Company' means The Imperial Home Decor Group Inc.
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes may be exchanged or transferred, at the office
or agency of the Company in the Borough of Manhattan, The City of New York
(which initially shall be the principal corporate trust office of the Trustee,
at 101 Barclay Street, New York, New York 10286), except that, at the option of
the Company, payment of interest may be made by check mailed to the Holders at
their registered addresses.
The Exchange Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of
Exchange Notes, but the Company may require payment of a sum sufficient to cover
any transfer tax or other similar governmental charge payable in connection
therewith.
TERMS OF THE EXCHANGE NOTES
The Exchange Notes will be unsecured senior subordinated obligations of the
Company in an aggregate principal amount of up to $125.0 million, and will
mature on March 15, 2008. Each Exchange Note will bear interest from their date
of issuance. Holders of Old Notes that are accepted for exchange will receive,
in cash, accrued interest thereon to, but not including, the date of issuance of
the Exchange Notes. Such interest will be paid with the first interest payment
on the Exchange Notes on September 15, 1998 to persons who are registered
holders of the Exchange Notes on September 1, 1998. Interest on the Old Notes
accepted for exchange will cease to accrue upon issuance of the Exchange Notes.
The Indenture provides for the issuance of up to $150.0 million aggregate
principal amount of additional Notes having identical terms and conditions to
the Exchange Notes offered hereby (the 'Additional Notes'), subject to
compliance with the covenants contained in the Indenture. Any Additional Notes
will be part of the same issue as the Exchange Notes offered hereby and will
vote on all matters with the Exchange Notes offered
81
<PAGE>
hereby. For purposes of this 'Description of the Exchange Notes' section,
reference to the Exchange Notes does not include Additional Notes.
OPTIONAL REDEMPTION
The Exchange Notes will be redeemable, at the Company's option, in whole or
in part, at any time on or after March 15, 2003, and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's registered address, at the following redemption prices (expressed
as a percentage of principal amount), plus accrued interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on March 15 of the years set
forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------------------------------------------------------------- ----------
<S> <C>
2003........................................................ 105.500%
2004........................................................ 103.667%
2005........................................................ 101.833%
2006 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to March 15, 2001, the
Company may redeem in the aggregate up to 33 1/3% of the original aggregate
principal amount of the Exchange Notes with the net cash proceeds of one or more
Equity Offerings by the Company, at a redemption price (expressed as a
percentage of principal amount thereof) of 111% plus accrued interest, if any,
to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); provided, however, that at least 66 2/3% of the original aggregate
principal amount of the Exchange Notes must remain outstanding after each such
redemption and provided further that such redemption shall occur within 360 days
after the date on which any such Equity Offering is consummated.
At any time on or prior to March 15, 2003, the Exchange Notes may be
redeemed as a whole but not in part at the option of the Company upon the
occurrence of a Change of Control, upon not less than 30 or more than 60 days'
prior notice (but in no event may any such redemption occur more than 90 days
after the occurrence of such Change of Control) mailed by first-class mail to
each Holder's registered address, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium as of, and accrued but
unpaid interest, if any, to, the redemption date, subject to the right of
Holders on the relevant record date to receive interest due on the relevant
interest payment date.
'Applicable Premium' means with respect to an Exchange Note at any
redemption date, the greater of (i) 1.0% of the principal amount of such
Exchange Note or (ii) the excess of (A) the present value of (1) the redemption
price of such Exchange Note at March 15, 2003 (such redemption price being set
forth in the table above) plus (2) all required interest payments due on such
Exchange Note through March 15, 2003, computed using a discount rate equal to
the Treasury Rate plus 50 basis points, over (B) the then-outstanding principal
amount of such Exchange Note.
'Treasury Rate' means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H. 15(519)
which has become publicly available at least two Business Days prior to the
redemption date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data) most nearly equal to the
period from the redemption date to March 15, 2003 provided, however, that if the
period from the redemption date to March 15, 2003 is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the period from the redemption date to March 15, 2003 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
82
<PAGE>
SELECTION
In the case of any partial redemption, selection of the 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 so listed, on a pro rata basis, by lot or by
such other method as the Trustee shall deem fair and appropriate (and in such
manner as complies with applicable legal requirements); provided that no Notes
of $1,000 or less shall be redeemed in part. If any Note is to be redeemed in
part only, the notice of redemption relating to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note.
RANKING
The indebtedness evidenced by the Exchange Notes (and any liquidated
damages payable pursuant to the Exchange and Registration Rights Agreement (the
'Additional Amounts')) will be unsecured senior subordinated indebtedness of the
Company, will be subordinated in right of payment, as set forth in the
Indenture, to all existing and future Senior Indebtedness of the Company, will
rank pari passu in right of payment with all existing and future Pari Passu
Indebtedness of the Company (including the Old Notes) and will be senior in
right of payment to all existing and future Subordinated Indebtedness of the
Company. The Exchange Notes will also be effectively subordinated to any Secured
Indebtedness of the Company to the extent of the value of the assets securing
such Indebtedness and to any Indebtedness of any of the Company's Subsidiaries
that are not Subsidiary Guarantors. However, payment from the money or the
proceeds of U.S. Government Obligations held in any defeasance trust described
under '--Defeasance' below is not subordinated to any Senior Indebtedness or
subject to the restrictions described herein.
The indebtedness evidenced by the Subsidiary Guarantees will be unsecured
senior subordinated indebtedness of the applicable Subsidiary Guarantor, will be
subordinated in right of payment, as set forth in the Indenture, to all existing
and future Senior Indebtedness of such Subsidiary Guarantor, will rank pari
passu in right of payment with all existing and future Pari Passu Indebtedness
of such Subsidiary Guarantor and will be senior in right of payment to all
existing and future Subordinated Indebtedness of such Subsidiary Guarantor. The
Subsidiary Guarantees will also be effectively subordinated to any Secured
Indebtedness of the applicable Subsidiary Guarantor to the extent of the value
of the assets securing such Indebtedness.
As of March 28, 1998, after giving effect to the Transactions, (i) the
Company had $198.0 million aggregate principal amount of Senior Indebtedness
outstanding (exclusive of unused commitments), all of which was Secured
Indebtedness (as defined), (ii) the Company had no Pari Passu Indebtedness
outstanding other than the Old Notes and no indebtedness that is subordinate or
junior in right of payment to the Notes, (iii) the Subsidiary Guarantors had no
Senior Indebtedness outstanding (exclusive of guarantees of the Senior Credit
Facilities), (iv) the Subsidiary Guarantors had no Pari Passu Indebtedness
outstanding (exclusive of the Subsidiary Guarantees), no indebtedness that is
subordinate or junior in right of payment to the Subsidiary Guarantees and total
liabilities (excluding indebtedness and liabilities owed to the Company) of
$67.1 million, and (v) the Non-Guarantor Subsidiaries had total liabilities
(excluding liabilities owed to the Company) of $87.6 million. Although the
Indenture contains limitations on the amount of additional Indebtedness which
the Company and its subsidiaries may Incur, under certain circumstances the
amount of such Indebtedness could be substantial and, in any case, such
Indebtedness may be Senior Indebtedness. See '--Limitation on Incurrence of
Indebtedness and Issuance of Disqualified Stock' below.
'Senior Indebtedness' means with respect to the Company or any Subsidiary
Guarantor all Indebtedness of the Company or such Subsidiary Guarantor,
including interest thereon (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to the Company or
any Subsidiary whether or not a claim for post-filing interest is allowed in
such proceeding) and other amounts (including fees, expenses, reimbursement
obligations under letters of credit and indemnities) owing in respect thereof,
whether outstanding on the Issue Date or thereafter Incurred, unless in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding it is provided that such obligations are not superior in right of
payment to the Notes or such Subsidiary Guarantor's Subsidiary Guarantee, as
applicable; provided, however, that Senior Indebtedness shall not include, as
applicable, (i) any obligation of the Company to any Subsidiary of the Company,
or of such Subsidiary Guarantor to the Company or any other Subsidiary of the
Company, (ii) any
83
<PAGE>
liability for Federal, state, local or other taxes owed or owing by the Company
or such Subsidiary Guarantor, (iii) any accounts payable or other liability to
trade creditors arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities), (iv) any Indebtedness or
obligation of the Company or such Subsidiary Guarantor which is subordinate or
junior in any respect to any other Indebtedness or obligation of the Company or
such Subsidiary Guarantor, as applicable, including any Pari Passu Indebtedness
and any Subordinated Indebtedness, (v) any obligations with respect to any
Capital Stock, or (vi) any Indebtedness Incurred in violation of the Indenture.
If any Senior Indebtedness is disallowed, avoided or subordinated pursuant to
the provisions of Section 548 of Title 11 of the United States Code or any
applicable state fraudulent conveyance law, such Senior Indebtedness
nevertheless will constitute Senior Indebtedness.
Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes or the relevant Subsidiary Guarantee
in accordance with the provisions of the Indenture. The Notes and each
Subsidiary Guarantee will in all respects rank pari passu with all other Pari
Passu Indebtedness of the Company and the relevant Subsidiary Guarantor,
respectively.
The Company may not pay principal of, premium (if any) or interest on (or
Additional Amounts in respect of), the Notes or make any deposit pursuant to the
provisions described under '--Defeasance' below and may not otherwise purchase,
redeem or otherwise retire any Notes (except that Holders may receive and retain
(a) Permitted Junior Securities and (b) payments made from the trust described
under '--Defeasance' below) (collectively, 'pay the Notes') if (i) a default in
the payment of the principal of, premium, if any, or interest on any Designated
Senior Indebtedness occurs and is continuing or any other amount owing in
respect of any Designated Senior Indebtedness is not paid when due, or (ii) any
other default on Designated Senior Indebtedness occurs and the maturity of such
Designated Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full in Cash Equivalents. However, the Company may pay the Notes without
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of the Designated Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) of the immediately preceding sentence has occurred and is continuing.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the second preceding sentence) with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Notes for a period (a 'Payment Blockage Period')
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a 'Blockage Notice') of such default from the Representative of
the Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Trustee and the
Company from the Person or Persons who gave such Blockage Notice, (ii) by
repayment in full in Cash Equivalents of such Designated Senior Indebtedness or
(iii) because the default giving rise to such Blockage Notice is no longer
continuing). Notwithstanding the provisions described in the immediately
preceding sentence (but subject to the provisions contained in the first
sentence of this paragraph and in the succeeding paragraph), unless the holders
of such Designated Senior Indebtedness or the Representative of such holders
have accelerated the maturity of such Designated Senior Indebtedness, the
Company may resume payments on the Notes after the end of such Payment Blockage
Period. Not more than one Blockage Notice may be given in any consecutive
360-day period, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period. However, if any Blockage
Notice within such 360-day period is given by or on behalf of any holders of
Designated Senior Indebtedness other than the Bank Indebtedness, the
Representative of the Bank Indebtedness may give one additional Blockage Notice
within such period. In no event, however, may the total number of days during
which any Payment Blockage Period or Periods is in effect exceed 179 days in the
aggregate during any 360 consecutive day period. For purposes of this Section,
no default or event of default that existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis of the commencement of a subsequent Payment Blockage Period by
the Representative of such Designated Senior Indebtedness, whether or not within
a period of 360 consecutive days, unless such default or event of default shall
have been cured or waived for a period of not less than 90 consecutive days.
84
<PAGE>
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full in cash or Cash Equivalents of the Senior
Indebtedness before the Noteholders are entitled to receive any payment and
until the Senior Indebtedness is paid in full in Cash Equivalents, any payment
or distribution to which Noteholders would be entitled but for the subordination
provisions of the Indenture will be made to holders of the Senior Indebtedness
as their interest may appear (except that Holders of Notes may receive and
retain (i) Permitted Junior Securities, and (ii) payments made from the trust
described under '--Defeasance' so long as, on the date or dates the respective
amounts were paid into the trust, such payments were made with respect to the
Notes without violating the subordination provisions described herein). If a
distribution is made to Noteholders that due to the subordination provisions of
the Indenture should not have been made to them, such Noteholders are required
to hold it in trust for the holders of Senior Indebtedness and pay it over to
them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness (or their Representative) of the acceleration. If any
Designated Senior Indebtedness is outstanding, the Company may not pay the Notes
until five Business Days after such holders or the Representative of the
Designated Senior Indebtedness receive notice of such acceleration and,
thereafter, may pay the Notes only if the subordination provisions of the
Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors of
the Company who are not holders of Senior Indebtedness or of Pari Passu
Indebtedness (including the Notes) may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than the holders of Pari
Passu Indebtedness.
The Indenture contains substantially similar subordination provisions
relating to each Subsidiary Guarantor's obligations under its Subsidiary
Guarantee.
SUBSIDIARY GUARANTEES
IHDG UK, all of the Company's direct and indirect Subsidiaries organized
under the laws of any state of the United States of America on the Issue Date
and certain future Subsidiaries of the Company (as described below), as primary
obligors and not merely as sureties, have jointly and severally irrevocably and
unconditionally guaranteed on an unsecured senior subordinated basis the
performance and punctual payment when due, whether at Stated Maturity, by
acceleration or otherwise, of all obligations of the Company under the Indenture
and the Notes, whether for payment of principal of, premium, if any, or interest
on the Notes, expenses, indemnification or otherwise (all such obligations
guaranteed by such Subsidiary Guarantors being herein called the 'Guaranteed
Obligations'). Such Subsidiary Guarantors have agreed to pay, in addition to the
amount stated above, any and all expenses (including reasonable counsel fees and
expenses) Incurred by the Trustee or the Holders in enforcing any rights under
the Subsidiary Guarantees. Each Subsidiary Guarantee is limited in amount to an
amount not to exceed the maximum amount that can be guaranteed by the applicable
Subsidiary Guarantor without rendering the Subsidiary Guarantee, as it relates
to such Subsidiary Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. The Company has agreed in the Indenture to cause
each domestic Restricted Subsidiary that Incurs Indebtedness, to execute and
deliver to the Trustee a supplemental indenture pursuant to which such
Restricted Subsidiary will guarantee payment of the Notes. See '--Future
Subsidiary Guarantors' below.
Each Subsidiary Guarantee is a continuing guarantee and shall (i) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(ii) be binding upon each such Subsidiary Guarantor, and (iii) inure to the
benefit of and be enforceable by the Trustee, the Holders and their successors,
transferees and assigns.
A Subsidiary Guarantee will be automatically released upon the sale
(including through merger or consolidation) of the Capital Stock, or all or
substantially all the assets, of the applicable Subsidiary Guarantor if (i) such
sale is made in compliance with the covenant described under 'Certain
Covenants--Assets Sales,' and (ii) such Subsidiary Guarantor is released from
its guarantees of, and all pledges and security granted in connection with, the
Credit Agreement and any other Indebtedness of the Company or any Subsidiary
Guarantor.
85
<PAGE>
A Subsidiary Guarantee also will be automatically released upon the applicable
Subsidiary Guarantor ceasing to be a Subsidiary of the Company as a result of
any foreclosure of any pledge or security interest securing Bank Indebtedness or
other exercise of remedies in respect thereof if such Subsidiary Guarantor is
released from its guarantees of, and all pledges and security interests granted
in connection with, the Credit Agreement.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each, a 'Change of
Control'), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all the assets of the Company and its
Subsidiaries, taken as a whole, to a Person other than the Permitted
Holders; or
(ii)(A) the Company becomes aware (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) of the acquisition by any Person or group (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than the Permitted Holders, in a
single transaction or in a related series of transactions, by way of
merger, consolidation or other business combination or purchase of
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act, or any successor provision), of 35% or more of the total voting power
of the Voting Stock of the Company and (B) the Permitted Holders
beneficially own (as defined above), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting Stock
of the Company than such other Person or group and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of Notes pursuant to this
covenant, then prior to the mailing of the notice to Holders provided for in the
immediately following paragraph but in any event within 60 days following any
Change of Control, the Company shall (i) repay in full all Bank Indebtedness or
(ii) obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the Notes as provided for in the
immediately following paragraph.
Within 30 days following any Change of Control, the Company shall mail a
notice (a 'Change of Control Offer') to each Holder with a copy to the Trustee
stating: (1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Notes at a purchase price
in cash equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of Holders of
record on a record date to receive interest on the relevant interest payment
date); (2) the circumstances and relevant facts and financial information
regarding such Change of Control; (3) the repurchase date (which shall be no
earlier than 60 days nor later than 90 days from the date such notice is
mailed); and (4) the instructions determined by the Company, consistent with
this covenant, that a Holder must follow in order to have its Notes purchased.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this paragraph by virtue thereof.
86
<PAGE>
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company may contain prohibitions of certain events which
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by the Holders of
their right to require the Company to repurchase the Notes could cause a default
under such Senior Indebtedness, even if the Change of Control itself does not,
due to the financial effect of such repurchase on the Company. Finally, the
Company's ability to pay cash to the Holders upon a repurchase may be limited by
the Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock. The Indenture provides that (i) the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness) or issue any shares of
Disqualified Stock and (ii) the Company will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company and any Subsidiary Guarantor may Incur Indebtedness (including Acquired
Indebtedness) or issue shares of Disqualified Stock and the Subsidiary
Guarantors may issue shares of preferred stock if the Fixed Charge Coverage
Ratio of the Company for the most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the date
on which such additional Indebtedness is Incurred or such Disqualified Stock or
preferred stock is issued would have been at least 2.00 to 1.00 if such
Indebtedness is Incurred on or prior to March 15, 2001, and 2.25 to 1.00 if such
Indebtedness is Incurred thereafter, in each case determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been Incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be, and the application of
proceeds therefrom had occurred at the beginning of such four-quarter period.
The foregoing limitations do not apply to: (a) the Incurrence by the
Company or its Restricted Subsidiaries of Indebtedness under the Credit
Agreement and the issuance and creation of letters of credit and bankers'
acceptances thereunder (with letters of credit and bankers' acceptances being
deemed to have a principal amount equal to the face amount thereof) up to an
aggregate principal amount of $330.0 million outstanding at any one time; (b)
the Incurrence by the Company and the Subsidiary Guarantors of Indebtedness
represented by the Notes and the Subsidiary Guarantees, as applicable; (c)
Indebtedness existing on the Issue Date (other than Indebtedness described in
clauses (a) and (b)); (d) Purchase Money Indebtedness and Capitalized Lease
Obligations Incurred by the Company or any of its Restricted Subsidiaries, and
any Refinancing Indebtedness (as defined below) relating thereto, in an
aggregate principal amount which, when aggregated with the principal amount of
all other Purchase Money Indebtedness, Capitalized Lease Obligations and related
Refinancing Indebtedness then outstanding and Incurred pursuant to this clause
(d), does not exceed the greater of 3.5% of Total Tangible Assets at the time of
Incurrence or $15.0 million; (e) Indebtedness Incurred by the Company or any of
its Restricted Subsidiaries constituting reimbursement obligations with respect
to letters of credit issued in the ordinary course of business, including
without limitation letters of credit in respect of workers' compensation claims
or self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, however, that upon
the drawing of such letters of credit or the Incurrence of such Indebtedness,
such obligations are reimbursed within 30 days following such drawing or
Incurrence; (f) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, Incurred in connection with the
disposition of any business, assets or a Subsidiary of the Company in accordance
with the terms of the Indenture,
87
<PAGE>
other than guarantees of Indebtedness Incurred by any Person acquiring all or
any portion of such business, assets or Subsidiary for the purpose of financing
such acquisition; (g) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company; provided that any subsequent issuance or transfer of
any Capital Stock or any other event which results in any such Wholly Owned
Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary of the
Company or any other subsequent transfer of any such Indebtedness (except to the
Company or another Wholly Owned Restricted Subsidiary) shall be deemed, in each
case to be an Incurrence of such Indebtedness; (h) shares of preferred stock of
a Subsidiary Guarantor issued to the Company or a Wholly Owned Restricted
Subsidiary of the Company; provided that any subsequent issuance or transfer of
any Capital Stock or any other event which results in any such Subsidiary
Guarantor ceasing to be a Subsidiary Guarantor or any other subsequent transfer
of any such shares of preferred stock (except to the Company or another Wholly
Owned Restricted Subsidiary of the Company) shall be deemed, in each case, to be
an issuance of shares of preferred stock; (i) Indebtedness of a Restricted
Subsidiary to the Company or a Wholly Owned Restricted Subsidiary of the
Company; provided that any subsequent transfer of any such Indebtedness (except
to the Company or another Wholly Owned Restricted Subsidiary of the Company)
shall be deemed, in each case, to be an Incurrence of such Indebtedness; (j)
Hedging Obligations that are Incurred in the ordinary course of business (1) for
the purpose of fixing or hedging interest rate risk with respect to any
Indebtedness that is permitted by the terms of the Indenture to be outstanding,
(2) for the purpose of fixing or hedging currency exchange rate risk with
respect to any currency exchanges, or (3) for the purpose of fixing or hedging
commodity price risk with respect to any commodity purchases; (k) obligations in
respect of performance and surety bonds and completion guarantees provided by
the Company or any Restricted Subsidiary in the ordinary course of business; (l)
Indebtedness of the Company and any Restricted Subsidiary not otherwise
permitted hereunder in an aggregate principal amount, which when aggregated with
the principal amount of all other Indebtedness then outstanding and Incurred
pursuant to this clause (l), does not exceed $10.0 million at any one time
outstanding; provided, however, that Indebtedness of Foreign Subsidiaries, which
when aggregated with the principal amount of all other Indebtedness of Foreign
Subsidiaries then outstanding and Incurred pursuant to this clause (l), does not
exceed $5.0 million (or the equivalent thereof in any other currency) at any one
time outstanding; (m) any guarantee by the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the Incurrence of
such Indebtedness Incurred by such Restricted Subsidiary is permitted under the
terms of the Indenture; (n) the Incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness which serves to refund or refinance any
Indebtedness Incurred as permitted under the first paragraph of this covenant
and clauses (b) and (c) above or clause (o) below, or any Indebtedness issued to
so refund or refinance such Indebtedness (subject to the following proviso,
'Refinancing Indebtedness') prior to its respective maturity; provided, however,
that such Refinancing Indebtedness (i) has a Weighted Average Life to Maturity
at the time such Refinancing Indebtedness is Incurred which is not less than the
remaining Weighted Average Life to Maturity of the Indebtedness being refunded
or refinanced, (ii) to the extent such Refinancing Indebtedness refinances
Indebtedness pari passu with the Notes, is pari passu with the Notes, (iii) is
Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to or less than the aggregate
principal amount (or if issued with original issue discount, the aggregate
accreted value) then outstanding of the Indebtedness being refinanced plus
premium and fees Incurred in connection with such refinancing, and (iv) shall
not include (x) Indebtedness of a Subsidiary that refinances Indebtedness of the
Company or (y) Indebtedness of the Company or a Restricted Subsidiary that
refinances Indebtedness of an Unrestricted Subsidiary; provided further,
however, that subclauses (i) and (ii) of this clause (n) will not apply to any
refunding or refinancing of any Senior Indebtedness; (o) Indebtedness or
Disqualified Stock of Persons that are acquired by the Company or any of its
Restricted Subsidiaries or merged into a Restricted Subsidiary in accordance
with the terms of the Indenture; provided, however, that such Indebtedness or
Disqualified Stock is not Incurred in contemplation of such acquisition or
merger or to provide all or a portion of the funds or credit support required to
consummate such acquisition or merger; provided further, however, that after
giving effect to such acquisition and the Incurrence of such Indebtedness either
(i) the Company would be permitted to Incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first sentence of this covenant or (ii) the Fixed Charge Coverage Ratio is
greater than immediately prior to such acquisition; and (p) Contribution
Indebtedness.
Notwithstanding the foregoing, the Company may not Incur any Indebtedness
pursuant to the immediately preceding paragraph if the proceeds thereof are
used, directly or indirectly, to repay, prepay, redeem, defease,
88
<PAGE>
retire, refund or refinance any Subordinated Indebtedness unless such
Indebtedness will be subordinated to the Notes to at least the same extent as
such Subordinated Indebtedness. For purposes of determining compliance with this
covenant, in the event that an item of Indebtedness meets the criteria of more
than one of the categories of permitted Indebtedness described in clauses (a)
through (o) above or is entitled to be Incurred pursuant to the first paragraph
of this covenant, the Company shall, in its sole discretion, classify such item
of Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been Incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof. Accrual of interest, the
accretion of accreted value and the payment of interest in the form of
additional Indebtedness will not be deemed to be an Incurrence of Indebtedness
for purposes of this covenant.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests,
including any payment made in connection with any merger or consolidation
involving the Company (other than (A) dividends or distributions by the Company
payable in Equity Interests (other than Disqualified Stock) of the Company or
(B) dividends or distributions by a Restricted Subsidiary so long as, in the
case of any dividend or distribution payable on or in respect of any class or
series of securities issued by a Restricted Subsidiary other than a Wholly Owned
Restricted Subsidiary, the Company or a Restricted Subsidiary receives at least
its pro rata share of such dividend or distribution in accordance with its
Equity Interests in such class or series of securities); (ii) purchase or
otherwise acquire or retire for value any Equity Interests of the Company or any
Restricted Subsidiary (other than the purchase or other acquisition for value of
such Equity Interests held by the Company or another Restricted Subsidiary (and,
if such Restricted Subsidiary has stockholders other than the Company or other
Restricted Subsidiaries, Equity Interests held by such other stockholders on a
pro rata basis)); (iii) make any principal payment on, or redeem, repurchase,
defease or otherwise acquire or retire for value, in each case prior to any
scheduled repayment or scheduled maturity, any Subordinated Indebtedness (other
than the payment, redemption, repurchase, defeasance, acquisition or retirement
of Subordinated Indebtedness in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of such payment, redemption, repurchase, defeasance,
acquisition or retirement); or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as 'Restricted Payments'), unless, at the time of such
Restricted Payment: (a) no Default or Event of Default shall have occurred and
be continuing or would occur as a consequence thereof; (b) immediately after
giving effect to such transaction on a pro forma basis, the Company could Incur
$1.00 of additional Indebtedness under the provisions of the first paragraph of
'--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock'; and (c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (including Restricted Payments permitted by
clauses (i), (iv), (v), (vi), (vii), (viii) and (xiv) of the next succeeding
paragraph, but excluding all other Restricted Payments permitted by the next
succeeding paragraph), is less than the sum of, without duplication, (i) 50% of
the Consolidated Net Income of the Company for the period (taken as one
accounting period) from the fiscal quarter that first begins after the Issue
Date to the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, in the case such Consolidated Net Income for such period is a
deficit, minus 100% of such deficit), plus (ii) 100% of the aggregate net
proceeds, including cash and the fair market value (as determined in accordance
with the next succeeding sentence) of property other than cash, received by the
Company since the Issue Date from the issue or sale of Equity Interests of the
Company (excluding Refunding Capital Stock (as defined below), Designated
Preferred Stock, Excluded Contributions and Disqualified Stock), including
Equity Interests issued upon conversion of Indebtedness or upon exercise of
warrants or options (other than an issuance or sale to a Subsidiary of the
Company or an employee stock ownership plan or trust established by the Company
or any of its Subsidiaries to the extent such issuance or sale was financed by
loans from or guarantees by the Company or one of its Subsidiaries), plus (iii)
100% of the aggregate amount of contributions to the capital of the Company
received in cash and the fair market value (as determined in accordance with the
next succeeding sentence) of property other than cash since the Issue Date
(other than Excluded Contributions), plus (iv) 100% of the aggregate amount
received in cash and the fair market value (as determined in accordance with the
next succeeding sentence) of property other than cash received from (A) the sale
or other disposition (other than to the Company or a Restricted Subsidiary) of
Restricted Investments made by the Company and its
89
<PAGE>
Restricted Subsidiaries or (B) the sale (other than to the Company or a
Restricted Subsidiary) of the Capital Stock of an Unrestricted Subsidiary, plus
(v) in the event any Unrestricted Subsidiary has been redesignated a Restricted
Subsidiary or has been merged, consolidated or amalgamated with or into, or
transfers or conveys its assets to, or is liquidated into, the Company or a
Restricted Subsidiary, the fair market value (as determined in good faith by the
Board of Directors) of such Investment in such Unrestricted Subsidiary at the
time of such redesignation, combination or transfer (or of the assets
transferred or conveyed, as applicable), after deducting any Indebtedness
associated with the Unrestricted Subsidiary so designated or combined or any
Indebtedness associated with the assets so transferred or conveyed, not to
exceed, in the case of any Unrestricted Subsidiary, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary, which amount was included in the calculation of the amount of
Restricted Payments, less (vi) the aggregate principal amount of any outstanding
Contribution Indebtedness or, if less, the Cash Contribution Amount. The fair
market value of property other than cash covered by clauses (ii), (iii) and (iv)
above shall be determined in good faith by the Company and (A) in the event of
property with a fair market value in excess of $1.0 million, shall be set forth
in an Officers' Certificate or (B) in the event of property with a fair market
value in excess of $10.0 million, shall be set forth in a resolution approved by
at least a majority of the Board of Directors.
The foregoing provisions do not prohibit: (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at the date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) (a) the repurchase, retirement or other acquisition of any
Equity Interests ('Retired Capital Stock') or Subordinated Indebtedness of the
Company in exchange for, or out of the proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, Equity Interests of the
Company (other than any Disqualified Stock or any Equity Interests sold to an
employee stock ownership plan or any trust established by the Company or any of
its Subsidiaries to the extent such sale was financed by loans from or
guarantees by the Company or one of its Subsidiaries) ('Refunding Capital
Stock') and (b) the declaration and payment of accrued dividends on the Retired
Capital Stock out of the proceeds of the substantially concurrent sale (other
than to a Restricted Subsidiary) of Refunding Capital Stock; (iii) the
redemption, repurchase or other acquisition or retirement of Subordinated
Indebtedness of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, new Indebtedness of the Company which is
Incurred in accordance with the covenant described under '--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock' so long as (A)
the principal amount of such new Indebtedness does not exceed the principal
amount of the Subordinated Indebtedness being so redeemed, repurchased, acquired
or retired for value (plus the amount of any premium required to be paid under
the terms of the instrument governing the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired), (B) such Indebtedness is
subordinated to Senior Indebtedness and the Notes at least to the same extent as
such Subordinated Indebtedness so purchased, exchanged, redeemed, repurchased,
acquired or retired for value, (C) such Indebtedness has a final scheduled
maturity date equal to or later than the final scheduled maturity date of the
Subordinated Indebtedness being so redeemed, repurchased, acquired or retired,
and (D) such Indebtedness has a Weighted Average Life to Maturity equal to or
greater than the remaining Weighted Average Life to Maturity of the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired; (iv) the
repurchase, retirement or other acquisition for value of Equity Interests of the
Company held by any future, present or former employee, director or consultant
of the Company or any Subsidiary of the Company pursuant to any management
equity plan or stock option plan or any other management or employee benefit
plan or agreement; provided, however, that the aggregate amounts paid under this
clause (iv) does not exceed (A) $5.0 million in any calendar year and (B) $10.0
million in the aggregate; provided further, however, that such aggregate amount
(but not annual amount) may be increased by an amount not to exceed (I) the cash
proceeds from the sale of Equity Interests of the Company to members of
management or directors of the Company and its Subsidiaries that occurs after
the Issue Date plus (II) the cash proceeds of key man life insurance policies
received by the Company and its Restricted Subsidiaries after the Issue Date;
(v) 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 (A) 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 would have had a Fixed Charge
Coverage Ratio of at least 2.50 to 1.00 and (B) the aggregate amount of
dividends declared and paid pursuant to this clause (v) does not exceed the net
cash proceeds received by the Company from the sale
90
<PAGE>
of Designated Preferred Stock issued after the Issue Date; (vi) Investments in
Unrestricted Subsidiaries having an aggregate Fair Market Value, taken together
with all other Investments made pursuant to this clause (vi) that are at that
time outstanding, not to exceed $5.0 million at the time of such Investment
(with the Fair Market Value of each Investment being measured at the time made
and without giving effect to subsequent changes in value); (vii) the payment of
dividends on the Company's Common Stock, following the first public offering of
the Company's Common Stock after the Issue Date, of up to 6% per annum of the
net proceeds received by the Company in such public offering; (viii) the
repurchase, retirement or other acquisition for value of Equity Interests of the
Company in existence on the Issue Date and which are not held by Blackstone or
the Management Group on the Issue Date (including any Equity Interests issued in
respect of such Equity Interests as a result of a stock split, recapitalization,
merger, combination, consolidation or otherwise, but excluding any management
equity plan or stock option plan or similar agreement), provided that (A) the
aggregate amounts paid under this clause (viii) shall not exceed $10.0 million
and (B) after giving effect thereto the Company would be permitted to Incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first sentence of the covenant described under
'--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock'; (ix) Investments that are made with Excluded Contributions; (x) the
payment of dividends in an amount not to exceed 50% of the Net Proceeds in
excess of $30.0 million received by the Company or any of its Restricted
Subsidiaries from the sale of Vernon Plastics; provided, however, that for the
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date of such sale and the
date of payment of any such dividends the Company has a Fixed Charge Coverage
Ratio (after giving effect to such sale) of at least 2.50 to 1.00; (xi) the
declaration and payment of dividends to holders of any class or series of
Disqualified Stock of the Company issued in accordance with the covenant
entitled '--Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock'; (xii) repurchases of Equity Interests deemed to occur upon
exercise of stock options if such Equity Interests represent a portion of the
exercise price of such options; (xiii) Restricted Payments made on the Issue
Date contemplated by the Recapitalization Agreement; and (xiv) other Restricted
Payments in an aggregate amount not to exceed $2.0 million; provided, however,
that at the time of, and after giving effect to, any Restricted Payment
permitted under clauses (v), (vi), (vii), (viii), (ix), (x) and (xiv), no
Default or Event of Default shall have occurred and be continuing or would occur
as a consequence thereof; provided further, however, that for purposes of
determining the aggregate amount expended for Restricted Payments in accordance
with clause (c) of the immediately preceding paragraph, only the amounts
expended under clauses (i), (iv), (v), (vi), (vii), (viii) and (xiv) shall be
included.
As of the Issue Date, all of the Company's Subsidiaries will be Restricted
Subsidiaries. The Company will not permit any Unrestricted Subsidiary to become
a Restricted Subsidiary except pursuant to the definition of 'Unrestricted
Subsidiary.' For purposes of designating any Restricted Subsidiary as an
Unrestricted Subsidiary, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so
designated will be deemed to be Restricted Payments in an amount determined as
set forth in the last sentence of the definition of 'Investments.' Such
designation will only be permitted if a Restricted Payment in such amount would
be permitted at such time (whether pursuant to the first paragraph of this
covenant or under clause (vi) or (ix)) and if such Subsidiary otherwise meets
the definition of an Unrestricted Subsidiary.
Dividend and Other Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or consensual
restriction on the ability of any Restricted Subsidiary to: (a)(i) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest
or participation in, or measured by, its profits, or (ii) pay any Indebtedness
owed to the Company or any of its Restricted Subsidiaries; (b) make loans or
advances to the Company or any of its Restricted Subsidiaries; or (c) sell,
lease or transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries except in each case for such encumbrances or
restrictions existing under or by reason of: (1) contractual encumbrances or
restrictions in effect on the Issue Date, including pursuant to the Credit
Agreement and the other Senior Credit Documents; (2) the Indenture and the
Exchange Notes; (3) applicable law or any applicable rule, regulation or order;
(4) any agreement or other instrument relating to Indebtedness of a Person
acquired by the Company or any Restricted Subsidiary which was in existence at
the time of such acquisition (but not created in contemplation thereof or to
provide all or any portion of the funds or credit support utilized to consummate
such acquisition), which
91
<PAGE>
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired; (5) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; (6) Secured Indebtedness
otherwise permitted to be Incurred pursuant to the covenants described under
'--Limitations on Incurrence of Indebtedness and Issuance of Disqualified Stock'
and '--Liens' that limit the right of the debtor to dispose of the assets
securing such Indebtedness; (7) restrictions on cash or other deposits or net
worth imposed by customers under contracts entered into in the ordinary course
of business; (8) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business; (9)
customary provisions contained in leases and other similar agreements entered
into in the ordinary course of business that impose restrictions of the type
described in clause (c) above; (10) 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; or (11) any
encumbrances or restrictions of the type referred to in clauses (a), (b) and (c)
above imposed by any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings of the
contracts, instruments or obligations referred to in clauses (1) through (10)
above; provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are, in the
good faith judgment of the Board of Directors, no more restrictive with respect
to such dividend and other payment restrictions than those contained in the
dividend or other payment restrictions prior to such amendment, modification,
restatement, renewal, increase, supplement, refunding, replacement or
refinancing.
Asset Sales. The Indenture provides that the Company will not, and will
not permit any of its Restricted Subsidiaries to, cause or make an Asset Sale,
unless (x) the Company, or its Restricted Subsidiaries, 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 and (y) at least 75% of
the consideration therefor received by the Company, or such Restricted
Subsidiary, as the case may be, is in the form of Cash Equivalents; provided
that the amount of (a) any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet or in the notes thereto) of
the Company or any Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the Exchange Notes) that are assumed by the
transferee of any such assets, (b) any notes or other obligations received by
the Company or such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash within 60 days
of the receipt thereof (to the extent of the cash received), and (c) any
Designated Noncash Consideration received by the Company or any of its
Restricted Subsidiaries in such Asset Sale having an aggregate Fair Market
Value, taken together with all other Designated Noncash Consideration received
pursuant to this clause (c) that is at that time outstanding, not to exceed the
greater of 3.5% of Total Tangible Assets or $15.0 million at the time of the
receipt of such Designated Noncash Consideration (with the Fair Market Value of
each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value) shall be
deemed to be Cash Equivalents for the purposes of this provision.
Within 365 days after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale, the Company or such Restricted Subsidiary
may apply the Net Proceeds from such Asset Sale, at its option, (i) to
permanently reduce Obligations under the Credit Agreement (and, in the case of
revolving Obligations, to correspondingly reduce commitments with respect
thereto) or other Senior Indebtedness or Pari Passu Indebtedness (provided that
if the Company shall so reduce Obligations under Pari Passu Indebtedness, it
will equally and ratably reduce Obligations under the Notes by making an offer
(in accordance with the procedures set forth below for an Asset Sale Offer) to
all Holders to purchase at a purchase price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, the pro rata principal
amount of Notes) or Indebtedness of a Restricted Subsidiary, in each case other
than Indebtedness owed to the Company or an Affiliate of the Company, (ii) to an
investment in any one or more businesses, capital expenditures or acquisitions
of other assets in each case used or useful in a Similar Business, and/or (iii)
to make an investment in properties or assets that replace the properties and
assets that are the subject of such Asset Sale. Pending the final application of
any such Net Proceeds, the Company or such Restricted Subsidiary may temporarily
reduce Indebtedness under a revolving credit facility, if any, or otherwise
invest such Net Proceeds in Cash Equivalents or Investment Grade Securities. The
Indenture provides that any Net Proceeds from any Asset Sale that are not
invested as provided and within the time period set forth in the first sentence
of this paragraph will be deemed to
92
<PAGE>
constitute 'Excess Proceeds'. When the aggregate amount of Excess Proceeds
exceeds $15.0 million, the Company shall make an offer to all Holders of Notes
(an 'Asset Sale Offer') to purchase the maximum principal amount of Notes, that
is an integral multiple of $1,000, that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date fixed for
the closing of such offer, in accordance with the procedures set forth in the
Indenture. The Company will commence an Asset Sale Offer with respect to Excess
Proceeds within ten Business Days after the date that Excess Proceeds exceeds
$15.0 million by mailing the notice required pursuant to the terms of the
Indenture, with a copy to the Trustee. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased in the manner described below. Upon completion of any
such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. The
Company may apply as a credit in satisfaction of all or any part of the
Company's obligation to make an Asset Sale Offer the aggregate principal amount
of Notes purchased by the Company in open-market transactions (excluding Notes
optionally redeemed, or required to be purchased by the Company, pursuant to the
terms of the Indenture) within the previous 24 consecutive months.
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 or regulations are applicable in connection with the repurchase
of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions
of any securities laws or regulations conflict with the provisions of the
Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
If more Notes are tendered pursuant to an Asset Sale Offer than the Company
is required to purchase, selection of such Notes for purchase 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 so listed, on a pro rata basis, by lot or by such other method as the
Trustee shall deem fair and appropriate (and in such manner as complies with
applicable legal requirements); provided that no Notes of $1,000 or less shall
be purchased in part.
Notices of an Asset Sale Offer shall be mailed by first class mail, postage
prepaid, at least 30 but not more than 60 days before the purchase date to each
Holder of Notes at such Holder's registered address.
A new Note in principal amount equal to the unpurchased portion of any Note
purchased in part will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the purchase date unless the
Company defaults in payment of the purchase price, interest shall cease to
accrue on Exchange Notes or portions thereof purchased.
Transactions with Affiliates. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, make any payment to, or sell, lease, transfer or otherwise dispose
of any of its properties or assets to, or purchase any property or assets from,
or enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an 'Affiliate Transaction') involving
aggregate consideration in excess of $5.0 million, unless (a) such Affiliate
Transaction is on terms that are not materially less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, the Company delivers to the Trustee a resolution adopted by the
majority of the Board of Directors of the Company, approving such Affiliate
Transaction and set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (a) above.
The foregoing provisions do not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries; (ii)
Permitted Investments and Restricted Payments permitted by the provisions of the
Indenture described above under the covenant '--Limitation on Restricted
Payments'; (iii) the payment of annual monitoring fees to Blackstone in an
amount not to exceed $1.5 million in any calendar year and any related
out-of-pocket expenses; (iv) the payment of reasonable and customary fees paid
to, and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Restricted
93
<PAGE>
Subsidiary; (v) payments by the Company or any of its Restricted Subsidiaries to
Blackstone made for any financial advisory, financing, underwriting or placement
services or in respect of other investment banking activities, including,
without limitation, in connection with acquisitions or divestitures, which
payments are approved by a majority of the Board of Directors of the Company in
good faith; (vi) transactions in which the Company or any of its Restricted
Subsidiaries, as the case may be, delivers to the Trustee a letter from a
nationally recognized investment banking firm stating that such transaction is
fair to the Company or such Restricted Subsidiary from a financial point of view
or meets the requirements of clause (a) of the preceding paragraph; (vii)
payments or loans to employees in the ordinary course of business in accordance
with past practices which are approved by a majority of the Board of Directors
of the Company in good faith; (viii) any agreement as in effect as of the Issue
Date or any amendment thereto (so long as any such amendment is not
disadvantageous to the holders of the Notes in any material respect) or any
transaction contemplated thereby; and (ix) the payment of all fees and expenses
related to the Transactions which are described in the Prospectus.
Liens. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
Incur or suffer to exist any Lien on any asset or property of the Company or
such Restricted Subsidiary, or any income or profits therefrom, or assign or
convey any right to receive income therefrom, that secures any obligations of
the Company or any of its Subsidiaries (other than Senior Indebtedness) unless
the Notes are equally and ratably secured with (or on a senior basis to, in the
case of obligations subordinated in right of payment to the Notes) the
obligations so secured until such time as such obligations are no longer secured
by a Lien. The preceding sentence will not require the Company or any Restricted
Subsidiary to secure the Notes if the Lien consists of a Permitted Lien.
The Indenture provides that no Subsidiary Guarantor will directly or
indirectly create, Incur or suffer to exist any Lien on any asset or property of
such Subsidiary Guarantor or any income or profits therefrom, or assign or
convey any right to receive income therefrom, that secures any obligation of
such Subsidiary Guarantor (other than Senior Indebtedness of such Subsidiary
Guarantor) unless the Subsidiary Guarantee of such Subsidiary Guarantor is
equally and ratably secured with (or on a senior basis to, in the case of
obligations subordinated on right of payment to such Subsidiary Guarantor's
Subsidiary Guarantee) the obligations so secured. The preceding sentence will
not require any Subsidiary Guarantor to secure its Subsidiary Guarantee if the
Lien consists of a Permitted Lien.
Limitation on Other Pari Passu Indebtedness. The Indenture provides that
the Company will not, and will not permit any Subsidiary Guarantor to, directly
or indirectly, Incur any Indebtedness (including Acquired Indebtedness) that is
subordinate in right of payment to any Indebtedness of the Company or any
Indebtedness of any Subsidiary Guarantor, as the case may be, unless such
Indebtedness is either (i) pari passu in right of payment with the Notes or such
Subsidiary Guarantor's Subsidiary Guarantee, as the case may be, or (ii)
subordinate in right of payment to the Notes or such Subsidiary Guarantor's
Subsidiary Guarantee, as the case may be.
Reports and Other Information. The Indenture provides that notwithstanding
that the Company may not be subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act or otherwise report on an annual and quarterly
basis on forms provided for such annual and quarterly reporting pursuant to
rules and regulations promulgated by the SEC, the Indenture requires the Company
to file with the SEC (and provide the Trustee and Holders with copies thereof,
without cost to each Holder, within 15 days after it files them with the SEC),
(i) within 90 days after the end of each fiscal year, annual reports on Form
10-K (or any successor or comparable form) containing the information required
to be contained therein (or required in such successor or comparable form), (ii)
within 45 days after the end of each of the first three fiscal quarters of each
fiscal year, reports on Form 10-Q (or any successor or comparable form), (iii)
promptly from time to time after the occurrence of an event required to be
therein reported, such other reports on Form 8-K (or any successor or comparable
form), and (iv) any other information, documents and other reports which the
Company would be required to file with the SEC if it were subject to Section 13
or 15(d) of the Exchange Act; provided, however, the Company shall not be so
obligated to file such reports with the SEC if the SEC does not permit such
filing, in which event the Company will make available such information to
prospective purchasers of Exchange Notes, in addition to providing such
information to the Trustee and the Holders, in each case within 15 days after
the time the Company would be required to file such information with the SEC if
it were subject to Section 13 or 15(d) of the Exchange Act.
94
<PAGE>
Future Subsidiary Guarantors. The Indenture provides that the Company will
cause each Restricted Subsidiary organized under the laws of any state of the
United States of America that Incurs Indebtedness or that is a guarantor of
Indebtedness Incurred pursuant to clauses (a) and (l) of the second paragraph of
the covenant described under '--Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock' to execute and deliver to the Trustee a
supplemental indenture pursuant to which such Subsidiary will guarantee payment
of the Notes. Each Subsidiary Guarantee will be limited to an amount not to
exceed the maximum amount that can be guaranteed by that Subsidiary without
rendering the Subsidiary Guarantee, as it relates to such Subsidiary, voidable
under applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally.
MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into or wind up into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets in one or more related
transactions, to any Person unless (i) the Company is the surviving corporation
or the Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition will have been made is a corporation organized or existing
under the laws of the United States, any state thereof, the District of
Columbia, or any territory thereof (the Company or such Person, as the case may
be, being herein called the 'Successor Company'); (ii) the Successor Company (if
other than the Company) expressly assumes all the obligations of the Company
under the Indenture and the Notes pursuant to a supplemental indenture or other
documents or instruments in form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction (and treating any Indebtedness which becomes
an obligation of the Successor Company or any of its Restricted Subsidiaries as
a result of such transaction as having been Incurred by the Successor Company or
such Restricted Subsidiary at the time of such transaction) no Default or Event
of Default shall have occurred and be continuing; (iv) immediately after giving
pro forma effect to such transaction, as if such transaction had occurred at the
beginning of the applicable four-quarter period, the Successor Company would be
permitted to Incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first sentence of the covenant
described under '--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock' or the Fixed Charge Coverage Ratio for the Successor Company
and its Restricted Subsidiaries would be greater than such ratio for the Company
and its Restricted Subsidiaries immediately prior to such transaction; (v) each
Subsidiary Guarantor, unless it is the other party to the transactions described
above, shall have by supplemental indenture confirmed that its Subsidiary
Guarantee shall apply to such Person's obligations under the Indenture and the
Notes; and (vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture. The Successor Company will succeed to, and be substituted for, the
Company under the Indenture and the Notes. Notwithstanding the foregoing clauses
(iii) and (iv), (a) any Restricted Subsidiary may consolidate with, merge into
or transfer all or part of its properties and assets to the Company or to
another Restricted Subsidiary and (b) the Company may merge with an Affiliate
incorporated solely for the purposes of reincorporating the Company in another
state of the United States so long as the amount of Indebtedness of the Company
and its Restricted Subsidiaries is not increased thereby.
Each Subsidiary Guarantor shall not, and the Company will not permit a
Subsidiary Guarantor to, consolidate or merge with or into or wind up into
(whether or not such Subsidiary Guarantor is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions to, any Person unless (i) such Subsidiary Guarantor is the
surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary Guarantor) or to which
such sale, assignment, transfer, lease, conveyance or other disposition will
have been made is a corporation organized or existing under the laws of the
United States, any state thereof, the District of Columbia, or any territory
thereof (such Subsidiary Guarantor or such Person, as the case may be, being
herein called the 'Successor Guarantor'); (ii) the Successor Guarantor (if other
than such Subsidiary Guarantor) expressly assumes all the obligations of such
Subsidiary Guarantor under the Indenture and such Subsidiary Guarantors's
Subsidiary Guarantee pursuant to a supplemental indenture or other documents or
instruments in form reasonably satisfactory to the Trustee; (iii) immediately
after giving effect to such transaction (and treating
95
<PAGE>
any Indebtedness which becomes an obligation of the Successor Guarantor or any
of its Subsidiaries as a result of such transaction as having been Incurred by
the Successor Guarantor or such Subsidiary at the time of such transaction) no
Default or Event of Default shall have occurred and be continuing; and (iv) the
Subsidiary Guarantor shall have delivered or caused to be delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture. The Successor Guarantor will succeed to, and be
substituted for, such Subsidiary Guarantor under the Indenture and such
Subsidiary Guarantor's Subsidiary Guarantee.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Exchange Note when due, whether or not prohibited by
the provisions described under '--Ranking' above, continued for 30 days, (ii) a
default in the payment of principal or premium, if any, of any Note when due at
its Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, whether or not such payment is prohibited by the
provisions described under '--Ranking' above, (iii) the failure by the Company
to comply with its obligations under the covenant described under '--Merger,
Consolidation or Sale of All or Substantially All Assets' above, continued for
30 days, (iv) the failure by the Company to comply for 30 days after notice with
any of its obligations under the covenants described under '--Change of Control'
or '--Certain Covenants' above (in each case, other than a failure to purchase
Notes), (v) the failure by the Company to comply for 60 days after notice with
its other agreements contained in the Securities or the Indenture, (vi) the
failure by the Company or any Significant Subsidiary to pay any Indebtedness
within any applicable grace period after final maturity or the acceleration of
any such Indebtedness by the holders thereof because of a default if the total
amount of such Indebtedness unpaid or accelerated exceeds $15.0 million or its
foreign currency equivalent (the 'cross acceleration provision'), (vii) certain
events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary (the 'bankruptcy provisions'), (viii) the rendering of
any judgment or decree for the payment of money in excess of $15.0 million or
its foreign currency equivalent against the Company or a Significant Subsidiary
if (A) an enforcement proceeding thereon is commenced or (B) such judgment or
decree remains outstanding for a period of 60 days following such judgment and
is not discharged, waived or stayed (the 'judgment default provision'), or (ix)
any Subsidiary Guarantee ceases to be in full force and effect (except as
contemplated by the terms thereof) or any Subsidiary Guarantor denies or
disaffirms its obligations under the Indenture or any Subsidiary Guarantee and
such Default continues for 10 days.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clause (iv) or (v) will not constitute an Event of
Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified in clauses (iv) and (v) hereof after
receipt of such notice.
If an Event of Default (other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes by notice to the Company may declare the principal of,
premium, if any, and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs, the principal
of, premium, if any, and interest on all the Notes will become immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holders. Under certain circumstances, the Holders of a majority in principal
amount of the outstanding Notes may rescind any such acceleration with respect
to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to
96
<PAGE>
the Indenture or the Notes unless (i) such Holder has previously given the
Trustee notice that an Event of Default is continuing, (ii) Holders of at least
25% in principal amount of the outstanding Notes have requested the Trustee to
pursue the remedy, (iii) such Holders have offered the Trustee reasonable
security or indemnity against any loss, liability or expense, (iv) the Trustee
has not complied with such request within 60 days after the receipt of the
request and the offer of security or indemnity, and (v) the Holders of a
majority in principal amount of the outstanding Notes have not given the Trustee
a direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the Holders of a majority in principal amount of the
outstanding Notes are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability. Prior to taking
any action under the Indenture, the Trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
actually known to the Trustee, the Trustee must mail to each Holder notice of
the Default within the earlier of 90 days after it occurs or 30 days after it is
actually known to a Trust Officer or written notice of it is received by the
Trustee. Except in the case of a Default in the payment of principal of, premium
(if any) or interest on any Note, the Trustee may withhold notice if and so long
as a committee of its Trust Officers in good faith determines that withholding
notice is in the interests of the Noteholders. In addition, the Company is
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. The Company also is required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which would constitute certain Defaults, their status and what action
the Company is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the Holders of a majority in principal amount of the Notes
then outstanding. However, without the consent of each Holder of an outstanding
Note affected, no amendment may, among other things, (i) reduce the amount of
Notes whose Holders must consent to an amendment, (ii) reduce the rate of or
extend the time for payment of interest on any Note, (iii) reduce the principal
of or extend the Stated Maturity of any Note, (iv) reduce the premium payable
upon the redemption of any Note or change the time at which any Note may be
redeemed as described under 'Optional Redemption' above, (v) make any Note
payable in money other than that stated in the Note, (vi) make any change to the
subordination provisions of the Indenture that adversely affects the rights of
any Holder, (vii) impair the right of any Holder to receive payment of principal
of, premium, if any, and interest on such Holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on or
with respect to such Holder's Notes, (viii) make any change in the amendment
provisions which require each Holder's consent or in the waiver provisions, or
(ix) modify the Subsidiary Guarantees in any manner adverse to the Holders.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add Subsidiary Guarantees with respect to the Notes, to secure the
Notes, to add to the covenants of the Company for the benefit of the Holders or
to surrender any right or power conferred upon the Company, to make any change
that does not adversely affect the rights of any Holder, to comply with any
requirement of the SEC in connection with the qualification of the Indenture
under the TIA or to make certain changes to the Indenture to provide for the
issuance of Additional Notes. However, no amendment may be made to the
subordination provisions of the Indenture that adversely affects the rights of
any holder of Senior Indebtedness then outstanding unless the holders of such
Senior Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
97
<PAGE>
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Noteholder to pay any taxes
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Note selected for redemption or to transfer or exchange
any Note for a period of 15 days prior to a selection of Notes to be redeemed.
The Notes will be issued in registered form and the registered Holder of a Note
will be treated as the owner of such Note for all purposes.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ('legal defeasance'), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under 'Certain Covenants,' the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Subsidiaries and the
judgment default provision described under '--Defaults' above and the
limitations contained in clause (iv) of the first paragraph under 'Merger,
Consolidation or Sale of All or Substantially All Assets' above ('covenant
defeasance'). If the Company exercises its legal defeasance option or its
covenant defeasance option, each Subsidiary Guarantor will be released from all
of its obligations with respect to its Subsidiary Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) with respect only to
Subsidiaries, (viii) or (ix) under '--Defaults' above or because of the failure
of the Company to comply with clause (iv) of the first paragraph under
'--Merger, Consolidation or Sale of All or Substantially All Assets' above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the 'defeasance trust') with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the
Exchange Notes.
98
<PAGE>
GOVERNING LAW
The Indenture provides that it and the Exchange Notes will be governed by,
and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflict of laws to the extent that
the application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
'Acquired Indebtedness' means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person
and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
'Affiliate' of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, 'control'
(including, with correlative meanings, the terms 'controlling,' 'controlled by'
and 'under common control with'), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
'Asset Sale' means (i) the sale, conveyance, transfer or other disposition
(whether in a single transaction or a series of related transactions) of
property or assets (including by way of a sale and leaseback) of the Company or
any Restricted Subsidiary (each referred to in this definition as a
'disposition') or (ii) the issuance or sale of Equity Interests of any
Restricted Subsidiary (whether in a single transaction or a series of related
transactions), in each case other than: (a) a disposition of Cash Equivalents or
obsolete or worn out equipment in the ordinary course of business; (b) the
disposition of all or substantially all of the assets of the Company in a manner
permitted pursuant to the provisions described above under '--Merger,
Consolidation or Sale of All or Substantially All Assets' or any disposition
that constitutes a Change of Control; (c) any Restricted Payment that is
permitted to be made, and is made, under the covenant described above under
'--Limitation on Restricted Payments'; (d) any disposition of assets with an
aggregate Fair Market Value of less than $1.0 million; (e) any disposition of
property or assets by a Restricted Subsidiary to the Company or by the Company
or a Restricted Subsidiary to a Restricted Subsidiary; (f) any exchange of like
property pursuant to Section 1031 of the Internal Revenue Code of 1986, as
amended, for use in a Similar Business; (g) any financing transaction with
respect to property built or acquired by the Company or any Restricted
Subsidiary after the Issue Date, including sale-leasebacks and asset
securitizations; (h) sales of assets received by the Company upon the
foreclosure on a Lien; and (i) any sale of Equity Interests in, or Indebtedness
or other securities of, an Unrestricted Subsidiary.
'Bank Indebtedness' means any and all amounts payable under or in respect
of the Credit Agreement, the other Senior Credit Documents and any Refinancing
Indebtedness with respect thereto, as amended from time to time, including
principal, premium (if any), interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not a claim for post-filing interest is allowed in such
proceedings), fees, charges, expenses, reimbursement obligations, guarantees and
all other amounts payable thereunder or in respect thereof.
'Blackstone' means Blackstone Capital Partners III Merchant Banking Fund
L.P. and its Affiliates.
'Board of Directors' means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
'Business Day' means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
'Capitalized Lease Obligation' means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized and reflected as a liability on
a balance sheet (excluding the footnotes thereto) in accordance with GAAP.
'Capital Stock' means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests
99
<PAGE>
(whether general or limited), and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
'Cash Contribution Amount' means the aggregate amount of cash contributions
made to the capital of the Company described in the definition of 'Contribution
Indebtedness.'
'Cash Equivalents' means (i) U.S. dollars, (ii) securities issued or
directly and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof, (iii) certificates of deposit, time deposits
and eurodollar time deposits with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any commercial bank having capital
and surplus in excess of $500.0 million and whose long-term debt is rated 'A' or
the equivalent thereof by Moody's or S&P, (iv) repurchase obligations with a
term of not more than 30 days for underlying securities of the types described
in clauses (ii) and (iii) above entered into with any financial institution
meeting the qualifications specified in clause (iii) above, (v) commercial paper
issued by a corporation (other than an Affiliate of the Company) rated A-1 or
the equivalent thereof of Moody's or S&P and in each case maturing within 90
days after the date of acquisition, (vi) investment funds investing at least 95%
of their assets in securities of the types described in clauses (i) through (v)
above, (vii) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of the
two highest rating categories obtainable from either Moody's or S&P, and (viii)
Indebtedness or preferred stock that is registered under the Exchange Act and is
issued by Persons with a rating of 'A' or higher from S&P or 'A2' or higher from
Moody's.
'Code' means the Internal Revenue Code of 1986, as amended.
'Consolidated Depreciation and Amortization Expense' means with respect to
any Person for any period, the total amount of depreciation and amortization
expense (excluding amortization of sample book and design and engraving costs,
and including amortization of cylinder bases) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis and otherwise determined in
accordance with GAAP.
'Consolidated Interest Expense' means, with respect to any period, the sum,
without duplication, of: (i) consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, to the extent such expense was
deducted in computing Consolidated Net Income (including amortization of
original issue discount, the interest component of Capitalized Lease Obligations
(or any financing lease which has substantially the same economic effect as a
Capitalized Lease Obligation), net payments and receipts (if any) pursuant to
Hedging Obligations and amortization of deferred financing fees Incurred after
the Issue Date and excluding amortization of deferred financing fees Incurred on
or prior to the Issue Date), (ii) consolidated capitalized interest of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued,
and (iii) the earned discount or yield with respect to the sale of receivables.
'Consolidated Net Income' means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis; provided, however, that (i) any net
after-tax extraordinary gains or losses shall be excluded, (ii) the Net Income
for such period shall not include the cumulative effect of a change in
accounting principles during such period, (iii) any net after-tax income or loss
from discontinued operations and any net after-tax gains or losses on disposal
of discontinued operations shall be excluded, (iv) any net after-tax gains or
losses attributable to asset dispositions other than in the ordinary course of
business (as determined in good faith by the Board of Directors) shall be
excluded, (v) the Net Income for such period of any Person that is not a
Subsidiary of such Person, or is an Unrestricted Subsidiary, or that is
accounted for by the equity method of accounting, shall be included only to the
extent of the amount of dividends or distributions or other payments paid in
cash (or to the extent converted into cash) to the referent Person or a
Restricted Subsidiary thereof in respect of such period but the referent
Person's equity in a net loss of such Person shall be included to the extent of
the aggregate Investment of the referent Person in such Person, (vi) the Net
Income of any Person acquired in a pooling of interests transaction shall not be
included for any period prior to the date of such acquisition, and (vii) the Net
Income for such period of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions by
such Restricted Subsidiary of its Net Income is not at the date of determination
permitted without any prior governmental approval (which has not been obtained)
or, directly or indirectly, by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
100
<PAGE>
regulation applicable to that Restricted Subsidiary or its stockholders, unless
such restrictions with respect to the payment of dividends or in similar
distributions has been legally waived; provided that the net loss of any such
Restricted Subsidiary shall be included. Notwithstanding the foregoing, for the
purpose of the covenant described under '--Limitation on Restricted Payments'
only, there shall be excluded from Consolidated Net Income any dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a Restricted Subsidiary to the extent such
dividends, repayments or transfers increase the amount of Restricted Payments
permitted under such covenant pursuant to clauses (c)(iv) and (v) thereof.
'Contingent Obligations' means, with respect to any Person, any obligation
of such Person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ('primary obligations') of any other Person (the
'primary obligor') in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation against loss in respect thereof.
'Contribution Indebtedness' means Subordinated Indebtedness of the Company
in an aggregate principal amount not greater than twice the aggregate amount of
cash contributions made to the capital of the Company, provided that such
Contribution Indebtedness (i) has a Stated Maturity later than the Stated
Maturity of the Notes, (ii) is Incurred substantially concurrently with such
cash contributions, and (iii) is so designated as Contribution Indebtedness,
pursuant to an Officers' Certificate, on the Incurrence date thereof.
'Credit Agreement' means the credit agreement to be dated as of March 13,
1998, as amended, restated, supplemented, waived, replaced, refunded, refinanced
or otherwise modified from time to time, including any agreement extending the
maturity thereof or otherwise restructuring all or any portion of the
Indebtedness under such agreement (except to the extent that any such amendment,
restatement, supplement, waiver, replacement, refunding, refinancing or other
modification thereto would be prohibited by the terms of the Indenture, unless
otherwise agreed to by the Holders of at least a majority in aggregate principal
amount of Notes at the time outstanding), among the Company, certain of its
subsidiaries and The Chase Manhattan Bank, as Administrative Agent.
'Default' means any event which is, or after notice or passage of time or
both would be, an Event of Default.
'Designated Noncash Consideration' means the Fair Market Value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, less the amount of Cash Equivalents received in connection with
a subsequent sale of such Designated Noncash Consideration.
'Designated Preferred Stock' means preferred stock of the Company (other
than Disqualified Stock) that is issued for cash (other than to a Subsidiary of
the Company or an employee stock ownership plan or trust established by the
Company or any of its Subsidiaries to the extent such issuance was financed by
loans from or guarantees by the Company or any of its Subsidiaries) and is so
designated as Designated Preferred Stock, pursuant to an Officers' Certificate,
on the issuance date thereof, the cash proceeds of which are excluded from the
calculation set forth in clause (c) of the covenant described under
'--Limitation on Restricted Payments.'
'Designated Senior Indebtedness' means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof, are committed to lend up to,
at least $25 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as 'Designated
Senior Indebtedness' for purposes of the Indenture.
'Disqualified Stock' means, with respect to any Person, any Capital Stock
of such Person which, by its terms (or by the terms of any security into which
it is convertible or for which it is redeemable or exchangeable), or upon the
happening of any event, (i) matures or is mandatorily redeemable, pursuant to a
sinking fund
101
<PAGE>
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock, or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case prior to the first anniversary of the maturity
date of the Notes; provided, however, 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 first
anniversary shall be deemed to be Disqualified Stock; provided further, however,
that if such Capital Stock is issued to any employee or to any plan for the
benefit of employees of the Company or its Subsidiaries or by any such plan to
such employees, such Capital Stock shall not constitute Disqualified Stock
solely because it may be required to be repurchased by the Company in order to
satisfy applicable statutory or regulatory obligations.
'EBITDA' means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period plus, without duplication, (i)
provision for taxes based on income or profits of such Person for such period
deducted in computing Consolidated Net Income, plus (ii) Consolidated Interest
Expense of such Person for such period to the extent the same was deducted in
computing Consolidated Net Income, plus (iii) Consolidated Depreciation and
Amortization Expense of such Person for such period to the extent such
Consolidated Depreciation and Amortization Expense was deducted in computing
Consolidated Net Income, plus (iv) any non-recurring fees, expenses or charges
related to any Equity Offering or acquisition (whether or not successful) and
fees, expenses or charges related to the transactions consummated pursuant to
the Recapitalization Agreement (including fees to Blackstone), plus (v) any
other noncash charges reducing Consolidated Net Income for such period
(excluding any such charge which requires an accrual of, or cash reserve for,
anticipated cash charges for any future period), plus (vi) the amount of
monitoring fees paid during such period not to exceed $2.0 million during any
four-quarter period, plus (vii) for any period ending on or prior to December
31, 1999, severance, relocation and other non-recurring fees, expenses or
charges related to the Company's Integration Plan (the 'Integration Plan
Charges') in an aggregate amount not to exceed during 1998 and 1999 the excess
of (a) $25.0 million over (b) the amount of such Integration Plan Charges that
do not reduce Consolidated Net Income in 1998 or 1999, less, without
duplication, (viii) noncash items increasing Consolidated Net Income of such
Person for such period (excluding any items which represent the reversal of any
accrual of, or cash reserve for, anticipated cash charges in any prior period).
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization of, a Subsidiary of the
Company shall be added to Consolidated Net Income to compute EBITDA only to the
extent (and in the same proportion) that the Net Income of such Subsidiary was
included in calculating Consolidated Net Income.
'Equity Interests' means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
'Equity Offering' means any public or private sale of common stock or
preferred stock of the Company (other than Disqualified Stock), other than (i)
public offerings with respect to the Company's Common Stock registered on Form
S-8, (ii) any such public or private sale that constitutes an Excluded
Contribution, and (iii) any sale to a Permitted Holder.
'Exchange Act' means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
'Excluded Contributions' means the net cash proceeds received by the
Company after the Issue Date from (i) contributions to its common equity capital
and (ii) the sale (other than to a Subsidiary or to any Company or Subsidiary
management equity plan or stock option plan or any other management or employee
benefit plan or agreement) of Capital Stock (other than Disqualified Stock and
Designated Preferred Stock) of the Company, in each case designated as Excluded
Contributions pursuant to an Officers' Certificate executed by an Officer of the
Company, the cash proceeds of which are excluded from the calculation set forth
in paragraph (c) of the '--Limitation on Restricted Payments' covenant.
'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.
'Fixed Charge Coverage Ratio' means, with respect to any Person for any
period, the ratio of EBITDA of such Person for such period to the Fixed Charges
of such Person for such period. In the event that the Company
102
<PAGE>
or any of its Restricted Subsidiaries Incurs or redeems any Indebtedness (other
than in the case of revolving credit borrowings, in which case interest expense
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period) or issues or redeems preferred stock subsequent to
the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated but prior to the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the 'Calculation Date'), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such Incurrence or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
period. For purposes of making the computation referred to above, Investments,
acquisitions, dispositions, mergers, consolidations and discontinued operations
(as determined in accordance with GAAP), in each case with respect to an
operating unit of a business, that have been made by the Company or any of its
Restricted Subsidiaries during the four-quarter reference period or subsequent
to such reference period and on or prior to or simultaneously with the
Calculation Date shall be calculated on a pro forma basis assuming that all such
Investments, acquisitions, dispositions, discontinued operations, mergers and
consolidations (and the reduction of any associated fixed charge obligations and
the change in EBITDA resulting therefrom) had occurred on the first day of the
four-quarter reference period. If since the beginning of such period any Person
(that subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Investment, acquisition, disposition, discontinued operation,
merger or consolidation, in each case with respect to an operating unit of a
business, that would have required adjustment pursuant to this definition, then
the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
thereto for such period as if such Investment, acquisition, disposition,
discontinued operation, merger or consolidation had occurred at the beginning of
the applicable four-quarter period. For purposes of this definition, whenever
pro forma effect is to be given to a transaction, including without limitation
the Transactions, the pro forma calculations shall be made in good faith by a
responsible financial or accounting officer of the Company. If any Indebtedness
bears a floating rate of interest and is being given pro forma effect, the
interest on such Indebtedness shall be calculated as if the rate in effect on
the Calculation Date had been the applicable rate for the entire period (taking
into account any Hedging Obligations applicable to such Indebtedness if such
Hedging Obligation has a remaining term in excess of 12 months). Interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by a responsible financial or accounting officer of the
Company to be the rate of interest implicit in such Capitalized Lease Obligation
in accordance with GAAP. For purposes of making the computation referred to
above, interest on any Indebtedness under a revolving credit facility computed
on a pro forma basis shall be computed based upon the average daily balance of
such Indebtedness during the applicable period. Interest on Indebtedness that
may optionally be determined at an interest rate based upon a factor of a prime
or similar rate, a eurocurrency interbank offered rate, or other rate, shall be
deemed to have been based upon the rate actually chosen, or, if none, then based
upon such optional rate chosen as the Company may designate. Any such pro forma
calculation may include adjustments appropriate, in the reasonable determination
of the Company as set forth in an Officers' Certificate, to reflect operating
expense reductions reasonably expected to result from any acquisition,
disposition, merger, consolidation or discontinued operation, including without
limitation the Recapitalization and the Imperial Acquisition.
'Fixed Charges' means, with respect to any Person for any period, the sum
of (i) Consolidated Interest Expense of such Person for such period and (ii) all
cash dividend payments (excluding items eliminated in consolidation) on any
series of preferred stock of such Person and its Subsidiaries.
'Foreign Subsidiary' means a Restricted Subsidiary not organized or
existing under the laws of the United States, any State thereof, the District of
Columbia or any territory thereof.
'GAAP' means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date. For the purposes of the
Indenture, the term 'consolidated' with respect to any Person shall mean such
Person consolidated with its Restricted Subsidiaries, and shall not include any
Unrestricted Subsidiary, but the interest of such Person in an Unrestricted
Subsidiary will be accounted for as an Investment.
103
<PAGE>
'Government Securities' means securities that are (i) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in each case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Securities
or a specific payment of principal of or interest on any such Government
Securities held by such custodian for the account of the holder of such
depository receipt; provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Securities or the specific payment of principal of or interest on
the Government Securities evidenced by such depository receipt.
'Guarantee' means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
'Hedging Obligations' means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange,
interest rates or commodity prices.
'Holder' means the Person in whose name a Note is registered on the
Registrar's books.
'Incur' means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
person at the time it becomes a Subsidiary.
'Indebtedness' means, with respect to any Person, (i) the principal and
premium (if any) of any indebtedness of such person, whether or not contingent,
(a) in respect of borrowed money, (b) evidenced by bonds, notes, debentures or
similar instruments or letters of credit or bankers' acceptances (or, without
duplication, reimbursement agreements in respect thereof), (c) representing the
deferred and unpaid purchase price of any property, except any such balance that
constitutes a trade payable or similar obligation to a trade creditor due within
six months from the date on which it is Incurred, in each case Incurred in the
ordinary course of business, which purchase price is due more than six months
after the date of placing the property in service or taking delivery and title
thereto, (d) in respect of Capitalized Lease Obligations, or (e) representing
any Hedging Obligations, if and to the extent of any of the foregoing
Indebtedness (other than letters of credit and Hedging Obligations) would appear
as a liability upon a balance sheet (excluding the footnotes thereto) of such
Person prepared in accordance with GAAP, (ii) to the extent not otherwise
included, any obligation of such Person to be liable for, or to pay, as obligor,
guarantor or otherwise, on the Indebtedness of another Person (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business), and (iii) to the extent not otherwise included, Indebtedness of
another Person secured by a Lien on any asset owned by such Person (whether or
not such Indebtedness is assumed by such Person); provided, however, that
Contingent Obligations Incurred in the ordinary course of business shall be
deemed not to constitute Indebtedness.
'Initial Purchasers' means Chase Securities Inc. and Bear, Stearns & Co.
Inc.
'Investment Grade Securities' means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
'Investments' means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding
104
<PAGE>
accounts receivable, trade credit and advances to customers and commission,
travel and similar advances to officers, employees and consultants made in the
ordinary course of business), purchases or other acquisition for consideration
(including agreements providing for the adjustment of purchase price) of
Indebtedness, Equity Interests or other securities issued by any other Person
and investments that are required by GAAP to be classified on the balance sheet
of the Company in the same manner as the other investments included in this
definition to the extent such transactions involve the transfer of cash or other
property. For purposes of the definition of 'Unrestricted Subsidiary' and the
covenant described under '--Limitation on Restricted Payments,' (i)
'Investments' shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of a
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent 'Investment' in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's 'Investment' in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the Fair Market Value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its Fair Market Value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
'Issue Date' means the date on which the Old Notes were originally issued.
'Lien' means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction);
provided that in no event shall an operating lease be deemed to constitute a
Lien.
'Management Group' means the group consisting of the directors and
executive officers of the Company.
'Moody's' means Moody's Investors Service, Inc.
'Net Income' means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends.
'Net Proceeds' means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received in respect of or upon the sale or other
disposition of any Designated Noncash Consideration received in any Asset Sale
and any cash payments received by way of deferred payment of principal pursuant
to a note or installment receivable or otherwise, but only as and when received,
but excluding the assumption by the acquiring person of Indebtedness relating to
the disposed assets or other considerations received in any other noncash form),
net of the direct costs relating to such Asset Sale and the sale or disposition
of such Designated Noncash Consideration (including, without limitation, legal,
accounting and investment banking fees, and brokerage and sales commissions),
and any relocation expenses Incurred as a result thereof, taxes paid or payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements related thereto), and any deduction
of appropriate amounts to be provided by the Company as a reserve in accordance
with GAAP against any liabilities associated with the asset disposed of in such
transaction and retained by the Company after such sale or other disposition
thereof, including, without limitation, pension and other post-employment
benefit liabilities and liabilities related to environmental matters or against
any indemnification obligations associated with such transaction.
Notwithstanding the foregoing, for purposes of the covenant under '--Certain
Covenants--Asset Sales,' the Net Proceeds received by the Company or any of its
Restricted Subsidiaries from the sale of Vernon Plastics shall be reduced by an
amount equal to 50% of the amount by which such Net Proceeds exceed $30.0
million, provided that for the most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the date
of such sale and the payment of any dividend permitted under clause (x) of the
covenant described under '--Limitation on Restricted Payments' the Company has a
Fixed Charge Coverage Ratio (after giving effect to such sale) of at least 2.50
to 1.00.
105
<PAGE>
'Obligations' means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and bankers' acceptances), damages
and other liabilities payable under the documentation governing any
Indebtedness.
'Officer' means the Chairman of the Board, the President, any Executive
Vice President, Senior Vice President or Vice President, the Treasurer or the
Secretary of the Company.
'Officers' Certificate' means a certificate signed on behalf of the Company
by two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company that meets the requirements set forth in the
Indenture.
'Opinion of Counsel' means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee
'Pari Passu Indebtedness' means (i) with respect to the Company, the Notes
and any Indebtedness which ranks pari passu in right of payment to the Notes and
(ii) with respect to any Subsidiary Guarantor, its Subsidiary Guarantee and any
Indebtedness which ranks pari passu in right of payment to such Subsidiary
Guarantor's Subsidiary Guarantee.
'Permitted Holders' means Blackstone and the Management Group.
'Permitted Investments' means (i) any Investment in the Company or any
Restricted Subsidiary; (ii) any Investment in Cash Equivalents or Investment
Grade Securities; (iii) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person that is primarily engaged in a Similar
Business if as a result of such Investment (a) such Person becomes a Restricted
Subsidiary or (b) such Person, in one transaction or a series of related
transactions, is merged, consolidated or amalgamated with or into, or transfers
or conveys substantially all of its assets to, or is liquidated into, the
Company or a Restricted Subsidiary; (iv) any Investment in securities or other
assets not constituting Cash Equivalents and received in connection with an
Asset Sale made pursuant to the provisions of '--Asset Sales' or any other
disposition of assets not constituting an Asset Sale; (v) any Investment
existing on the Issue Date; (vi) advances to employees (other than those
described in clause (ix) below) not in excess of $5.0 million outstanding at any
one time in the aggregate; (vii) any Investment acquired by the Company or any
of its Restricted Subsidiaries (a) in exchange for any other Investment or
accounts receivable held by the Company or any such Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts receivable
or (b) as a result of a foreclosure by the Company or any of its Restricted
Subsidiaries with respect to any secured Investment or other transfer of title
with respect to any secured Investment in default; (viii) Hedging Obligations
permitted under clause (j) of the '--Limitations of Incurrence of Indebtedness
and Issuance of Disqualified Stock' covenant; (ix) loans and advances to
officers, directors and employees for business-related travel expenses, moving
expenses and other similar expenses, in each case Incurred in the ordinary
course of business; (x) any Investment in a Similar Business (other than an
Investment in an Unrestricted Subsidiary) having an aggregate Fair Market Value,
taken together with all other Investments made pursuant to this clause (x) that
are at that time outstanding, not to exceed the greater of 2.5% of Total
Tangible Assets or $10 million at the time of such Investment (with the Fair
Market Value of each Investment being measured at the time made and without
giving effect to subsequent changes in value); (xi) Investments the payment for
which consists of Equity Interests of the Company (other than Disqualified
Stock); provided, however, that such Equity Interests will not increase the
amount available for Restricted Payments under clause (c) of the '--Limitation
on Restricted Payments' covenant; (xii) additional Investments having an
aggregate Fair Market Value, taken together with all other Investments made
pursuant to this clause (xii) that are at that time outstanding, not to exceed
the greater of 2.5% of Total Tangible Assets or $10.0 million at the time of
such Investment (with the Fair Market Value of each Investment being measured at
the time made and without giving effect to subsequent changes in value); (xiii)
any transaction to the extent it constitutes an Investment that is permitted by
and made in accordance with the provisions of the second paragraph of the
covenant described under '--Transactions with Affiliates' (except transactions
described in clause (ii) of such paragraph); (xiv) any Investment by Restricted
Subsidiaries in other Restricted Subsidiaries and Investments by Subsidiaries
that are not Restricted Subsidiaries in other Subsidiaries that are not
Restricted Subsidiaries; and (xv) Investments consisting of purchases and
acquisitions of inventory, supplies, materials and equipment or licenses or
leases of intellectual property, in each case in the ordinary course of
business.
106
<PAGE>
'Permitted Junior Securities' shall mean debt or equity securities of the
Company or any successor corporation issued pursuant to a plan of reorganization
or readjustment of the Company that are subordinated to the payment of all
then-outstanding Senior Indebtedness of the Company at least to the same extent
that the Notes are subordinated to the payment of all Senior Indebtedness of the
Company on the Closing Date, so long as to the extent that any Senior
Indebtedness of the Company outstanding on the date of consummation of any such
plan of reorganization or readjustment is not paid in full in Cash Equivalents
on such date, the holders of any such Senior Indebtedness not so paid in full
have consented to the terms of such plan of reorganization or readjustment.
'Permitted Liens' means, with respect to any Person, (i) pledges or
deposits by such Person under workmen's compensation laws, unemployment
insurance laws, social security or similar legislation, or good faith deposits
in connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits of cash or United
States government bonds to secure surety or appeal bonds to which such Person is
a party, or deposits as security for contested taxes or import duties or for the
payment of rent, in each case Incurred in the ordinary course of business or
deposits securing liability to insurance carriers under insurance or
self-insurance arrangements in respect of such obligations; (ii) Liens imposed
by law, such as carriers', warehousemen's and mechanics' Liens, in each case for
sums not yet due or being contested in good faith by appropriate proceedings or
other Liens arising out of judgments or awards not in excess of $1.0 million
(except to the extent not covered by insurance) against such Person; (iii) Liens
for taxes, assessments or other governmental charges or levies not yet
delinquent, or which are for less than $1,000,000 in the aggregate, or are being
contested in good faith by appropriate proceedings or for property taxes on
property that the Company or one of its subsidiaries has determined to abandon
if the sole recourse for such tax assessment, charge, levy or claim is to such
property; (iv) Liens in favor of issuers of surety bonds and appeal bonds,
performance bonds and other obligations of a like nature Incurred in the
ordinary course of business or letters of credit issued pursuant to the request
of and for the account of such Person in the ordinary course of its business;
(v) survey exceptions, encumbrances, easements or reservations of, or rights of
others for, licenses, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real properties or Liens incidental to the conduct of the business
of such Person or to the ownership of its properties which were not Incurred in
connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in
the operation of the business of such Person; (vi) Liens securing Purchase Money
Indebtedness; (vii) Liens to secure Indebtedness permitted pursuant to clause
(a) of the second paragraph of the covenant described under '--Limitations on
Incurrence of Indebtedness or Disqualified Stock'; (viii) Liens existing on the
Issue Date; (ix) Liens on property or shares of stock of a Person at the time
such Person becomes a Subsidiary; provided, however, such Liens are not created
or Incurred in connection with, or in contemplation of, such other Person
becoming such a Subsidiary; provided further, however, that such Liens may not
extend to any other property owned by the Company or any Restricted Subsidiary;
(x) Liens on property at the time the Company or a Restricted Subsidiary
acquired the property, including any acquisition by means of a merger or
consolidation with or into the Company or any Restricted Subsidiary; provided
further, however, that such Liens are not created or Incurred in connection
with, or in contemplation of, such acquisition; provided further, however, that
the Liens may not extend to any other property owned by the Company or any
Restricted Subsidiary; (xi) Liens securing Indebtedness or other obligations of
a Restricted Subsidiary owing to the Company or a Wholly Owned Restricted
Subsidiary; (xii) Liens securing Hedging Obligations so long as the related
Indebtedness is, and is permitted to be under the Indenture, secured by a Lien
on the same property securing such Hedging Obligations; (xiii) any Lien arising
by operation of law pursuant to Section 107(1) of the Comprehensive
Environmental Response, Compensation and Liability Act, 41 U.S.C. Section
9607(1), or pursuant to analogous state law, for costs or damages which are not
yet due (by virtue of a written demand for payment by a governmental agency) or
which are being contested in good faith by appropriate proceedings, or on
property that the Company or a Subsidiary has determined to abandon if the sole
recourse for such costs or damages is to such property, provided that the
liability of the Company and the Subsidiaries with respect to the matter giving
rise to all such Liens shall not, in the reasonable estimate of the Company (in
light of all attendant circumstances, including the likelihood of contribution
by third parties), exceed $1.0 million; (xiv) construction liens arising in the
ordinary course of business, including liens for work performed for which
payment has not been made, securing obligations that are not due and payable or
are being contested in good faith by appropriate
107
<PAGE>
proceedings and in respect of which, if applicable, the Company or the relevant
Subsidiary shall have set aside on its books reserves in accordance with GAAP;
and (xv) Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancings, refundings, extensions, renewals or
replacements) as a whole, or in part, of any Indebtedness secured by any Lien
referred to in the foregoing clauses (vi), (viii), (ix) and (x); provided,
however, that (A) such new Lien shall be limited to all or part of the same
property that secured the original Lien (plus improvements on such property) and
(B) the Indebtedness secured by such Lien at such time is not increased to any
amount greater than the sum of (x) the outstanding principal amount or, if
greater, committed amount of the Indebtedness described under clauses (vi),
(viii), (ix) or (y) at the time the original Lien became a Permitted Lien under
the Indenture and (y) an amount necessary to pay any fees and expenses,
including premiums, related to such refinancing, refunding, extension, renewal
or replacement.
'Person' means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
'Preferred stock' means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
'Purchase Money Indebtedness' means Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement and other purchase money obligations, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) Incurred to
finance the acquisition by the Company or one of its Restricted Subsidiaries of
such asset, including additions and improvements; provided, however, that any
Lien arising in connection with any such Indebtedness shall be limited to the
specific asset being financed or, in the case of real property or fixtures,
including additions and improvements, the real property on which such asset is
attached; provided further, however, that such Indebtedness is Incurred within
270 days after such acquisition by the Company or one of its Restricted
Subsidiaries of such asset.
'Representative' means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
'Restricted Investment' means an Investment other than a Permitted
Investment.
'Restricted Subsidiary' means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
'S&P' means Standard and Poor's Ratings Group.
'SEC' means the Securities and Exchange Commission.
'Securities Act' means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
'Senior Credit Documents' means the collective reference to the Credit
Agreement, the notes issued pursuant thereto and the guarantees thereof, and the
collateral documents relating thereto.
'Secured Indebtedness' means any Indebtedness of the Company secured by a
Lien.
'Significant Subsidiary' means any Restricted Subsidiary that would be a
'Significant Subsidiary' of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
'Similar Business' means a business, the majority of whose revenues are
derived from the decorative products business or any business or activity that
is reasonably similar thereto or a reasonable extension, development or
expansion thereof or ancillary thereto.
'Stated Maturity' means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
'Subordinated Indebtedness' means (a) with respect to the Company, any
Indebtedness of the Company which is by its terms subordinated in right of
payment to the Notes and (b) with respect to any Subsidiary
108
<PAGE>
Guarantor, any Indebtedness of such Subsidiary Guarantor which is by its terms
subordinated in right of payment to its Subsidiary Guarantee.
'Subsidiary' means, with respect to any Person, (i) any corporation,
association or other business entity (other than a partnership, joint venture or
limited liability company) of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time of determination owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person or a
combination thereof and (ii) any partnership, joint venture or limited liability
company of which (x) more than 50% of the capital accounts, distribution rights,
total equity and voting interests or general and limited partnership interests,
as applicable, are owned or controlled, directly or indirectly, by such Person
or one or more of the other Subsidiaries of that Person or a combination
thereof, whether in the form of membership, general, special or limited
partnership interests or otherwise and (y) such Person or any Wholly Owned
Restricted Subsidiary of such Person is a controlling general partner or
otherwise controls such entity.
'Subsidiary Guarantee' means any guarantee of the obligations of the
Company under the Indenture and the Notes by any Person in accordance with the
provisions of the Indenture.
'Subsidiary Guarantor' means any Person that Incurs a Subsidiary Guarantee;
provided that upon the release or discharge of such Person from its Subsidiary
Guarantee in accordance with the Indenture, such Person ceases to be a
Subsidiary Guarantor.
'TIA' means the Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
'Total Tangible Assets' means the total consolidated assets of the Company
and its Restricted Subsidiaries, as shown on the most recent balance sheet of
the Company, except (a) goodwill (whether representing the excess of cost over
book value of assets acquired or otherwise), patents, trade names, trademarks,
trade secrets, copyrights, licenses, franchises, customer lists, capitalized
sample book costs, research and development expense, organization expense,
unamortized debt discount and expense, deferred charges or assets other than
prepaid insurance, prepaid taxes and deferred taxes, the excess of cost of
shares acquired over book value of related assets and such other assets as are
properly classified as 'intangible assets' in accordance with generally accepted
accounting principles, (b) treasury stock of such person, (c) cash set apart and
held in any sinking fund or similar or analogous fund for the purpose of
redeeming or otherwise retiring stock of such person, and (d) any write-up of
the book value of any assets of such person resulting from revaluation thereof
subsequent to the Closing Date.
'Trustee' means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
'Trust Officer' means (i) any officer within the corporate trust department
of the Trustee, including any vice president, assistant vice president,
assistant secretary, assistant treasurer, trust officer or any other officer of
the Trustee who customarily performs functions similar to those performed by the
Persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred because of such person's knowledge of and
familiarity with the particular subject and (ii) who shall have direct
responsibility for the administration of the Indenture.
'Unrestricted Subsidiary' means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Equity Interests or Indebtedness 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, however,
that the Subsidiary to be so designated and its Subsidiaries do not at the time
of designation have and do not thereafter Incur any Indebtedness pursuant to
which the lender has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries; provided further, however, that either (a) the
Subsidiary to be so designated has total consolidated assets of $1,000 or less
or (b) if such Subsidiary has consolidated assets greater than $1,000, then such
designation would be permitted under the covenant entitled '--Limitation on
Restricted Payments.' The Board of Directors may designate any
109
<PAGE>
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) (1) the Company could
Incur $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test described under '--Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock' or (2) the Fixed Charge Coverage Ratio for the
Company and its Restricted Subsidiaries would be greater than such ratio for the
Company and its Restricted Subsidiaries immediately prior to such designation,
in each case on a pro forma basis taking into account such designation and (y)
no Default shall have occurred and be continuing. Any such designation by the
Board of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
'U.S. Government Obligations' means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
'Voting Stock' of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
'Weighted Average Life to Maturity' means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the date of each successive scheduled principal payment of such
Indebtedness or redemption or similar payment with respect to such Disqualified
Stock multiplied by the amount of such payment, by (ii) the sum of all such
payments.
'Wholly Owned Restricted Subsidiary' is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
'Wholly Owned Subsidiary' of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
110
<PAGE>
DESCRIPTION OF THE SENIOR CREDIT FACILITIES
The Chase Manhattan Bank ('Chase'), subject to certain conditions described
below under the caption '--Conditions to Closing,' provides the Senior Credit
Facilities to the Company (the 'Borrower') and, in the case of the Revolving
Credit Facility and subject to specified sub-limits and to the consent of Chase,
to one or more of its non-U.S. subsidiaries (such subsidiaries, if any, the
'Subsidiary Borrowers,' and together with the Borrower, collectively, the
'Borrowers') in the aggregate amount of $300.0 million comprised of (i) term
loans in the aggregate principal amount of $225.0 million (the 'Term Loans')
consisting of (a) a $65.0 million six-year Tranche A Senior Secured Term Loan
Facility, $45.0 million of which will be available on a deferred draw basis for
a period of 18 months after the Closing ('Term Loan A'), (b) a $115.0 million
seven-year Tranche B Senior Secured Term Loan Facility ('Term Loan B'), and (c)
a $45.0 million eight-year Tranche C Senior Secured Term Loan Facility ('Term
Loan C') and (ii) a $75.0 million six-year Revolving Credit Facility.
REPAYMENT
The Term Loans will amortize on a semi-annual basis. Term Loan A will
amortize in amounts equal to $0.5 million in 1999, $1.5 million in 2000, $7.0
million in 2001, $17.25 million in 2002, $25.0 million in 2003 and $13.75
million in 2004. Term Loan B will amortize in amounts equal to $0.5 million in
1999, $1.0 million from 2000 through 2004 and $109.5 million in 2005. Term Loan
C will amortize in amounts equal to $0.25 million in 1999, $0.5 million from
2000 through 2005 and $41.75 million in 2006.
GUARANTEES
The obligations of the Borrowers under the Senior Credit Facilities are
guaranteed on a senior basis, to the extent permitted by applicable law, (i) in
the case of the Borrower's obligations thereunder, by each of the Borrower's
existing and future U.S. subsidiaries and by IHDG UK (collectively, the
'Borrower Facility Guarantees') and (ii) in the case of each Subsidiary
Borrower's obligations thereunder, by the Borrower, each of the Borrower's
existing and future U.S. subsidiaries, each of such Subsidiary Borrower's
subsidiaries and each other existing and future subsidiary of the Borrower
organized under the laws of the country of organization of such Subsidiary
Borrower and, in the case of any Borrower Subsidiary organized in the United
Kingdom, by IHDG UK (collectively, the 'Subsidiary Borrower Facility
Guarantees').
SECURITY
The obligations of the Borrower and its U.S. subsidiaries and IHDG UK under
the Senior Credit Facilities and under their respective Borrower Facility
Guarantees and Subsidiary Borrower Facility Guarantees, as applicable, are
secured by a first priority security interest in substantially all or a
specified portion of the pledgeable tangible and intangible assets of the
Borrower and its U.S. subsidiaries and, to the extent permitted by applicable
law, IHDG UK.
INTEREST
At the Borrower's option, the interest rates per annum applicable to the
Term Loans and the Borrower's Revolving Credit Facility borrowings are
fluctuating rates of interest determined by reference to (i) LIBOR plus the
applicable margin or (ii) the higher of (a) Chase's prime rate and (b) the
federal funds rate plus 0.50% per annum (the 'Alternate Base Rate'), plus the
applicable margin. For the Borrower's Revolving Credit Facility borrowings and
Term Loan A, the applicable margin is 2.50% for LIBOR borrowings and 1.50% for
Alternate Base Rate borrowings; for Term Loan B, the applicable margin is 2.75%
for LIBOR borrowings and 1.75% for Alternate Base Rate borrowings; and for Term
Loan C, the applicable margin is 3.00% for LIBOR borrowings and 2.00% for
Alternate Base Rate borrowings. For the Subsidiary Borrowers' Revolving Credit
Facility borrowings, if any, interest rates per annum are an underlying rate to
be determined plus a margin equal to the LIBOR margin applicable to Term Loan A.
The applicable margin in respect of each of the facilities is subject to
adjustment based on financial performance standards to be set forth in the
definitive loan documentation.
111
<PAGE>
FEES
The Borrower has agreed to pay to Chase customary fees with respect to the
Senior Credit Facilities, including an up-front structuring and arrangement fee,
an annual administration fee, commitment fees on the unused portion of the
commitments relating to the Senior Credit Facilities and a letter of credit
participation fee, which commitment fee and letter of credit participation fee
are subject to adjustment based on financial performance standards to be set
forth in the definitive loan documentation.
PREPAYMENTS
The Borrower is required to make mandatory prepayments of the Term Loans or
reductions of the commitments under Term Loan A in amounts and at times to be
set forth in the definitive loan documentation, (i) in respect of a portion to
be agreed upon of consolidated excess cash flow of the Borrower and its
subsidiaries for each fiscal year and (ii) in respect of 100% of the net
proceeds (above certain thresholds to be agreed upon) of (a) certain
dispositions by the Borrower or any of its subsidiaries of assets or the stock
of subsidiaries (unless reinvested in assets useful in the business of the
Borrower or its subsidiaries within a specified period) and (b) the incurrence
by the Borrower or any of its subsidiaries of certain indebtedness.
The Borrower is also required to apply (i) 100% of all cash proceeds (net
of certain fees and expenses) not in excess of $30.0 million received by the
Borrower or any Subsidiary in respect of any sale or disposition of Vernon
Plastics and (ii) 50% of all cash proceeds (net of certain fees and expenses) in
excess of $30.0 million received by the Borrower or any Subsidiary in respect of
any such sale or disposition, in each case to prepay Term Borrowings, and may
retain the balance of such proceeds.
Subject to the provisions described below under the caption '--Special
Application Provisions,' mandatory prepayments of the Term Loans (i) will be
allocated among the Term Loans on a pro rata basis (based on the
then-outstanding principal amount and unused commitments of Term Loan A, Term
Loan B and Term Loan C, respectively), and (ii) within each of Term Loan A, Term
Loan B and Term Loan C, will be applied to scheduled outstanding principal
payments (a) to the extent based on consolidated excess cash flow, in the order
of maturity and (b) to the extent based on net proceeds, on a pro rata basis.
The Borrower has the right to make optional prepayments of the loans and
optional reductions of the revolving credit and Term Loan A commitments in whole
or in part at any time without penalty, but subject to payment of customary
breakage costs, if applicable. Subject to the provisions described below under
the caption '--Special Application Provisions,' optional prepayments of the Term
Loans (i) will be allocated among the Term Loans on a pro rata basis (based on
the then-outstanding principal amount of Term Loan A, Term Loan B and Term Loan
C, respectively), and (ii) within each of Term Loan A, Term Loan B and Term Loan
C, will be applied to scheduled principal payments in the order of maturity.
SPECIAL APPLICATION PROVISIONS
At the election of the Borrower, the first portion in an aggregate amount
to be agreed upon of mandatory (to the extent based on consolidated excess cash
flow) or optional prepayments of the Term Loans will be applied to prepay or, in
the case of mandatory prepayments, reduce commitments under Term Loan A. Any
holders of Term Loan B or Term Loan C may, so long as Term Loan A loans or
commitments are outstanding, decline to accept any mandatory prepayment
described above under the caption '--Prepayments' (to the extent based on
consolidated excess cash flow) and, under such circumstances, all amounts that
would otherwise be applied to prepay Term Loan B or Term Loan C will be applied
first to prepay Term Loan A loans and second to reduce Term Loan A commitments.
In addition, the Borrower is entitled, at its election, so long as Term Loan A
loans are outstanding, to afford the holders of Term Loan B and Term Loan C the
right to decline to accept any optional prepayment and, under such
circumstances, all amounts that would otherwise be applied to prepay Term Loan B
or Term Loan C will be applied to prepay Term Loan A.
112
<PAGE>
COVENANTS; EVENTS OF DEFAULT
The Senior Credit Facilities contain covenants restricting the ability of
the Borrower and its subsidiaries to, among other things: (i) pay dividends and
make distributions on, or repurchase or redeem, capital stock; (ii) prepay or
repay certain debt; (iii) incur certain liens and engage in sale/leaseback
transactions; (iv) make capital expenditures; (v) make loans and investments;
(vi) incur indebtedness and guarantees and other certain contingent obligations;
(vii) engage in certain mergers, consolidations, acquisitions and asset sales;
(viii) enter into certain transactions with affiliates; (ix) make changes in
their lines of business; (x) amend debt and other material agreements; and (xi)
pay certain fees to Blackstone and its affiliates. The aforementioned covenants
will be subject to certain materiality concepts and baskets and other exceptions
to be set forth in the definitive loan documentation. The Borrower will also be
required to (i) comply with certain financial covenants, including: (a) a
minimum interest coverage ratio and (b) a maximum net leverage ratio, and (ii)
to enter into and maintain certain interest rate protection agreements
satisfactory to Chase. The Senior Credit Facilities also contain customary
representations and warranties, affirmative covenants and events of default,
including cross default, material judgments and change in control.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based on the current provisions of the Internal
Revenue Code of 1986, as amended (the 'Code'), applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the 'Service') will not take a
contrary view, and no ruling from the Service has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conditions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. The Company recommends that each holder consult such holder's own tax
advisor as to the particular tax consequences of exchanging such holder's Old
Notes for Exchange Notes, including the applicability and effect of any state,
local or foreign tax laws.
The Company believes that the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer will not be treated as an 'exchange' for federal
income tax purposes because the Exchange Notes will not be considered to differ
materially in kind or extent from the Old Notes. Rather, the Exchange Notes
received by a holder will be treated as a continuation of the Old Notes in the
hands of such holder. As a result, there will be no federal income tax
consequences to holders exchanging Old Notes for Exchange Notes pursuant to the
Exchange Offer.
BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes are being offered in exchange for the Old Notes offered
in the initial offering thereof solely to QIBs pursuant to Rule 144A and in
offshore transactions to Non-U.S. Persons in reliance on Regulation S.
THE GLOBAL EXCHANGE NOTE
The Exchange Notes initially will be represented by one or more notes in
registered, global form without interest coupons (collectively, the 'Global
Exchange Note'). The Global Exchange Note will be deposited upon issuance with
the Trustee, as custodian for The Depository Trust Company ('DTC'), in New York,
New York, and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant as described below.
Exchange Notes sold to Institutional Accredited Investors may be represented by
the Global Exchange Note or, if such an investor may not hold an interest in the
Global Exchange Note, a certificated Exchange Note.
Except as set forth below, the Global Exchange Note may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the Global Exchange Note may not be
exchanged for Exchange Notes in certificated form except in the limited
circumstances described below. See 'Certificated Exchange Notes.'
113
<PAGE>
The Exchange Notes may be presented for registration of transfer and
exchange at the offices of the Registrar.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the 'Direct Participants') and to facilitate the clearance and settlement of
transactions in those securities between the Direct Participants through
electronic book-entry changes in accounts of the Direct Participants. The Direct
Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities that
clear through or maintain a direct or indirect custodial relationship with a
Direct Participant (collectively, the 'Indirect Participants'). DTC may hold
securities beneficially owned by other persons only through the Direct
Participants or the Indirect Participants, and such person's ownership interest
and transfer of ownership interest will be recorded on the records of the Direct
Participants and the Indirect Participants, and not on the records maintained by
DTC.
DTC has also advised the Company that, pursuant to DTC's procedures, (i)
upon deposit of the Global Exchange Note, DTC will credit the accounts of Direct
Participants designated by the Initial Purchasers with portions of the principal
amount of the Global Exchange Note allocated by the Initial Purchasers to such
Direct Participants and (ii) DTC will maintain records of the ownership
interests of such Participants in the Global Exchange Note and the transfer of
ownership interests by and between Direct Participants. DTC will not maintain
records of the ownership interests of, or the transfer of ownership interests by
and between, Indirect Participants or other owners of beneficial interests in
the Global Exchange Notes. Direct Participants and Indirect Participants must
maintain their own records of the ownership interests of, and the transfer of
ownership interests by and between, Indirect Participants and other owners of
beneficial interests in the Global Exchange Notes.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in the Global Exchange Note
to such persons. Because DTC can act only on behalf of the Direct Participants,
which in turn act on behalf of the Indirect Participants and others, the ability
of a person having beneficial interests in the Global Exchange Note to pledge
such interests to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interests, may be affected by the
lack of a physical certificate evidencing such interests. For certain other
restrictions on the transferability of such Exchange Notes, see 'Certificated
Exchange Notes.'
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL EXCHANGE NOTE
WILL NOT HAVE EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE
PHYSICAL DELIVERY OF EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE
CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY
PURPOSE.
Under the terms of the Indenture, the Company and the Trustee will treat
persons in whose names the Exchange Notes are registered (including Exchange
Notes represented by Global Exchange Notes) as the owners thereof for the
purpose of receiving payments and for any and all other purposes whatsoever.
Payments in respect of the principal, premium, Liquidated Damages, if any, and
interest on Global Exchange Notes registered in the name of DTC or its nominee
will be payable by the Trustee to DTC or its nominee as the registered holder
under the Indenture. Consequently, neither the Company, the Trustee nor any
agent of the Company or the Trustee has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Direct Participant's or
Indirect Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Exchange Notes or for maintaining,
supervising or reviewing any of DTC's records or any Direct Participant's or
Indirect Participant's records relating to the beneficial ownership interests in
any Global Exchange Note or (ii) any other matter relating to the actions and
practices of DTC or any of its Direct Participants or Indirect Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
Exchange Notes is to credit the accounts of the relevant Direct Participants
with such payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Exchange Notes as
shown on DTC's records. Payments by Direct Participants and Indirect
Participants to the beneficial owners of the Exchange Notes will be governed by
114
<PAGE>
standing instructions and customary practices between them and will not be the
responsibility of DTC, the Trustee or the Company. Neither the Company nor the
Trustee will be liable for any delay by DTC or its Direct Participants or
Indirect Participants in identifying the beneficial owners of the Exchange
Notes, and the Company and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee as the registered
owner of the Exchange Notes for all purposes.
The Global Exchange Notes will trade in DTC's Same-Day Funds Settlement
System and, therefore, transfers between Direct Participants in DTC will be
effected in accordance with DTC's procedures, and will be settled in immediately
available funds. Transfers between Indirect Participants who hold an interest
through a Direct Participant will be effected in accordance with the procedures
of such Direct Participant but generally will settle in immediately available
funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes only at the direction of one or more Direct
Participants to whose account with DTC interests in the Global Exchange Note are
credited and only in respect of such portion of the aggregate principal amount
of the Exchange Notes as to which such Direct Participant or Direct Participants
has or have given such direction. However, if any of the events described under
'Certificated Exchange Notes' occurs, DTC reserves the right to exchange the
Global Exchange Note for Exchange Notes in certificated form and to distribute
such Exchange Notes to its Direct Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Exchange Note among accountholders in DTC, it is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee nor any agent of the Company or the Trustee will have any responsibility
for the performance by DTC or its respective participants, indirect participants
or accountholders of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED EXCHANGE NOTES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
Exchange Notes in definitive form under the Indenture or (iii) upon the
occurrence of certain other events as provided in the Indenture, then, upon
surrender by DTC of the Global Exchange Notes, Certificated Exchange Notes will
be issued to each person that DTC identifies as the beneficial owner of the
Exchange Notes represented by the Global Exchange Notes. Upon any such issuance,
the Trustee is required to register such Certificated Exchange Notes in the name
of such person or persons (or the nominee of any thereof) and cause the same to
be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Exchange Notes and each such person may conclusively rely on, and
shall be protected in relying on, instructions from DTC for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the Exchange Notes to be issued).
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available
115
<PAGE>
to any broker-dealer for use in connection with any such resale. In addition,
until , 1998, all dealers effecting transactions in the Exchange
Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange 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 Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
'underwriter' within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an 'underwriter' within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
Chase Securities Inc. is an affiliate of The Chase Manhattan Bank, which
will be the Administrative Agent and a lender to the Company under the Senior
Credit Facilities. An affiliate of Chase Securities Inc. is a limited partner of
Blackstone Capital Partners III Merchant Banking Fund, L.P. In addition, Chase
Securities Inc. and its affiliates perform various investment banking and
commercial banking services from time to time for Blackstone, Borden, C&A and
their affiliates and Bear, Stearns & Co. Inc. and its affiliates perform various
investment banking and commercial banking services from time to time for
Blackstone and its affiliates.
LEGAL MATTERS
The validity of the issuance of the Exchange Notes offered hereby will be
passed upon for the Company and the Subsidiary Guarantors by Jones, Day, Reavis
& Pogue, New York, New York.
EXPERTS
IHDG's combined balance sheets as of December 31, 1996 and December 31,
1997, and the related combined statements of operations, shareholder's equity
and owner's investment and cash flows for each of the three years in the period
ended December 31, 1997, included in this Prospectus, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
Imperial's consolidated and combined balance sheets as of January 27, 1996,
December 28, 1996 and December 27, 1997, and its statements of operations,
investments and advances and cash flows for the year ended January 27, 1996,
December 28, 1996 and December 27, 1997, included in this Prospectus, have been
audited by Arthur Andersen LLP, independent certified public accountants, as
stated in their report herein and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
116
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE IMPERIAL HOME DECOR GROUP INC. (FORMERLY KNOWN AS BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.)
Independent Auditors' Report............................................................................... F-2
Combined Statements of Operations, for the years ended December 31, 1995, 1996 and 1997.................... F-3
Combined Balance Sheets, as of December 31, 1996 and 1997.................................................. F-4
Combined Statements of Cash Flows, for the years ended December 31, 1995, 1996 and 1997.................... F-6
Combined Statements of Shareholder's Equity/Owner's Investment, for the years ended December 31, 1995, 1996
and 1997................................................................................................. F-7
Notes to Combined Financial Statements..................................................................... F-8
THE IMPERIAL HOME DECOR GROUP INC. (FORMERLY KNOWN AS BORDEN DECORATIVE PRODUCTS
HOLDINGS, INC.)
Condensed Consolidated Balance Sheet as of March 28, 1998.................................................. F-33
Condensed Consolidated Statements of Operations for the three months ended March 29, 1997 and March 28,
1998..................................................................................................... F-34
Condensed Consolidated Statements of Cash Flows for the three months ended March 29, 1997 and March 28,
1998..................................................................................................... F-35
Notes to Condensed Consolidated Financial Statements....................................................... F-36
IMPERIAL WALLCOVERINGS, INC.
Report of Independent Public Accountants................................................................... F-41
Consolidated and Combined Balance Sheets, as of January 27, 1996, December 28, 1996 and December 27,
1997..................................................................................................... F-42
Consolidated and Combined Statements of Operations, for the periods ended January 27, 1996, December 28,
1996 and December 27, 1997............................................................................... F-43
Consolidated and Combined Statements of Investments and Advances (to) from Collins & Aikman Products Co.,
for the periods ended January 27, 1996, December 28, 1996 and December 27, 1997.......................... F-44
Consolidated and Combined Statements of Cash Flows, for the periods ended January 27, 1996, December 28,
1996 and December 27, 1997............................................................................... F-45
Notes to Consolidated and Combined Financial Statements.................................................... F-46
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholder of
Borden, Inc.
We have audited the accompanying combined balance sheets of The Imperial Home
Decor Group, Inc. formerly known as Borden Decorative Products Holdings, Inc.
('BDPH') as of December 31, 1997 and 1996, and the related combined statements
of operations, shareholder's equity/owner's investment and cash flows for each
of three years in the period ended December 31, 1997. These financial statements
are the responsibility of Borden's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of BDPH at December 31, 1997 and 1996,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Columbus, Ohio
March 25, 1998
F-2
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net Sales.......................................................... $362,292 $364,971 $372,738
Cost of goods sold................................................. 229,765 237,468 242,718
-------- -------- --------
Gross margin....................................................... 132,527 127,503 130,020
Distribution expense............................................... 18,251 19,569 18,784
Marketing expense.................................................. 68,313 60,229 58,388
General & administrative expense................................... 16,572 16,566 19,379
-------- -------- --------
Operating income................................................... 29,391 31,139 33,469
Interest (income) expense.......................................... 923 (218) (303)
-------- -------- --------
Income before income taxes......................................... 28,468 31,357 33,772
Income tax expense................................................. 11,215 10,601 11,384
-------- -------- --------
Net income......................................................... $ 17,253 $ 20,756 $ 22,388
-------- -------- --------
-------- -------- --------
</TABLE>
See Notes to Combined Financial Statements
F-3
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................................................................... $ 6,768 $ 3,795
Accounts receivable (less allowance for doubtful accounts of $2,442 and
$1,758, respectively)................................................................ 60,662 55,160
Inventories:
Finished and in-process goods........................................................ 54,192 52,012
Raw materials and supplies........................................................... 8,151 7,467
-------- --------
Total inventories....................................................................... 62,343 59,479
Other current assets.................................................................... 19,208 20,382
-------- --------
Total Current Assets...................................................................... 148,981 138,816
-------- --------
Property and Equipment
Land.................................................................................... 1,272 1,245
Buildings............................................................................... 10,999 11,939
Machinery and equipment................................................................. 96,343 112,285
-------- --------
108,614 125,469
Less accumulated depreciation........................................................... 51,395 58,729
-------- --------
Net Property and Equipment................................................................ 57,219 66,740
Goodwill.................................................................................. 11,597 10,868
Other non-current assets.................................................................. 23,013 23,210
-------- --------
$240,810 $239,634
-------- --------
-------- --------
</TABLE>
(continued on the next page)
See Notes to Combined Financial Statements
F-4
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY/OWNER'S INVESTMENT
Current liabilities:
Bank loan............................................................................... $ $ 1,529
Accounts and drafts payable............................................................. 43,711 31,310
Income tax payable--Foreign............................................................. 7,957 6,249
Other current liabilities............................................................... 25,045 22,470
-------- --------
Total current liabilities................................................................. 76,713 61,558
Long-term liabilities
Deferred income taxes--foreign.......................................................... 8,770 9,546
Non-pension postemployment benefit obligations.......................................... 895 865
Other long-term liabilities............................................................. 377 935
-------- --------
Total long-term liabilities............................................................... 10,042 11,346
Commitments and Contingencies (Note 11)
Shareholder's Equity/Owner's Investment
Preferred stock: $25 par value, 15,000,000 shares authorized
Senior: 6,552,000 shares issued and outstanding........................................... 163,800 163,800
Junior: 1,148,386 and 1,215,543 shares issued and outstanding, respectively............... 28,710 30,389
Common stock--$0.01 par value 40,000,000 shares authorized 20,000,000
issued and outstanding.................................................................. 200 200
Paid-in capital........................................................................... (69,242) (69,242)
Accumulated translation adjustment........................................................ 3,655 (672)
Retained earnings (from January 1, 1996).................................................. 6,605 15,676
Owner's investment........................................................................ 20,327 27,878
Minimum Pension Liability Adjustment...................................................... (1,299)
-------- --------
Total Shareholder's Equity/Owner's Investment............................................. 154,055 166,730
-------- --------
$240,810 $239,634
-------- --------
-------- --------
</TABLE>
(continued on the next page)
See Notes to Combined Financial Statements
F-5
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................... $ 17,253 $ 20,756 $ 22,388
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization............................................. 5,993 6,589 10,077
Accounts receivable....................................................... (7,949) (1,223) 5,502
Inventories............................................................... 4,937 7,701 2,864
Accounts and drafts payable............................................... (3,371) 8,238 (12,401)
Current and deferred foreign income taxes................................. 436 2,904 (932)
Other assets.............................................................. (3,660) 3,489 593
Other liabilities......................................................... 13,671 (4,977) (2,047)
-------- -------- --------
Cash from operating activities............................................... 27,310 43,477 26,044
Cash flows used in investing activities:
Capital expenditures......................................................... (6,363) (21,178) (20,833)
Cash flows used in financing activities:
Sales of common shares....................................................... 1,440
Purchase of senior preferred stock........................................... (1,440)
Dividends paid............................................................... (2,866) (20,238)
Net short term debt borrowings............................................... 1,529
Other changes in owner's investment.......................................... (15,051) (25,508) 10,525
-------- -------- --------
Cash used in financing activities............................................ (15,051) (28,374) (8,184)
-------- -------- --------
Increase (decrease) in cash and equivalents.................................... 5,896 (6,075) (2,973)
Cash and equivalents at beginning of year...................................... 6,947 12,843 6,768
-------- -------- --------
Cash and equivalents at end of year............................................ $ 12,843 $ 6,768 $ 3,795
-------- -------- --------
-------- -------- --------
Supplemental disclosure of cash flow information
Cash paid:
Interest.................................................................. $ 1,317 $ 223 $ 23
Taxes--foreign............................................................ 10,326 6,104 6,802
</TABLE>
See Notes to Combined Financial Statements.
F-6
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY/OWNER'S INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
MINIMUM
PREFERRED STOCK PENSION
-------------------- COMMON OWNER'S PAID-IN LIABILITY
SENIOR JUNIOR STOCK INVESTMENT CAPITAL ADJUSTMENT
-------- -------- ------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance January 1, 1995.................. $ -- $ -- $ -- $163,592 $ --
Change to owner's investment....................... (16,103)
Foreign currency translation.......................
Net income......................................... 17,253
-------- -------- ------ ---------- -------- ----------
Ending balance December 31, 1995................... -- -- -- 164,742 -- --
Recapitalization:
Issuance of common stock to owner................ 197 (98,560) 98,363
Issuance of preferred stock to owner............. 165,240 26,025 (191,265)
Purchase of shares from owner.................... (1,440)
Sale of common stock to management............... 3 1,303
Sale of common stock to owner.................... 134
Other owner's investment transactions--net......... 145,410 (169,042)
Paid in kind dividends--junior preferred........... 2,685
Dividends--senior preferred........................
Foreign currency translation.......................
Net income.........................................
-------- -------- ------ ---------- -------- ----------
Ending balance December 31, 1996................... 163,800 28,710 200 20,327 (69,242) --
Other owner's investment transactions--net......... 7,551
Paid in kind dividends--junior preferred........... 1,679
Cash dividends--junior preferred...................
Dividends--senior preferred........................
Foreign currency translation.......................
Minimum pension liability adjustment............... (1,299)
Net income.........................................
-------- -------- ------ ---------- -------- ----------
Ending balance December 31, 1997................... $163,800 $ 30,389 $200 $ 27,878 $(69,242) $ (1,299)
-------- -------- ------ ---------- -------- ----------
-------- -------- ------ ---------- -------- ----------
<CAPTION>
ACCUMULATED
TRANSLATION RETAINED
ADJUSTMENT EARNINGS TOTAL
----------- -------- --------
<S> <C> <C> <C>
Beginning balance January 1, 1995.................. $(4,121) $ -- $159,471
Change to owner's investment....................... (16,103)
Foreign currency translation....................... 1,052 1,052
Net income......................................... 17,253
----------- -------- --------
Ending balance December 31, 1995................... (3,069) -- 161,673
Recapitalization:
Issuance of common stock to owner................ --
Issuance of preferred stock to owner............. --
Purchase of shares from owner.................... (1,440)
Sale of common stock to management............... 1,306
Sale of common stock to owner.................... 134
Other owner's investment transactions--net......... (23,632)
Paid in kind dividends--junior preferred........... (2,685) --
Dividends--senior preferred........................ (11,466) (11,466)
Foreign currency translation....................... 6,724 6,724
Net income......................................... 20,756 20,756
----------- -------- --------
Ending balance December 31, 1996................... 3,655 6,605 154,055
Other owner's investment transactions--net......... 7,551
Paid in kind dividends--junior preferred........... (1,679) --
Cash dividends--junior preferred................... (581) (581)
Dividends--senior preferred........................ (11,057) (11,057)
Foreign currency translation....................... (4,327) (4,327)
Minimum pension liability adjustment............... (1,299)
Net income......................................... 22,388 22,388
----------- -------- --------
Ending balance December 31, 1997................... $ (672) $ 15,676 $166,730
----------- -------- --------
----------- -------- --------
</TABLE>
See Notes to Combined Financial Statements.
F-7
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations and Basis of Presentation
The accompanying combined financial statements present the financial
position, results of operations, cash flows and shareholder's equity/owner's
investment of The Imperial Home Decor Group, Inc. formerly known as Borden
Decorative Products Holdings, Inc. ('BDPH') operations of Borden, Inc.
('Borden'), consisting of the operations of Borden Decorative Products, Ltd.,
Sunworthy, and Vernon Plastics operations, collectively known as BDPH. Effective
January 1, 1996, Borden Decorative Products Holdings, Inc. was formed to operate
certain of Borden's decorative businesses ('Borden Decorative Products'). Under
this structure BDPH was granted beneficial ownership of the Canadian decorative
products operations (Sunworthy -Canada) which was legally incorporated as an
operating subsidiary of BDPH before the transfer of interest. BDPH's operations
are conducted in the United Kingdom (UK), Canada and the United States. They
include the manufacture and distribution of residential and commercial
wallcoverings, heat transfer paper and flexible vinyl films and sheeting.
The 1997 and 1995 reporting periods for the BDPH operation are 52 week
periods. In 1996 BDPH's UK subsidiary's reporting period fiscal year consisted
of 53 weeks.
Prior to January 1, 1996, the decorative businesses were managed as
divisions of Borden. Under this structure, Borden incurred various costs related
to the decorative businesses which included corporate and administrative
expenses (see Note 2). The allocation of these costs, as well as intercompany
purchases and sales, cash infusions and withdrawals, and other transactions, are
reflected in the owner's investment account through December 31, 1995. In
connection with the formation of Borden Decorative Products Holdings, Inc., the
shareholder's equity and owner's investment amounts have been recapitalized to
reflect the resulting capital structure.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates in BDPH's financial statements
are the allowance for doubtful accounts, reserve for inventory obsolescence,
accrual for general and group insurance and the pension and non-pension
postemployment and post retirement benefit allocations. Actual results could
differ from those estimates.
Summary of Significant Accounting Policies
Significant accounting policies followed by BDPH, as summarized below, are
in conformity with generally accepted accounting principles.
Principles of Combination
The combined financial statements include the accounts of BDPH after
elimination of material inter and intracompany accounts and transactions.
F-8
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Revenue Recognition
Revenues are recognized when products are shipped. Liabilities are
established for estimated returns, allowances and trade discounts when revenues
are recognized.
Research and Development
Research and development costs are charged to general and administrative
expense when incurred. Research and development costs amounted to $974, $868 and
$980 in 1995, 1996 and 1997, respectively.
Environmental Remediation
Environmental costs representing ongoing maintenance, monitoring and
similar costs are expensed as incurred. Environmental remediation costs are
accrued when environmental assessments and/or remedial efforts are probable and
the cost or a reasonable range can be estimated. Environmental expenditures
which improve the condition of a property are capitalized and amortized over
their estimated useful life.
Cash and Equivalents
BDPH considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market with cost principally
being determined using the average cost and first-in, first-out methods.
Development, Design, Engraving and Sample Book Costs
Costs of design and engraving related to the preparation of cylinder
rollers for new designs are deferred in other assets and amortized over the
shorter of estimated useful life of the design and engraving or the period
during which the company is expected to benefit. Amortization of the design and
engraving costs was $13,155, $12,969 and $12,372 in 1995, 1996 and 1997
respectively. Amortization of the cylinder roller costs was $479, $557 and $800
in 1995, 1996, 1997, respectively. Sample book costs in excess of the proceeds
from sales of such books are deferred and amortized over the estimated useful
life of the sample books, generally a two to three year period. Amortization of
sample books costs was $8,742, $7,218 and $5,017 in 1995, 1996 and 1997,
respectively.
Property and Equipment
Property and equipment are stated at cost, less a reserve for accumulated
depreciation. Depreciation is recorded on the straight-line basis over useful
lives ranging from thirty to forty years for buildings and three to eighteen
years for equipment.
Major renewals and betterments are capitalized. Maintenance, repairs and
minor renewals are expensed as incurred. When properties are retired or
otherwise disposed of, the applicable cost and accumulated depreciation are
removed from the accounts and any related gain or loss is recorded in the
statement of operations.
F-9
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Goodwill
Goodwill represents the excess of the purchase price over fair value of
identifiable assets of businesses acquired and is amortized on a straight-line
basis over forty years or its useful life, whichever is shorter. The accumulated
amortization of goodwill was $4,317, $4,756 and $5,135 at December 31, 1995,
1996 and 1997, respectively.
Impairment
The carrying value of property, equipment and intangibles is evaluated
periodically for recoverability when considered in relation to the expected
future undiscounted cash flows of the underlying businesses over the estimated
remaining useful life of the asset.
Foreign Currency Translations
Assets and liabilities of foreign affiliates are generally translated at
current exchange rates, and related translation adjustments are reported as a
component of owner's investment/shareholder's equity. Amounts reflected in the
statements of operations and cash flows are translated at the average rates
during the year. Realized and unrealized net foreign exchange gains aggregating
$1,119, $158, and $ 450 were included in income in 1995, 1996 and 1997,
respectively.
Income Taxes
The results of domestic and Canadian operations of BDPH are included in
Borden's consolidated tax returns. Borden uses the liability method of
accounting for deferred income taxes. Deferred foreign income taxes are recorded
to recognize the future effects of temporary differences which arise between
financial statement assets and liabilities and their basis for income tax
reporting purposes. For purposes of these stand-alone financial statements,
income taxes are determined as though BDPH filed separate U.S. federal, Canadian
and state corporate income tax returns. Current taxes payable for U.S. federal,
state and Canadian taxes are reflected in the owner's investment account. Taxes
on income and losses from foreign locations are provided in accordance with
Statement of Financial Accounting Standard No. 109, 'Accounting for Income
Taxes'.
Derivative Financial Instruments
Borden uses forward exchange contracts to reduce the effect of the
fluctuations in foreign currency rates. Borden hedges certain firm commitments
and transactions denominated in foreign currencies. Borden does not engage in
speculation. Gains and losses on forward contracts are offset against foreign
exchange gains or losses on the underlying hedged item. The fair values of
financial instruments are estimated based on quotes from brokers or current
rates offered for instruments with similar characteristics. Borden enters into
foreign exchange contracts on behalf of BDPH. The notional amounts outstanding
for contracts relating to BDPH as of December 31, 1995, 1996 and 1997 were
$49,729, $26,852 and $12,293 , respectively. Contracts mature generally within
five to six months and are principally with banks. Fair value of the contracts
approximated the carrying value.
Concentrations of Credit Risk
Financial instruments which potentially subject BDPH to concentrations of
credit risk consist principally of temporary cash investments and accounts
receivable. BDPH places its temporary cash investments ($6,768 at December 31,
1996 and $3,795 at December 31, 1997) with high quality institutions and, by
policy, limits the
F-10
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
amount of credit exposure to any one institution. Concentrations of credit risk
with respect to accounts receivable are limited, due to the large number of
customers comprising BDPH's customer base and their dispersion across many
different industries and geographies. BDPH generally does not require collateral
or other security to support customer receivables. A portion of BDPH's sales are
exports. For these sales, BDPH may insure its export receivables based upon
assessment of the risk and the country to which products are sold. BDPH closely
monitors extensions of credit and has generally not experienced significant
credit losses.
Pension and Retirement Savings Plans
Most of BDPH's employees are covered under one of Borden's pension plans or
one of the union-sponsored plans to which Borden contributes. BDPH's cumulative
liability associated with these plans is recorded on BDPH's balance sheets.
BDPH's share of the allocated cost to fund and administer these plans is
recorded in the statements of operations in the year the cost is incurred.
Substantially all domestic employees of BDPH participate in Borden's
retirement savings plans. BDPH's cost of providing the retirement savings plans
is the amount by which it matches eligible contributions made by participating
employees and is recognized as a charge to income in the year the cost is
incurred.
Non-pension Postemployment and Postretirement Benefits
Borden provides certain health and life insurance benefits for eligible
retirees and their dependents. The cost of postretirement benefits is accrued
during the employees' working careers. BDPH's cumulative liability associated
with these plans is recorded on BDPH's balance sheets. BDPH's share of the
allocated cost to fund and administer these plans is recorded in the statements
of operations in the year the cost is incurred.
Borden provides certain other postemployment benefits to qualified former
or inactive employees. BDPH's cumulative liability associated with these plans
is recorded on BDPH's balance sheets. BDPH's share of the cost to fund and
administer these plans is recorded in the statements of operations in the year
the cost is incurred.
Fair Value of Financial Instruments
The carrying values of cash, accounts receivable and payable, other
receivables, and accrued and other current liabilities as stated on the balance
sheets approximate their fair market value.
Advertising and Promotion Expense
Production costs of future media advertising are deferred until the
advertising occurs. All other advertising costs are expensed when incurred.
Promotional expenses are generally expensed ratably over the year in relation to
revenues or other performance measures. Advertising and promotional expenses
amounted to $43,851, $34,476 and $31,177 during 1995, 1996 and 1997,
respectively.
Group and General Insurance Reserve
Borden is generally self-insured for losses and liabilities relating to
workers' compensation, health and welfare claims, physical damage to property,
business interruption and comprehensive general, product and vehicle liability.
Borden maintains insurance policies for certain items exceeding deductible
limits. Losses are accrued for the estimated aggregate liability for claims
using certain actuarial assumptions followed in the insurance industry and
Borden's experience.
F-11
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Supplemental Cash Flow Information
For the periods presented, the information provided reflects actual income
tax payments made by the foreign operations of BDPH. The 1995, 1996 and 1997 tax
payments for U.S. operations were made by Borden.
Recently Issued Accounting Statements
The Financial Accounting Standards Board has recently issued three new
accounting standards, Statement No. 130, 'Reporting Comprehensive Income',
adopted in 1997, Statement No. 131, 'Disclosures About Segments of an Enterprise
and Related Information' and Statement No. 132, 'Employers' Disclosures about
Pensions and Other Postretirement Benefits.' These statements will affect the
disclosure requirements for the 1998 reporting period. BDPH is currently
evaluating the effect of statements No. 131 'Disclosures About Segments of an
Enterprise and Related Information' and Statement No. 132, 'Employers'
Disclosures about Pensions and Other Postretirement Benefits.'
2. RELATED PARTIES
BDPH is engaged in various transactions with Borden and its affiliates in
the ordinary course of business. As described in Note 1, certain administrative
expenses incurred by Borden have been allocated to BDPH generally based on a
pro-rata share of Borden's total sales. Management believes the allocation
methods utilized are reasonable. Amounts due to Borden resulting from these
allocations, as well as sales and purchases of products and materials to or from
other operations, are reflected in owner's investment account in the statements
of stockholder's equity.
In addition, a subsidiary of Borden provides certain administrative
services to BDPH at negotiated fees. These services include: processing of
payroll and active and retiree group insurance claims, administration of workers
compensation claims, and securing insurance coverage for catastrophic claims.
BDPH reimburses the Borden subsidiary for payments for general disbursements,
general and group insurance and postemployment benefit claims. These amounts due
to a subsidiary of Borden are also included in the owner's investment account.
BDPH is generally self-insured for general insurance claims and postemployment
benefits other than pensions. The liabilities for these obligations are included
in BDPH's financial statements.
Employee pension benefits are provided under the Borden domestic pension
plans to which BDPH contributes. The U.S. employees participate in the Borden
retirement savings plan. Borden also provides certain health and life insurance
benefits for eligible employees. BDPH has recognized expenses associated with
these benefits, certain of which are determined and allocated by Borden's
actuary. BDPH has assumed an actuarially determined portion of Borden's U.S. net
pension liability. A minimum pension liability of $906 has been recognized for
BDPH's portion of the Canadian operation's pension plan. BDPH sponsors
retirement plans in certain international locations. These plans cover only BDPH
employees and are not affiliated liabilities (See Note 6).
F-12
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. RELATED PARTIES--(CONTINUED)
The following table summarizes the charges for these costs.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Pension and other employee benefits........................................ $ 625 $ 963 $ 861
Group and general insurance................................................ 1,922 2,184 1,665
Corporate information services............................................. 1,667 808 791
Executive compensation, corporate staff
Department services and division overhead................................ 2,092 1,362 1,592
</TABLE>
The benefit related amounts allocated by Borden to BDPH include the
following (see Note 5 for income tax amounts):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Net domestic pension liability............................................. $ 191 $ 510
Postretirement benefit obligation.......................................... 527 547
Postemployment benefit obligation.......................................... 368 318
Non-qualified plan obligation.............................................. 186 116
Group and general insurance obligation..................................... 1,274 1,252
</TABLE>
Cash generated and required by BDPH's domestic operations are recorded in
the owner's investment account for such years. There was no interest income or
expense allocated to BDPH with respect to its net domestic intercompany
balances.
Cash balances in international businesses which are not repatriated to the
U.S., can be loaned to other Borden affiliates at a variable rate for generally
a 30-day period. There were no affiliated borrowings at December 31, 1996 and
1997.
In July 1996, BDPH entered into a loan agreement allowing them to borrow
funds from Borden under a revolving loan facility. The revolving loan facility,
which terminated on December 31, 1997, provided for borrowings up to $5 million
at a variable interest rate of prime plus .50% on overnight borrowings and LIBOR
plus 1.50% on 30-day borrowings. At December 31, 1996 and 1997, BDPH had no
balance outstanding on the revolving loan facility. Commitment fees are paid
quarterly at .375% of the available balance.
In 1996 and 1997 BDPH had a financing agreement with Borden to invest
excess cash at an interest rate equal to the Federal Funds rate plus .25%. At
December 31, 1996 and 1997, BDPH had $18.3 million and $5.1 million invested,
respectively, with Borden netted in the owner's investment account.
BDPH purchases polyvinyl chloride ('PVC') resins from Borden Chemical and
Plastics L.P. ('BCP') under purchase and processing agreements between Borden
and BCP which expires in November 2002. The purchase agreements require BCP to
supply to Borden up to 100% and requires Borden to purchase at least 85% of the
quantities of PVC resins required by Borden to use in its plants in the
continental United States. The price for PVC resins will generally be the
average price that BCP charges its lowest-priced major customer (other than
Borden). The purchase agreements also provide that BCP is required to meet
competitive third-party offers or allow Borden to purchase the lower-priced
product from third parties in lieu of purchases under purchase agreements.
During 1995, 1996 and 1997 BDPH purchased $8,045, $6,534 and $6,330 of PVC from
BCP, respectively.
F-13
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. RELATED PARTIES--(CONTINUED)
BDPH operating activity with other Borden affiliates was as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ ------
<S> <C> <C> <C>
Sales..................................................................... $ 4,299 $2,296 $ 377
Purchases................................................................. 12,966 6,565 3,812
</TABLE>
A Borden affiliate from which BDPH purchases goods for resale guarantees a
minimum price on the sale of these goods. Rebates under this agreement amounted
to $891, $844 and $404 during 1995, 1996 and 1997, respectively.
3. SHORT-TERM BORROWINGS AND CREDIT FACILITIES
In addition to the affiliate credit facility described in Note 2, BDPH has
unsecured overdraft and revolving loan facilities with the National Westminster
Bank ('the Bank'). The interest rate on the $4.9 million overdraft facility is
based on the Bank's base rate plus 1%. Interest on the revolving $6.5 million
loan facility is based on LIBOR plus .56% fixed at the time of the loan. There
were no borrowings outstanding at December 31, 1996. At December 31, 1997,
borrowings on the overdraft facility amounted to $1,529.
4. LEASE OBLIGATIONS
BDPH currently leases warehouse space, production facilities and vehicles
under long-term or month-to-month arrangements in its domestic and foreign
locations. Rental expense amounted to $3,988, $4,585 and $4,297 during 1995,
1996 and 1997, respectively. Rental expense includes $445, $454 and $378 during
1995, 1996 and 1997, respectively, relating to leases entered into by Borden on
behalf of BDPH. Minimum annual rentals under operating leases at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
MINIMUM RENTALS ON
OPERATING LEASES
------------------
<S> <C>
1998................................................. 3,718
1999................................................. 2,949
2000................................................. 2,520
2001................................................. 2,049
2002................................................. 1,945
2003 and thereafter.................................. 11,170
</TABLE>
5. INCOME TAXES
Income tax expense for domestic and foreign operations that file a combined
tax return with other Borden affiliates was calculated utilizing statutory rates
multiplied by pretax income as adjusted for known book tax differences.
F-14
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. INCOME TAXES--(CONTINUED)
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal.............................................................. $ (222) $ 2,967 $ 2,922
State and local...................................................... (72) 702 548
Foreign.............................................................. 10,811 7,258 9,088
------- ------- -------
10,517 10,927 12,558
Deferred:
Federal.............................................................. 610 (2,420) (40)
State and local...................................................... 137 (453) (7)
Foreign.............................................................. (49) 2,547 (1,127)
------- ------- -------
698 (326) (1,174)
------- ------- -------
$11,215 $10,601 $11,384
------- ------- -------
------- ------- -------
</TABLE>
The following table reconciles the maximum statutory U.S. Federal income
tax rate multiplied by BDPH's income before taxes to the recorded income tax
expense (benefit):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
U.S. Federal income tax at 35%......................................... $ 9,964 $10,975 $11,820
State income tax expense, net of Federal benefit....................... 42 162 319
Foreign rate differentials............................................. 1,174 (704) (888)
Goodwill amortization and other
Nondeductible expenses............................................... 35 168 133
------- ------- -------
Provision for income taxes............................................. $11,215 $10,601 $11,384
------- ------- -------
------- ------- -------
</TABLE>
Domestic and foreign components of income before taxes are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Domestic............................................................... $ 1,071 $ 1,332 $ 7,673
Foreign................................................................ 27,397 30,025 26,099
------- ------- -------
$28,468 $31,357 $33,772
------- ------- -------
------- ------- -------
</TABLE>
F-15
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. INCOME TAXES--(CONTINUED)
The tax effects of the Company's significant temporary differences which
comprise the deferred tax assets and liabilities at December 31, 1996 and 1997,
and are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Assets:
Accrued and other expenses............................................ $ 2,198 $ 1,257
Pension, non-pension and postemployment benefit obligations........... 447 581
Reserves and allowances 4,335 4,281
Other................................................................. 1,057 756
------- -------
8,037 6,875
------- -------
Liabilities:
Property, plant, equipment and intangibles............................ 8,094 7,580
Pension and health contributions...................................... 4,699 4,912
Accrued and other expenses............................................ 3,069 2,593
------- -------
Net Liabilities......................................................... $ 7,825 $ 8,210
------- -------
------- -------
</TABLE>
Deferred income tax assets and liabilities for domestic and Canadian
operations only have been included in the owner's investment account. The
domestic net deferred income tax asset was $1,229 and $1,107 at December 31,
1996 and 1997 and was comprised of $3,929 and $3,817 of deferred tax assets
principally for accrued expenses and pension obligations and $2,700 and $2,710
of deferred tax liabilities for property and equipment. The Canadian net
deferred income tax balance, included in owner's investment, was $284 liability
at December 31, 1996 and $229 asset at December 31, 1997. The foreign net
deferred income tax liability was $8,770 and $9,546 at December 31, 1996 and
1997.
BDPH has not recorded income taxes applicable to undistributed earnings of
foreign subsidiaries that are indefinitely reinvested in foreign operations. The
determination of the tax effect to such earnings is not practicable.
6. PENSION AND RETIREMENT SAVINGS PLANS
Most employees of BDPH participate in foreign and domestic pension plans
sponsored by Borden. For most salaried employees, benefits under these plans
generally are based on compensation and credited service. For most hourly
domestic employees, benefits under these plans are based on specified amounts
per year of credited service. A portion of Borden's expense for domestic
retirement plans was allocated to BDPH (see Note 2).
A net pension asset or liability, which approximates the portion of the
total pension assets or liabilities of Borden which relates to the employees of
BDPH, has been reflected in BDPH's stand-alone balance sheets (see Note 2). For
domestic plans in which the employees of BDPH as well as employees of other
Borden affiliated businesses participate, the gross pension obligation was
allocated to BDPH based upon the actuarially determined obligation relating to
BDPH's employees. The pension expense allocated to BDPH for its participation in
Canadian salaried plans in which it shares with affiliates amounted to $44, $132
and $168 in 1995, 1996 and 1997, respectively.
F-16
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. PENSION AND RETIREMENT SAVINGS PLANS--(CONTINUED)
The weighted average rates used to determine pension expense for plans
shared with other Borden affiliates was as follows:
<TABLE>
<CAPTION>
DOMESTIC FOREIGN
-------------------- ---------------------
1995 1996 1997 1995 1996 1997
---- ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate........................................ 8.8% 6.8% 7.5% 10.0% 8.3% 7.8%
Rate of increase in future compensation levels....... 5.3% 4.3% 4.5% 7.0% 5.3% 4.8%
Expected long-term rate of return on plan assets..... 9.8% 7.8% 8.5% 11.0% 9.3% 8.8%
</TABLE>
The status of the portion of BDPH's foreign pension plans in which
employees of BDPH participate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1996
---------------------------------------
PLAN ASSETS EXCEED ACCUMULATED BENEFITS
---------------------------------------
<S> <C>
Plan assets at fair value..................................... $69,862
Actuarial present value of:
Vested benefit obligation................................... (58,678)
Accumulated benefit obligation.............................. (58,678)
Projected benefit obligation................................ (67,247)
Plan assets greater than projected benefit obligation......... 2,615
Unrecognized prior service cost............................... 331
Unrecognized loss............................................. 12,277
Unrecognized net transition obligation........................ (87)
Minimum Liability Adjustment..................................
----------
Net pension asset............................................. $15,136
----------
----------
<CAPTION>
1997
---------------------------------------
<S> <C>
Plan assets at fair value..................................... $82,608
Actuarial present value of:
Vested benefit obligation................................... (70,044)
Accumulated benefit obligation.............................. (70,423)
Projected benefit obligation................................ (79,779)
Plan assets greater than projected benefit obligation......... 2,829
Unrecognized prior service cost............................... 622
Unrecognized loss............................................. 13,189
Unrecognized net transition obligation........................ (3)
Minimum Liability Adjustment.................................. (1,246)
----------
Net pension asset............................................. $15,391
----------
----------
</TABLE>
Plan assets consist primarily of equity securities and corporate
obligations.
The following are the components of BDPH's foreign annual net pension
expense in which employees of BDPH participate:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Service cost-benefits earned during the year............................. $1,353 $ 1,413 $ 2,338
Interest cost on the projected benefit obligation........................ 4,265 4,771 5,487
Actual return on plan assets............................................. (4,970) (5,580) (13,601)
Net amortization and deferral............................................ 836 883 8,079
------ ------- -------
$1,484 $ 1,487 $ 2,303
------ ------- -------
------ ------- -------
</TABLE>
The weighted average rates used to determine foreign net periodic pension
expense were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate................................................................... 8.7% 8.4% 8.5%
Rate of increase in future compensation levels.................................. 5.0% 5.0% 4.8%
Expected long-term rate of return on plan assets................................ 9.7% 9.5% 9.5%
</TABLE>
Eligible salaried and hourly non-bargaining employees may contribute up to
5% of their pay to Borden sponsored retirement savings plans (7% for certain
longer service salaried employees), which was matched 50% by Borden during 1995,
1996 and 1997.
F-17
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
7. NON-PENSION POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS
BDPH participates in Borden-sponsored non-pension postemployment and
postretirement benefit plans. The postretirement plans provide certain health
and life insurance benefits for eligible domestic retirees and their dependents.
Participants who are not eligible for Medicare are provided with the same
medical benefits as active employees, while those who are eligible for Medicare
are provided with supplemental benefits. The postretirement medical benefits are
contributory for retirements after 1983; the post retirement life insurance
benefit is noncontributory.
Borden also provides certain postemployment benefits, primarily medical and
life insurance benefits for long-term disabled employees, to qualified former or
inactive employees.
A liability which approximates the portion of Borden's total postemployment
and postretirement obligation which relates to the domestic employees of BDPH
has been reflected in BDPH's balance sheet (see Note 2). Such allocation was
based upon the actuarially-determined obligation for these benefits relating to
BDPH's domestic employees.
A portion of Borden's expense for postemployment and postretirement
benefits was allocated annually to BDPH (see Note 2). The discount rate used in
determining the accumulated postretirement benefit obligation at December 31,
1995, 1996 and 1997, was 6.8%, 7.5% and 7.3%, respectively.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation at December 31, 1997, was 8.8% for 1998,
gradually declining to 5.3% by the year 2004. The comparable assumptions for the
prior year were 9.5% and 5.5%.
Management does not believe that these allocations are materially different
from amounts that would be calculated historically for BDPH on a stand-alone
basis.
8. OWNER'S INVESTMENT/SHAREHOLDER'S EQUITY
Preferred stock
Effective January 1, 1996, Borden capitalized BDPH with 6,609,600 shares of
7% senior preferred stock with a face value of $165,240 and 1,041,000 shares of
10% junior preferred stock with a face value of $26,025 as part of the transfer
of the assets from Borden to BDPH. Also in 1996, 57,600 shares of senior
preferred stock purchased from Borden Inc. for $1,440 were canceled and retired.
Each share of senior preferred stock has a liquidation preference of $25
and is entitled to cumulative dividends at an annual rate of 6.75%, payable
quarterly in arrears. There are 6,552,000 shares issued and outstanding at
December 31, 1996 and 1997. The dividend rate of the senior preferred stock was
changed from 7% to 6.75% effective January 1, 1997. BDPH declared dividends on
the senior preferred stock of $11,466 and $11,057 and paid dividends of $2,866
and $19,657 during 1996 and 1997, respectively.
Each share of junior preferred stock has a liquidation preference of $25
and is entitled to cumulative dividends in kind at an annual rate of 7.65%,
compounded quarterly and payable quarterly in arrears. There are 1,148,386 and
1,215,543 shares issued and outstanding at December 31, 1996 and 1997,
respectively. The dividends in kind of $2,685 (107,386 shares) in 1996 and
$1,679 (67,157 shares) in 1997 were recorded as additions to the junior
preferred stock and a reduction to retained earnings. BDPH declared and paid
cash dividends of $581 on the junior preferred stock in 1997. The dividend rate
of the junior preferred stock was changed from 10% to 7.65% effective January 1,
1997.
F-18
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
8. OWNER'S INVESTMENT/SHAREHOLDER'S EQUITY--(CONTINUED)
Common stock
Effective January 1, 1996, BDPH issued 20,000,000 shares of common stock
with a par value of $0.01 per share. Shares totaling to 19,712,000 were issued
to BDH One, Inc. (a subsidiary of Borden, Inc.) and 261,250 shares were
purchased by key members of management for $1,306 along with the grant of
options to purchase an additional 1,306,250 shares at $5.00 per share. In 1996,
Borden purchased 26,750 additional shares for $134.
Owner's investment
Owner's investment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Permanent net owner's investment................................................. $ 28,939 $ 28,939
Accrued dividend payable to affiliate............................................ 8,600
Cash invested with affiliate..................................................... (18,300) (5,100)
Deferred taxes--domestic and Canadian............................................ (945) (1,336)
Other receivable--net............................................................ 2,033 5,375
-------- --------
$ 20,327 $ 27,878
-------- --------
-------- --------
</TABLE>
As of December 31, 1996 and 1997, the balances that comprise owner's
investment relate primarily to cash amounts invested with an affiliate,
affiliate payable and receivable balances and domestic and Canadian deferred tax
assets. The change in affiliate receivables--net from December 31, 1996, to
December 31, 1997, was primarily due to a decrease in excess cash invested with
Borden and decreases in affiliate payable and receivable balances.
Paid-in capital
The debit balance in paid-in capital represents the excess of the valuation
of the common and preferred stock at the recapitalization of the business over
the December 31, 1995, permanent owner's investment balance (excluding the
Canadian operations).
9. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
Effective January 1, 1996, BDPH issued stock options under its Management
Stockholder's Agreement (the 'Plan'). Under the Plan equity in BDPH was sold to
key management personnel. Those participating were granted fixed stock options
to purchase additional shares at an exercise price of $5.00 per share. The
weighted price of options granted during 1996 was $5.00. The fair value of each
option at the grant date was $1.16. For each share of stock purchased management
was given the option to purchase five additional shares. The options were issued
at fair value, vest over five years and expire ten years from the date of grant.
There were 1,306,250 options outstanding and 133,750 options available for
future grants at December 31, 1996 and 1997. The fair value of the options
exceeded $5.00 at December 31, 1997, and an expense of $531 was recorded to
reflect the shares vested under the plan.
BDPH adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 (SFAS No. 123), 'Accounting for Stock-Based
Compensation.' Had compensation cost for such plan been determined based on the
fair value at the grant date for awards consistent with the provisions of SFAS
No. 123, the Company's net income would have been reduced by $185 for 1996 and
increased by $346 for 1997. The plan
F-19
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
9. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION--(CONTINUED)
provides for options to fully vest if BDPH is sold. The options were settled
upon the Merger in March 1998 for approximately $1,254.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with a risk free interest rate of 5.37%
and expected lives of five years. No options were granted in 1997.
10. SUPPLEMENTAL INFORMATION
Other current assets, non-current assets and current liabilities consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Other current assets:
Sample books.................................................................... $ 6,205 $ 6,029
Design & engraving costs........................................................ 7,286 7,272
Other........................................................................... 5,717 7,081
------- -------
$19,208 $20,382
------- -------
------- -------
Other non-current assets:
Prepaid pension assets.......................................................... $16,427 $15,479
Other........................................................................... 6,586 7,731
------- -------
$23,013 $23,210
------- -------
------- -------
Other current liabilities:
Customer allowances & credits................................................... $10,887 $ 9,484
Wages and payroll taxes......................................................... 7,343 8,524
Other........................................................................... 6,815 4,462
------- -------
$25,045 $22,470
------- -------
------- -------
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
Environmental Matters--BDPH, like others in similar businesses, is subject
to extensive national, state and local environmental laws and regulations.
Although BDPH environmental policies and practices are designed to ensure
compliance with these laws and regulations, future developments and increasingly
stringent regulation could require BDPH to make additional unforeseen
environmental expenditures.
12. COMPREHENSIVE INCOME
As of December 31, 1997, the Company adopted Statement of Financial
Accounting Standards, No. 130, 'Reporting Comprehensive Income'. This statement
establishes standards for reporting and presentation of comprehensive income and
its components in a full set of financial statements. Comprehensive income
includes all changes in shareholders' equity (except those arising from
transactions with shareholders) and includes net income and net unrealized gains
(losses) on currency translation adjustments and unrecognized minimum pension
liabilities.
F-20
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
12. COMPREHENSIVE INCOME--(CONTINUED)
The new standard requires only additional disclosures in the combined
financial statements; it does not affect the Company's financial position or
results of operations. Comprehensive income was computed as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Net income......................................................... $ 17,253 $ 20,756 $ 22,388
Unrealized foreign currency translation adjustment................. 1,052 6,724 (4,327)
Unrecognized minimum pension liability............................. (1,299)
-------- -------- ---------
Comprehensive income............................................... $ 18,305 $ 27,480 $ 16,762
-------- -------- ---------
-------- -------- ---------
</TABLE>
13. SEGMENT INFORMATION
BDPH operations manufacture residential, wallcoverings, heat transfer paper
and flexible vinyl films and sheeting.
The decorative product line includes heat transfer paper. The decorative
products business operates worldwide but primarily in the United Kingdom, the
United States, Canada, and other parts of Western and Eastern Europe. The
flexible vinyl films and sheeting product line includes calendered, flexible PVC
sheeting, printed sheeting and laminated products. The vinyl films and sheeting
business operates in the United States and Canada.
The following represents segment data about BDPH's operations.
INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Net Sales
Residential wallcoverings.......................................... $312,935 $315,590 $ 323,423
Vinyl films and sheetings.......................................... 49,357 49,381 49,315
-------- -------- ---------
$362,292 $364,971 $ 372,738
-------- -------- ---------
-------- -------- ---------
Operating Income
Residential wallcoverings........................................ $ 24,050 $ 25,936 $ 29,138
Vinyl films and sheetings........................................ 5,341 5,203 4,331
-------- -------- ---------
$ 29,391 $ 31,139 $ 33,469
-------- -------- ---------
-------- -------- ---------
Capital Expenditures
Residential wallcoverings........................................ $ 5,573 $ 19,509 $ 17,163
Vinyl films and sheetings........................................ 790 1,669 3,670
-------- -------- ---------
$ 6,363 $ 21,178 $ 20,833
-------- -------- ---------
-------- -------- ---------
Depreciation and Amortization
Residential wallcoverings........................................ $ 5,097 $ 5,649 $ 9,072
Vinyl films and sheetings........................................ 896 940 1,005
-------- -------- ---------
$ 5,993 $ 6,589 $ 10,077
-------- -------- ---------
-------- -------- ---------
Identifiable Assets at Year End
Residential wallcoverings........................................ $219,780 $218,608 $ 213,801
Vinyl films and sheetings........................................ 22,483 22,202 25,833
-------- -------- ---------
$242,263 $240,810 $ 239,634
-------- -------- ---------
-------- -------- ---------
</TABLE>
F-21
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
13. SEGMENT INFORMATION--(CONTINUED)
GEOGRAPHICAL INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Net Sales
United States.................................................... $173,586 $157,488 $ 186,632
Europe........................................................... 181,311 201,734 211,900
Canada........................................................... 69,513 71,550 40,523
-------- -------- ---------
424,410 430,772 439,055
Inter-area (1)..................................................... (62,118) (65,801) (66,317)
-------- -------- ---------
$362,292 $364,971 $ 372,738
-------- -------- ---------
-------- -------- ---------
Operating Income (loss)
United States.................................................... $ 1,640 $ (634) $ 6,110
Europe........................................................... 18,818 24,985 21,176
Canada........................................................... 8,933 6,788 6,183
-------- -------- ---------
$ 29,391 $ 31,139 $ 33,469
-------- -------- ---------
-------- -------- ---------
Capital Expenditures
United States.................................................... $ 889 $ 2,016 $ 3,987
Europe........................................................... 3,511 17,630 12,930
Canada........................................................... 1,963 1,532 3,916
-------- -------- ---------
$ 6,363 $ 21,178 $ 20,833
-------- -------- ---------
-------- -------- ---------
Depreciation and Amortization
United States.................................................... $ 1,165 $ 1,420 $ 1,602
Europe........................................................... 3,572 3,778 6,007
Canada........................................................... 1,256 1,391 2,468
-------- -------- ---------
$ 5,993 $ 6,589 $ 10,077
-------- -------- ---------
-------- -------- ---------
Identifiable Assets at Year End
United States.................................................... $ 79,901 $ 58,933 $ 54,998
Europe........................................................... 116,393 140,771 141,505
Canada........................................................... 45,969 41,106 43,131
-------- -------- ---------
$242,263 $240,810 $ 239,634
-------- -------- ---------
-------- -------- ---------
</TABLE>
- ------------------
(1) Sales between geographic regions includes $17,478 and $41,607 of sales from
Europe and Canada to the United States and $1,484 and $1,549 of sales from
the United States and Europe to Canada in 1995; $17,238 and $41,436 of sales
from Europe and Canada to the United States and $3,736 and $3,391 of sales
from the United States and Europe to Canada in 1996; $16,799 and $41,484 of
sales from Europe and Canada to the United States and $5,904 and $2,130 of
sales from the United States and Europe to Canada in 1997. The sales are
recorded at prices which, depending on channel or distribution, are either
based on market prices or are at cost plus a standard markup.
F-22
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
14. SUBSEQUENT EVENT
In October 1997, Borden entered into a definitive agreement among BDPH,
BDPI Holdings Corporation ('MergerCo') and Borden (the 'Recapitalization
Agreement'). MergerCo was an indirect wholly owned subsidiary of Blackstone
Capital Partners III Merchant Banking Fund L.P. Pursuant to the Recapitalization
Agreement, MergerCo will be merged with and into BDPH (the 'Merger'), with BDPH
surviving. On March 13, 1998, the merger was completed.
In connection with the Merger, MergerCo's common stock was exchanged for
89% of BDPH's total outstanding common stock after the Merger. BDPH's existing
shareholders (Borden) retained 11% of BDPH's total outstanding common stock
after the Merger. In addition, pursuant to the recapitalization agreement,
Borden received in exchange for all the preferred stock and certain common stock
of BDPH cash merger consideration of approximately $309.6 million (subject to
adjustment based on changes in net working capital). The cash merger
consideration was financed in part by term loan borrowings under senior credit
facilities (the 'Senior Credit Facilities') and the issuance of the 11% Senior
Subordinated Notes due 2008 (the 'Notes'). BDPH changed its name to 'The
Imperial Home Decor Group Inc.' (the 'Issuer').
Also in a subsequent acquisition, BDPH acquired all the outstanding common
stock of Imperial Wallcoverings, Inc. and a wholly owned subsidiary of BDPH
acquired substantially all of the assets and assumed substantially all of the
liabilities of Imperial Wallcoverings (Canada) Inc. The purchase price was
approximately $58.0 million (subject to adjustment based on changes in net
working capital). In connection with the Imperial acquisition the former owners
of Imperial will be granted an option to purchase 397,812 shares or 6.7% of
BDPH's common stock outstanding as of the closing. The Imperial acquisition will
be accounted for using the purchase method of accounting. On March 13, 1998, the
purchase was completed.
15. SUPPLEMENTAL COMBINING CONDENSED FINANCIAL INFORMATION
In connection with the Merger and the Imperial acquisition, the Issuer has
issued the Notes to finance the transaction and the related fees and expenses.
The Issuer's payment obligations under the Notes will be fully and
unconditionally guaranteed on a joint and several basis (collectively, the
'Guarantees') by the Issuer's domestic subsidiaries (Borden Decorative Products,
Inc., WDP Investments, Inc., and Decorative Products UK IHC, collectively the
'Guarantor Subsidiaries'). Each of the Guarantor Subsidiaries is a direct
wholly-owned subsidiary of the Issuer. The obligations of each Guarantor
Subsidiary under its Guarantee are subordinated to such subsidiary's obligations
under Senior Credit Facilities.
Presented below is condensed combining financial information for Imperial
Home Decor Group Inc. formerly known as Borden Decorative Products Holdings,
Inc. ('Parent Company'), the Guarantor Subsidiaries, and the BDPH's other
subsidiaries (the 'Non-Guarantor Subsidiaries'). In the opinion of management of
BDPH, separate financial statements and other disclosures concerning each of the
Guarantor Subsidiaries would not provide additional information that is material
to investors in the Notes. Therefore, the Guarantor Subsidiaries are combined in
the presentation below.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method of accounting. Earnings of subsidiaries are, therefore, reflected
in the Parent Company's investments in subsidiaries account and equity income.
The elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions. The intracompany payable and receivable balances are
netted in the owner's investment account.
F-23
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
------- ------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net Sales............................. $ $ 173,586 $ 249,275 $ (60,569) $362,292
Costs and expenses:
Cost of sales....................... 116,354 173,980 (60,569) 229,765
Distribution expense................ 7,978 10,273 18,251
Marketing expense................... 41,570 26,743 68,313
General, administrative
and other expense................ 6,044 11,451 17,495
------- ------------- ----------------- ----------- --------
Total costs and expenses....... 171,946 222,447 (60,569) 333,824
Equity Income......................... 17,253 (17,253) --
------- ------------- ----------------- ----------- --------
Income before income taxes............ 17,253 1,640 26,828 (17,253) 28,468
Provision for income taxes............ 453 10,762 11,215
------- ------------- ----------------- ----------- --------
Net income............................ $17,253 $ 1,187 $ 16,066 $ (17,253) $ 17,253
------- ------------- ----------------- ----------- --------
------- ------------- ----------------- ----------- --------
</TABLE>
F-24
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
------- ------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net Sales............................. $ $ 157,488 $ 269,893 $ (62,410) $364,971
Costs and expenses:
Cost of sales....................... 114,346 185,532 (62,410) 237,468
Distribution expense................ 7,562 12,007 19,569
Marketing expense................... 31,089 29,140 60,229
General, administrative
and other expense................ 2,834 13,514 16,348
------- ------------- ----------------- ----------- --------
Total costs and expenses....... 155,831 240,193 (62,410) 333,614
Equity Income......................... 20,756 (20,756)
------- ------------- ----------------- ----------- --------
Income before income taxes............ 20,756 1,657 29,700 (20,756) 31,357
Provision for income taxes............ 796 9,805 10,601
------- ------------- ----------------- ----------- --------
Net income............................ $20,756 $ 861 $ 19,895 $ (20,756) $ 20,756
------- ------------- ----------------- ----------- --------
------- ------------- ----------------- ----------- --------
</TABLE>
F-25
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
------- ------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net Sales.............................. $ $ 151,052 $ 285,873 $ (64,187) $372,738
Costs and expenses:
Cost of sales........................ 108,033 198,872 (64,187) 242,718
Distribution expense................. 5,633 13,151 18,784
Marketing expense.................... 26,383 32,005 58,388
General, administrative
and other expense................. 2,170 16,906 19,076
------- ------------- ----------------- ----------- --------
Total costs and expenses........ 142,219 260,934 (64,187) 338,966
Equity Income.......................... 22,388 (22,388)
------- ------------- ----------------- ----------- --------
Income before income taxes............. 22,388 8,833 24,939 (22,388) 33,772
Provision for income taxes............. 3,069 8,315 11,384
------- ------------- ----------------- ----------- --------
Net income............................. $22,388 $ 5,764 $ 16,624 $ (22,388) $ 22,388
------- ------------- ----------------- ----------- --------
------- ------------- ----------------- ----------- --------
</TABLE>
F-26
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
------- -------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents........................ $ $ 1,345 $ 5,423 $ $ 6,768
Accounts receivable......................... 19,551 41,111 60,662
Inventories................................. 23,844 38,499 62,343
Other current assets........................ 3,564 15,644 19,208
------- -------------- ----------------- ----------- --------
Total current assets..................... 48,304 100,677 148,981
Fixed assets, net............................. 8,271 48,948 57,219
Goodwill...................................... 1,493 10,104 11,597
Other non-current assets...................... 865 22,148 23,013
Investment in subsidiary...................... 20,756 (20,756)
------- -------------- ----------------- ----------- --------
$20,756 $ 58,933 $ 181,877 $ (20,756) $240,810
------- -------------- ----------------- ----------- --------
------- -------------- ----------------- ----------- --------
LIABILITIES AND SHAREHOLDER'S EQUITY/OWNER'S
INVESTMENT
Current liabilities:
Accounts payable............................ $ $ 15,471 $ 28,240 $ $ 43,711
Accrued liabilities......................... 3,229 21,816 25,045
Income tax payable.......................... 146 7,811 7,957
------- -------------- ----------------- ----------- --------
Total current liabilities................ 18,846 57,867 76,713
Non-current liabilities....................... 1,272 1,272
Deferred income tax........................... 8,770 8,770
Shareholder's equity/owner's investment....... 20,756 38,815 115,240 (20,756) 154,055
------- -------------- ----------------- ----------- --------
$20,756 $ 58,933 $ 181,877 $ (20,756) $240,810
------- -------------- ----------------- ----------- --------
------- -------------- ----------------- ----------- --------
</TABLE>
F-27
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
------- ------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................... $ $ 229 $ 3,566 $ $ 3,795
Accounts receivable..................... 18,086 37,074 55,160
Inventories............................. 19,656 39,823 59,479
Other current assets.................... 3,793 16,589 20,382
------- ------------- ----------------- ----------- --------
Total current assets...................... 41,764 97,052 138,816
Fixed assets, net......................... 10,668 56,072 66,740
Goodwill.................................. 1,352 9,516 10,868
Other non-current assets.................. 1,214 21,996 23,210
Investment in subsidiary.................. 43,144 (43,144)
------- ------------- ----------------- ----------- --------
$43,144 $54,998 $ 184,636 $ (43,144) $239,634
------- ------------- ----------------- ----------- --------
------- ------------- ----------------- ----------- --------
LIABILITIES AND SHAREHOLDER'S
EQUITY/OWNER'S INVESTMENT
Current liabilities:
Bank loan............................... $ $ $ 1,529 $ $ 1,529
Accounts payable........................ 15,595 15,715 31,310
Accrued liabilities..................... (1,417) 23,887 22,470
Income tax payable...................... 6,249 6,249
------- ------------- ----------------- ----------- --------
Total current liabilities................. 14,178 47,380 61,558
Non-current liabilities................... 1,491 309 1,800
Deferred income tax....................... 9,546 9,546
Shareholder's equity/owner's investment... 43,144 39,329 127,401 (43,144) 166,730
------- ------------- ----------------- ----------- --------
$43,144 $54,998 $ 184,636 $ (43,144) $239,634
------- ------------- ----------------- ----------- --------
------- ------------- ----------------- ----------- --------
</TABLE>
F-28
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPIH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
-------- ------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income...................... $ 17,253 $ 1,187 $16,066 $ (17,253) $ 17,253
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity income................ (17,253) 17,253 --
Depreciation and
amortization............... 1,165 4,828 5,993
Increase in deferred foreign
income taxes............... 436 436
Change in assets and
liabilities:
Accounts receivable.......... (2,794) (5,155) (7,949)
Inventories.................. 4,114 823 4,937
Other assets................. (2,502) (1,158) (3,660)
Accounts payable............. (1,731) (1,640) (3,371)
Other liabilities............ 10,626 3,045 13,671
-------- ------------- ----------------- ----------- --------
Net cash provided by
operating activities............ -- 10,065 17,245 -- 27,310
Cash flow used in investing
activities:
Net investment in fixed
assets....................... (889) (5,474) (6,363)
Cash flow used in financing
activities:
Other changes in owner's
investment................... (9,176) (5,875) (15,051)
-------- ------------- ----------------- ----------- --------
Increase in cash and
equivalents..................... -- -- 5,896 -- 5,896
Cash and equivalents at beginning
of year......................... 3 6,944 6,947
-------- ------------- ----------------- ----------- --------
Cash and equivalents at
end of year..................... $ -- $ 3 $12,840 $ -- $ 12,843
-------- ------------- ----------------- ----------- --------
-------- ------------- ----------------- ----------- --------
</TABLE>
F-29
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
-------- ------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 20,756 $ 861 $ 19,895 $ (20,756) $ 20,756
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity income............................. (20,756) 20,756 --
Depreciation and amortization............. 1,420 5,169 6,589
Increase in deferred foreign income
taxes................................... 146 2,758 2,904
Change in assets and liabilities:
Accounts receivable....................... 5,623 (6,846) (1,223)
Inventories............................... 8,717 (1,016) 7,701
Other assets.............................. 8,566 (5,077) 3,489
Accounts payable.......................... (167) 8,405 8,238
Other liabilities......................... (3,588) (1,389) (4,977)
-------- ------------- ----------------- ----------- --------
Net cash provided by operating activities...... -- 21,578 21,899 -- 43,477
Cash flow used in investing activities:
Net investment in fixed assets............... (2,016) (19,162) (21,178)
Cash flow from (used in) financing activities:
Purchase of senior preferred stock........... (1,440) (1,440)
Sales of common shares....................... 1,440 1,440
Dividends paid............................... (2,866) (2,866)
Other changes in owner's investment.......... (15,354) (10,154) (25,508)
-------- ------------- ----------------- ----------- --------
Net cash used in financing activities.......... -- (18,220) (10,154) -- (28,374)
-------- ------------- ----------------- ----------- --------
Increase (decrease) in cash and equivalents.... -- 1,342 (7,417) -- (6,075)
Cash and equivalents at beginning of year...... 3 12,840 12,843
-------- ------------- ----------------- ----------- --------
Cash and equivalents at end of year............ $ -- $ 1,345 $ 5,423 $ -- $ 6,768
-------- ------------- ----------------- ----------- --------
-------- ------------- ----------------- ----------- --------
</TABLE>
F-30
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
-------- ------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $ 22,388 $ 5,764 $ 16,624 $ (22,388) $ 22,388
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity income..................... (22,388) 22,388
Depreciation and amortization..... 1,602 8,475 10,077
Decrease in deferred foreign
income taxes.................... (146) (786) (932)
Change in assets and liabilities:
Accounts receivable............... 1,465 4,037 5,502
Inventories....................... 4,188 (1,324) 2,864
Other assets...................... (449) 1,042 593
Accounts payable.................. 124 (12,525) (12,401)
Other liabilities................. (4,427) 2,380 2,047)
-------- ------------- ----------------- ----------- --------
Net cash provided by operating
activities........................... -- 8,121 17,923 -- 26,044
Cash flow used in investing activities:
Net investment in fixed assets....... (3,987) (16,846) 20,833)
Cash flow from (used in) financing
activities:
Dividends paid....................... (20,238) (20,238)
Net short term debt borrowings....... 1,529 1,529
Other changes in owner's
investment........................ 14,988 (4,463) 10,525
-------- ------------- ----------------- ----------- --------
Net cash used in financing activities.. -- (5,250) (2,934) -- (8,184)
-------- ------------- ----------------- ----------- --------
Decrease in cash and equivalents....... -- (1,116) (1,857) -- (2,973)
Cash and equivalents at beginning of
year................................. 1,345 5,423 6,768
-------- ------------- ----------------- ----------- --------
Cash and equivalents at end of year.... $ -- $ 229 $ 3,566 $ -- $ 3,795
-------- ------------- ----------------- ----------- --------
-------- ------------- ----------------- ----------- --------
</TABLE>
F-31
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 28,
1998
---------
<S> <C>
ASSETS
Current Assets:
Cash and equivalents................................................................................ $ 8,062
Accounts receivable, less allowance for doubtful accounts of $3,554................................. 115,101
Inventories:
Finished and in-process goods.................................................................... 113,352
Raw materials and supplies....................................................................... 12,679
---------
Total inventories................................................................................ 126,031
Other current assets................................................................................ 15,219
---------
Total Current Assets.................................................................................. 264,413
---------
Property, plant and equipment, net of accumulated depreciation of $104,335............................ 92,646
Assets held for resale................................................................................ 7,000
Goodwill.............................................................................................. 10,776
Other non-current assets.............................................................................. 45,949
---------
$ 420,784
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Notes payable under revolving credit facility....................................................... $ 6,600
Accounts payable.................................................................................... 57,811
Income tax payable.................................................................................. 7,605
Other current liabilities........................................................................... 60,561
---------
Total Current Liabilities............................................................................. 132,577
---------
Long-term debt........................................................................................ 323,000
Other long-term liabilities........................................................................... 25,601
Commitments and Contingencies (Note 8)
Shareholders' Equity (Deficiency):
Common stock........................................................................................ 59
Paid-in capital..................................................................................... (57,800)
Accumulated translation adjustment.................................................................. 1,803
Retained earnings (deficit)......................................................................... (3,157)
Minimum pension liability adjustment................................................................ (1,299)
---------
Total Shareholders' Equity (Deficiency)............................................................... (60,394)
---------
$ 420,784
---------
---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-33
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 29, MARCH 28,
1997 1998
--------- ---------
<S> <C> <C>
Net sales.................................................................................. $96,042 $ 95,907
Cost of goods sold (including amortization of inventory step-up of $1,437 in 1998)......... 62,842 63,044
--------- ---------
Gross margin............................................................................... 33,200 32,863
Distribution expense....................................................................... 5,671 6,087
Marketing expense.......................................................................... 16,060 16,560
General and administrative expense......................................................... 4,356 8,927
Restructuring charges...................................................................... 9,296
--------- ---------
Operating income (loss).................................................................... 7,113 (8,007)
Merger costs............................................................................... 4,000
Interest (income) expense, net (including amortization of deferred financing costs
of $100 in 1998)......................................................................... (282) 1,344
--------- ---------
Income (loss) before income taxes.......................................................... 7,395 (13,351)
Income tax expense......................................................................... 2,711 171
--------- ---------
Net income (loss).......................................................................... $ 4,684 $(13,522)
--------- ---------
--------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-34
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 29, MARCH 28,
1997 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................................... $ 4,684 $ (13,522)
Adjustments to reconcile net income (loss) to net cash used in operating activities,
net of acquisition:
Depreciation and amortization....................................................... 2,260 2,614
Amortization of deferred financing costs............................................ 100
Accounts receivable................................................................. (14,251 ) (21,700)
Inventories......................................................................... 3,776 3,125
Accounts payable.................................................................... (1,023 ) 7,562
Current and deferred foreign income taxes........................................... 3,396 (834)
Other assets........................................................................ 2,504 6,272
Other liabilities................................................................... (2,043 ) 11,719
--------- ---------
Cash used in operating activities................................................... (697 ) (4,664)
--------- ---------
Cash flows from investing activities:
Capital expenditures................................................................... (1,799 ) (3,708)
Acquisition of Imperial Wallcoverings, Inc............................................. (72,200)
--------- ---------
Cash used in investing activities................................................... (1,799 ) (75,908)
--------- ---------
Cash flows from financing activities:
Repayment of borrowings on bank loan................................................... (1,529)
Borrowings under revolving credit facility............................................. 6,600
Borrowings under long-term debt arrangements........................................... 323,000
Debt issuance fees..................................................................... (19,185)
Equity contribution.................................................................... 84,500
Borden recapitalization cash distribution.............................................. (311,200)
Dividends paid......................................................................... (8,600 ) (2,635)
Changes in owners' investment.......................................................... 7,165 5,288
--------- ---------
Cash (used in) provided by financing activities..................................... (1,435 ) 84,839
--------- ---------
Increase (decrease) in cash and equivalents.............................................. (3,931 ) 4,267
Cash and equivalents at beginning of period.............................................. 6,768 3,795
--------- ---------
Cash and equivalents at end of period.................................................... $ 2,837 $ 8,062
--------- ---------
--------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-35
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Imperial Home Decor Group Inc. formerly known as Borden Decorative Products
Holdings, Inc. ('BDPH') operations of Borden, Inc. ('Borden') have been prepared
in accordance with generally accepted accounting principles for interim
financial statement information and Article 10 of Regulation S-X and therefore
do not include all of the information and footnotes required by generally
accepted accounting principles for complete annual financial statements. In the
opinion of management, all adjustments (consisting only of usual recurring
adjustments) considered necessary for a fair presentation are reflected in the
condensed consolidated financial statements. The condensed consolidated
financial statements and notes thereto should be read in conjunction with the
combined financial statements and notes thereto for the year ended December 31,
1997. The results of operations for the three months ended March 28, 1998, are
not necessarily indicative of the results to be expected for the full year
ending December 31, 1998.
2. THE TRANSACTIONS
The Initial Offering
The Imperial Home Decor Group Inc. issued 11% Senior Subordinated Notes due
2008, for an aggregate principal amount of $125,000,000 (the 'Initial
Offering'). The Initial Offering was made in connection with (i) the
recapitalization (the 'Recapitalization') of BDPH pursuant to a Recapitalization
Agreement, dated as of October 14, 1997, as amended (the 'Recapitalization
Agreement'), among BDPH, BDPI Holdings Corporation ('MergerCo') and Borden and
(ii) the acquisition of Imperial Wallcoverings, Inc. and its affiliate
('Imperial') (the 'Imperial Acquisition') pursuant to an Acquisition Agreement,
dated as of November 4, 1997, as amended (the 'Imperial Acquisition Agreement'),
among Collins & Aikman Corporation ('C&A'), Imperial Wallcoverings, Inc.
('Imperial U.S.') and MergerCo.
The closing of the transactions contemplated by the Recapitalization
Agreement, the initial borrowings under the Senior Credit Facilities and the
consummation of the Initial Offering took place immediately prior to, but
substantially simultaneously with, the closing of the Imperial Acquisition,
which occurred on March 13, 1998 (collectively, the 'Closing').
The Recapitalization
The principal components of the Recapitalization were:
o The transfer of substantially all the assets and liabilities of Sunworthy
(the Canadian wallcoverings business of Borden) to a wholly owned
subsidiary of BDPH;
o The equity contribution of $84.6 million in cash to MergerCo by
Blackstone Capital Partners III Merchant Banking Fund L.P., Blackstone
Offshore Capital Partners III L.P. and Blackstone Family Investment
Partnership III L.P. (collectively, 'Blackstone');
o The merger of MergerCo with and into BDPH; and
o The conversion of all the preferred stock and certain common stock of
BDPH into the right to receive a total of $309.5 million in cash, subject
to adjustment as described in the Recapitalization Agreement.
Following the Recapitalization, Blackstone and its affiliates owned 89% and
Borden retained 11% of the outstanding BDPH common stock. This merger is
accounted for as a recapitalization of BDPH which has no impact on the
historical carrying value of BDPH's assets and liabilities.
The Imperial Acquisition
The principal components of the Imperial Acquisition were:
o The acquisition of all the outstanding capital stock of Imperial U.S. by
BDPH;
o The acquisition of substantially all the assets and liabilities of
Imperial Wallcoverings (Canada), Inc. by a wholly owned subsidiary of
BDPH;
F-36
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. THE TRANSACTIONS--(CONTINUED)
o The payment by BDPH to C&A of the cash purchase price for the Imperial
Acquisition of $71.2 million, subject to adjustment as described in the
Imperial Acquisition Agreement; and
o The grant to C&A by BDPH of an option to purchase newly issued shares of
BDPH's common stock equal to 6.7% of BDPH's common stock outstanding as
of the Closing.
Following the Recapitalization and the Imperial Acquisition, BDPH changed
its name to The Imperial Home Decor Group Inc. (the 'Company').
The Imperial Acquisition is accounted for using purchase accounting in
which the total purchase cost was allocated to the Imperial assets acquired and
liabilities assumed, based on their respective fair values. The allocation of
the aggregate purchase price is preliminary. The final purchase adjustment to
reflect the fair values of the assets acquired and liabilities assumed will be
based upon appraisals and actuarial studies that are currently in process and
management's evaluation of such assets and liabilities. The accompanying
condensed consolidated statement of operations includes the following Imperial
results of operations for the period March 13, 1998 (date of the Imperial
Acquisition) through March 28, 1998.
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Net sales............................................................ $ 9,081
Gross margin......................................................... 1,374
Operating loss....................................................... (2,130)
</TABLE>
The Financings
The Recapitalization, the Imperial Acquisition and the payment of related
fees and expenses have been financed by: (i) the equity contribution of $84.6
million; (ii) the initial borrowings of $198.0 million under the Senior Credit
Facilities; and (iii) the net proceeds of $125.0 million from the Initial
Offering.
The 11% Senior Subordinated Notes from the Initial Offering mature on March
15, 2008. Except as provided for in the Initial Offering, the Company may not
redeem these notes prior to March 15, 2003. On or after that date, the Company
may redeem these notes, in whole or in part, at the redemption prices set forth
in the Initial Offering. Interest on these notes is payable on March 15 and
September 15 of each year, beginning on September 15, 1998. These notes are
unsecured and subordinated to the Senior Credit Facilities.
The Senior Credit Facilities consist of (i) a six-year revolving credit
facility in an aggregate principal amount not to exceed $75.0 million ($6.6
million borrowed since the closing date and outstanding at March 28, 1998) and
(ii) term loan facilities consisting of (a) a $38.0 million six-year tranche A
term loan facility ('Term Loan A'), of which an additional $27.0 million is
available for up to 18 months following the Closing on a deferred draw basis,
(b) a $115.0 million seven-year tranche B term loan facility ('Term Loan B'),
and (c) a $45.0 million eight-year tranche C term loan facility ('Term Loan C'
and, collectively with Term Loan A and Term Loan B, the 'Term Loans').
The Term Loans require principal payments on a semi-annual basis. Term Loan
A requires aggregate principal payments of $0.5 million in 1999, $1.5 million in
2000, $7.0 million in 2001, $17.25 million in 2002, $25.0 million in 2003 and
$13.75 million in 2004. Term Loan B requires aggregate principal payments of
$0.5 million in 1999, $1.0 million from 2000 through 2004 and $109.5 million in
2005. Term Loan C requires aggregate principal payments of $0.25 million in
1999, $0.5 million from 2000 through 2005 and $41.75 million in 2006.
Interest rates for the revolving credit facility and the Term Loans are
variable with each calculated using one of several interest rate options, as
defined in the Senior Credit Facilities Credit Agreement. At March 28, 1998,
interest rates are as follows: Revolving Credit Facility--8.25%; Term Loan
A--8.25%; Term Loan B--8.50%; and Term Loan C--8.75%. A commitment fee of 0.5%
is paid on the unused portion of the revolving credit facility and the unused
portion of Term Loan A.
F-37
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. RESTRUCTURING CHARGES
In conjunction with the Imperial Acquisition, a plan to integrate the
Company and Imperial in North America has been adopted that includes the
consolidation and rationalization of operations, the closure of facilities in
Plattsburg, New York and Ashaway, Rhode Island, the write down of certain assets
to be disposed of and a reduction in the salary and hourly workforce by
approximately 730 employees, of which approximately 530 relates to Imperial. The
plan is expected to be substantially complete by the end of 1999. As a result,
the Company recognized a pretax charge of $9.3 million in the first quarter of
1998 of which $5.9 million relates to severance costs and $0.9 million relates
to asset write downs. In addition, the Company recorded reserves of $23.8
million through the purchase accounting for the Imperial Acquisition of which
$5.6 million relates to severance and $11.4 million relates to asset write
downs.
4. SUPPLEMENTAL INFORMATION
Other current assets, non-current assets, current liabilities and long-term
liabilities consist of the following:
<TABLE>
<CAPTION>
MARCH 28,
1998
---------
<S> <C>
Other current assets:
Sample books..................................................................... $ 5,670
Design and engraving costs....................................................... 7,830
Other............................................................................ 1,719
---------
$15,219
---------
---------
Other non-current assets:
Prepaid pension assets........................................................... $18,474
Deferred debt issuance cost, net................................................. 17,583
Other............................................................................ 9,892
---------
$45,949
---------
---------
Other current liabilities:
Accrued restructuring............................................................ $13,083
Current deferred tax liability................................................... 5,500
Customer allowances and credits.................................................. 9,192
Wages and payroll taxes.......................................................... 14,329
Other............................................................................ 18,457
---------
$60,561
---------
---------
Other long-term liabilities:
Deferred income taxes............................................................ $ 7,330
Non-pension post-employment benefit obligation................................... 9,924
Other............................................................................ 8,347
---------
$25,601
---------
---------
</TABLE>
5. INCOME TAXES
Prior to the Merger, income tax expense for domestic and foreign operations
that filed a combined return with other Borden affiliates was calculated
utilizing statutory rates multiplied by pretax income as adjusted for known book
tax differences. Deferred income tax assets and liabilities for domestic and
Canadian operations were included in the owner's investment account. Upon
consummation of the Merger, a valuation allowance of approximately $500,000 was
recognized as management determined that it is more likely than not that the
deferred tax assets for the combined U.S. operations will not be realized. The
Canadian and U.K. net deferred income tax liability was $3,317,000 and
$9,513,000, respectively at March 28, 1998.
F-38
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. COMPREHENSIVE INCOME
As of December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
Comprehensive income for the three months ended March 29, 1997 and March 28,
1998, in thousands, was as follows.
<TABLE>
<CAPTION>
1997 1998
------ --------
<S> <C> <C>
Net income (loss).................................................... $4,684 $(13,522)
Foreign currency translation adjustments............................. 3,768 2,475
------ --------
Comprehensive income (loss).......................................... $8,452 $(11,047)
------ --------
------ --------
</TABLE>
7. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
('Statement 131'). Statement 131 establishes standards for the way that public
business enterprises report selected information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Statement 131 is effect for financial
statements for fiscal years beginning after December 15, 1997, and therefore,
the Company will adopt the new requirements in 1998, which will require
retroactive disclosure. Management has not completed its review of Statement 131
and has not determined the impact adoption will have on the Company's financial
statement disclosures.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, Employers' Disclosure about Pensions and Other
Post-Retirement Benefits ('Statement 132'). This standard revises employers'
disclosures about pensions and other post-retirement plans, but does not change
the measurement or recognition of those plans. This standard will be effective
for the Company's financial statements for the year ended December 31, 1998.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities
('Statement 133'). Statement 133 establishes accounting and reporting standards
for derivative instruments and for hedging activities. Statement 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management has not completed its review of Statement 133 and has not determined
the impact adoption will have on the Company's financial statement disclosures.
In March 1998, the AICPA issued SOP 98-1, Accounting for the Costs of
Computer Software Developed for or Obtained for Internal Use. The SOP will
become effective for the Company on January 1, 1999. The SOP will require the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. The Company
currently capitalizes certain external costs and expenses all other costs as
incurred. The Company has not yet assessed what the impact of the SOP will be on
the Company's future earnings or financial position.
8. COMMITMENTS AND CONTINGENCIES
The Company is subject to federal, state and local laws and regulations
concerning the environment, and it has received notices that it is a potentially
responsible party in administrative proceedings at two sites. It is difficult to
estimate the total cost of remediation due to the complexity of the
environmental laws and regulations, the uncertainty regarding the extent of the
environment risks and the Company's responsibility, and the selection of
alternative compliance approaches. When it has been possible to reasonably
estimate the Company's liability with respect to environmental matters,
provisions have been made in accordance with generally accepted accounting
principles and the Company has recorded an accrual of $1,200,000 for potential
exposures as of March 28, 1998. In the opinion of the Company's management,
based on the facts presently known to it, the ultimate outcome of environmental
matters will not have a material effect on the Company's consolidated financial
position, results of operations or cash flows.
F-39
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Additionally, the Company is party to various litigation matters arising in
the ordinary course of business. The ultimate legal and financial liability of
the Company with respect to litigation cannot be estimated with certainty, but
Management believes, based on its examination of such matters, experience to
date and discussions with counsel, that such liability will not be material to
the business, financial condition, results of operations or cash flows of the
Company.
9. RELATED PARTIES
In connection with the Recapitalization and Imperial Acquisition,
Blackstone received a $4.0 million fee and the Company reimbursed Blackstone for
all out-of-pocket expenses incurred in connection with the Recapitalization and
Imperial Acquisition. In addition, pursuant to a monitoring agreement (the
'Monitoring Agreement') entered into between Blackstone and the Company,
Blackstone will receive an annual $1.5 million monitoring fee and will be
reimbursed for certain out-of-pocket expenses.
The Company and Borden entered into a Stockholders Agreement on the date of
the Closing. This agreement provides certain rights to the shareholders relating
to common stock purchase and sales offers, restrictions on stock transfers, and
registration rights.
Pursuant to the Recapitalization Agreement, Borden entered into a
transition services agreement with the Company as of the date of the Closing.
Under this agreement, Borden will provide certain management support services to
the Company for one year at rates Borden previously billed BDPH for such
services.
10. SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL INFORMATION
The Company's payment obligations under the Notes are fully and
unconditionally guaranteed on a joint and several basis (collectively, the
'Guarantees') by the Company's domestic subsidiaries (The Imperial Home Decor
Group LLC, Vernon Plastics Inc. and WDP Investments, Inc.) and Imperial Home
Decor Group Holdings I Limited, a U.K. Company, (collectively the 'Guarantor
Subsidiaries'). Each of the Guarantor Subsidiaries is a direct wholly-owned
subsidiary of the Company. The obligations of each Guarantor Subsidiary under
its Guarantee are subordinated to such subsidiary's obligations under the Senior
Credit Facilities.
Presented below is condensed consolidating financial information for
Imperial Home Decor Group Inc. ('Parent Company'), the Guarantor Subsidiaries,
and the Company's other subsidiaries (the 'Non-Guarantor Subsidiaries'). In the
opinion of management of the Company, separate financial statements and other
disclosures concerning each of the Guarantor Subsidiaries would not provide
additional information that is material to investors in the Notes. Therefore,
the Guarantor Subsidiaries are consolidated in the presentation below.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method of accounting. Earnings of subsidiaries are, therefore, reflected
in the Parent Company's investments in subsidiaries account and equity income.
The elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions. The intercompany payable and receivable balances are
netted in the owner's investment account.
* * * * * *
F-40
<PAGE>
THE IMPERIAL HOME
DECOR GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF
MARCH 28, 1998
AND
MARCH 29, 1997
F-32
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS BORDEN DECORATIVE PRODUCTS HOLDINGS INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
MARCH 28, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
--------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents..................... $ $ 1,337 $ 6,725 $ $ 8,062
Accounts receivable...................... 56,531 58,570 115,101
Inventories.............................. 67,758 58,273 126,031
Other current assets..................... 4,553 10,666 15,219
--------- ------------- ------------- ----------- ------------
Total Current Assets.................. 130,179 134,234 264,413
Fixed assets, net.......................... 23,779 68,867 92,646
Assets held for resale..................... 7,000 7,000
Goodwill................................... 1,208 9,568 10,776
Other non-current assets................... 19,136 2,064 24,749 45,949
Investment in subsidiary................... 114,856 (114,856) --
--------- ------------- ------------- ----------- ------------
$ 133,992 $ 164,230 $ 237,418 $(114,856) $420,784
--------- ------------- ------------- ----------- ------------
--------- ------------- ------------- ----------- ------------
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY)
Current Liabilities:
Notes payable under revolving credit
facility.............................. $ 6,600 $ $ $ $ 6,600
Accounts payable......................... 20,692 37,119 57,811
Income tax payable....................... 7,605 7,605
Other current liabilities................ 22,036 38,525 60,561
Intercompany payable/receivable.......... (3,079) 7,707 (4,628) --
--------- ------------- ------------- ----------- ------------
Total Current Liabilities............. 3,521 50,435 78,621 132,577
Long-term debt............................. 323,000 323,000
Other long-term liabilities................ 16,635 1,636 18,271
Deferred income tax........................ 7,330 7,330
Shareholder's equity/owner's
investment............................... (192,529) 97,160 149,831 (114,856) (60,394)
--------- ------------- ------------- ----------- ------------
$ 133,992 $ 164,230 $ 237,418 $(114,856) $420,784
--------- ------------- ------------- ----------- ------------
--------- ------------- ------------- ----------- ------------
</TABLE>
F-41
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS BORDEN DECORATIVE PRODUCTS HOLDINGS INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 29, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $ $ 37,522 $73,976 $ (15,456) $ 96,042
Cost of goods sold........................... 27,169 51,129 (15,456) 62,842
------- ------------ ------------- ----------- ------------
Gross margin................................. 10,353 22,847 33,200
Distribution expense......................... 1,509 4,162 5,671
Marketing expense............................ 7,440 8,620 16,060
General and administrative expense........... 914 3,442 4,356
------- ------------ ------------- ----------- ------------
Operating income............................. 490 6,623 7,113
Interest (income) expense, net............... (891) 609 (282)
------- ------------ ------------- ----------- ------------
Income before income taxes................... 1,381 6,014 7,395
Equity income................................ 4,684 (4,684)
Income tax expense........................... 548 2,163 2,711
------- ------------ ------------- ----------- ------------
Net income (loss)............................ $4,684 $ 833 $ 3,851 $ (4,684) $ 4,684
------- ------------ ------------- ----------- ------------
------- ------------ ------------- ----------- ------------
</TABLE>
F-42
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS BORDEN DECORATIVE PRODUCTS HOLDINGS INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 28, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales................................... $ $37,362 $77,179 $ (18,634) $ 95,907
Cost of goods sold.......................... 28,193 53,485 (18,634) 63,044
-------- ------------- ------------- ----------- ------------
Gross margin................................ 9,169 23,694 32,863
Distribution expense........................ 1,700 4,387 6,087
Marketing expense........................... 7,651 8,909 16,560
General and administrative expense.......... 2,133 6,794 8,927
Restructuring charges....................... 5,859 3,437 9,296
-------- ------------- ------------- ----------- ------------
Operating income (loss)..................... (8,174) 167 (8,007)
Merger costs................................ 4,000 4,000
Interest (income) expense, net.............. 1,435 (37) (54) 1,344
-------- ------------- ------------- ----------- ------------
Income (loss) before income taxes........... (5,435) (8,137) 221 (13,351)
Equity income............................... (8,088) 8,088
Income tax expense.......................... 304 (133) 171
-------- ------------- ------------- ----------- ------------
Net income (loss)........................... $(13,523) $(8,441) $ 354 $ 8,088 $(13,522)
-------- ------------- ------------- ----------- ------------
-------- ------------- ------------- ----------- ------------
</TABLE>
F-43
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS BORDEN DECORATIVE PRODUCTS HOLDINGS INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOW
THREE MONTHS ENDED MARCH 29, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash provided by operating activities....... $ $(10,652) $ 9,955 $ $ (697)
Cash flow used in investing activities:
Capital expenditures...................... (344) (1,455) (1,799)
Cash flow (used in) provided by financing
activities:
Dividends paid............................ (8,600) (8,600)
Other changes in owner's
investment............................. 14,565 (7,400) 7,165
-------- ------------ ------------- ----------- ------------
Net cash (used in) provided by financing
activities................................ 5,965 (7,400) (1,435)
-------- ------------ ------------- ----------- ------------
Increase (decrease) in cash and
equivalents............................... (5,031) 1,100 (3,931)
Cash and equivalents at beginning of
period.................................... 5,423 1,345 6,768
-------- ------------ ------------- ----------- ------------
Cash and equivalents at end of period....... $ $ 392 $ 2,445 $ $ 2,837
-------- ------------ ------------- ----------- ------------
-------- ------------ ------------- ----------- ------------
</TABLE>
F-44
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS BORDEN DECORATIVE PRODUCTS HOLDINGS INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOW
THREE MONTHS ENDED MARCH 28, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash provided by operating activities...... $ (4,000) $(11,429) $10,765 $ $ (4,664)
Cash flow used in investing activities:
Capital expenditures..................... (2,457) (1,251) (3,708)
Acquisition of Imperial.................. (72,200) (72,200)
--------- ------------ ------------- ----------- ------------
Cash used in investing activities.......... (72,200) (2,457) (1,251) (75,908)
--------- ------------ ------------- ----------- ------------
Cash flow (used in) provided by financing
activities:
Repayment of borrowing on
bank loan............................. (1,529) (1,529)
Borrowings under revolving credit
facility.............................. 6,600 6,600
Borrowings under long-term debt
arrangements.......................... 323,000 323,000
Debt issuance fees....................... (19,185) (19,185)
Equity contribution...................... 84,500 84,500
Borden recapitalization cash
distribution.......................... (309,550) (1,650) (311,200)
Dividends paid........................... (2,635) (2,635)
Changes in owner's
investment/intercompany............... (9,165) 17,629 (3,176) 5,288
--------- ------------ ------------- ----------- ------------
Cash (used in) provided by financing
activities............................... 76,200 14,994 (6,355) 84,839
--------- ------------ ------------- ----------- ------------
Increase in cash and cash equivalents...... 1,108 3,159 4,267
Cash and equivalents at beginning of
period................................... 229 3,566 3,795
--------- ------------ ------------- ----------- ------------
Cash and equivalents at end of period...... $ $ 1,337 $ 6,725 $ $ 8,062
--------- ------------ ------------- ----------- ------------
--------- ------------ ------------- ----------- ------------
</TABLE>
F-45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Collins & Aikman Corporation:
We have audited the accompanying consolidated and combined balance sheets of
Imperial Wallcoverings, Inc. (a Delaware corporation and indirect wholly-owned
subsidiary of Collins & Aikman Corporation) and subsidiaries with affiliate, as
of January 27, 1996, December 28, 1996 and December 27, 1997 and the related
consolidated and combined statements of operations, investments and advances
from (to) Collins & Aikman Products Co. and cash flows for the 52-week period
ended January 27, 1996, the 48-week period ended December 28, 1996 and the
52-week period ended December 27, 1997. 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 consolidated and combined financial statements referred to
above present fairly, in all material respects, the financial position of
Imperial Wallcoverings, Inc. and subsidiaries with affiliate as of January 27,
1996, December 28, 1996 and December 27, 1997, and the results of their
operations and their cash flows for the 52-week period ended January 27, 1996,
the 48-week period ended December 28, 1996 and the 52-week period ended December
27, 1997, in conformity with generally accepted accounting principles.
As explained in Note 3 to the consolidated and combined financial statements,
effective December 29, 1996, the Company changed its method of accounting for
designs and engravings.
ARTHUR ANDERSEN LLP
CLEVELAND, OHIO,
JANUARY 23, 1998 (EXCEPT FOR NOTE 19
TO WHICH THE DATE IS MARCH 13, 1998).
F-46
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
CONSOLIDATED AND COMBINED BALANCE SHEETS
JANUARY 27, 1996, DECEMBER 28, 1996 AND DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................ $ 441 $ 782 $ 81
Accounts receivable, net of allowances of $1,117, $1,694 and $2,006
at January 27, 1996, December 28, 1996, and December 27, 1997,
respectively...................................................... 9,822 27,523 32,977
Inventories.......................................................... 50,152 50,903 53,428
Other current assets................................................. 5,173 2,755 3,103
----------- ------------ ------------
Total current assets.............................................. 65,588 81,963 89,589
Property, plant and equipment, net..................................... 39,872 50,905 52,022
Designs and engravings, net (Note 3)................................... 10,629 9,942 --
Other assets........................................................... 3,149 2,513 2,392
----------- ------------ ------------
$ 119,238 $145,323 $144,003
----------- ------------ ------------
----------- ------------ ------------
LIABILITIES AND INVESTMENTS AND ADVANCES (TO) FROM
COLLINS & AIKMAN PRODUCTS CO.
Current Liabilities:
Canadian overdraft facility.......................................... $ 27,996 $ 30,121 $ 25,395
Current maturities of long-term debt................................. 412 428 446
Accounts payable..................................................... 11,251 10,640 14,601
Accrued expenses..................................................... 15,505 18,352 15,028
----------- ------------ ------------
Total current liabilities......................................... 55,164 59,541 55,470
Long-Term Debt, including allocated debt of
Collins & Aikman Products Co......................................... 66,415 55,635 31,834
Deferred income taxes.................................................. 1,182 506 --
Other, including postretirement benefit obligations.................... 13,762 12,653 14,841
Commitments and contingencies (Notes 9 and 16)......................... -- -- --
Investments and advances (to) from Collins & Aikman Products Co........ (17,285) 16,988 41,858
----------- ------------ ------------
$ 119,238 $145,323 $144,003
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of these balance sheets.
F-47
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED JANUARY 27, 1996, DECEMBER 28, 1996 AND DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Net sales.............................................................. $ 197,708 $157,571 $163,849
----------- ------------ ------------
Cost of goods sold..................................................... 141,132 105,572 109,072
Selling, general and administrative expenses........................... 65,192 69,000 76,444
General and administrative expenses allocated from Collins & Aikman
Products Co.......................................................... 2,709 2,515 2,060
Restructuring charge................................................... 12,897 -- --
----------- ------------ ------------
80,798 71,515 78,504
----------- ------------ ------------
Operating loss......................................................... (24,222) (19,516) (23,727)
Interest expense, net.................................................. 2,115 1,930 1,627
Interest expense allocated from Collins & Aikman Products Co........... 5,797 3,844 3,007
Loss on sale of receivables............................................ 4,291 2,572 --
Other (income) expenses................................................ (232) 382 (736)
----------- ------------ ------------
Loss before income taxes............................................... (36,193) (28,244) (27,625)
Income tax benefit..................................................... (1,527) (312) (63)
----------- ------------ ------------
Loss before cumulative effect of change in accounting.................. (34,666) (27,932) (27,562)
Cumulative effect of change in accounting for designs and engravings... -- -- 9,942
----------- ------------ ------------
Net loss.......................................................... $ (34,666) $(27,932) $(37,504)
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of these statements.
F-48
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
CONSOLIDATED AND COMBINED STATEMENTS OF INVESTMENTS AND
ADVANCES (TO) FROM COLLINS & AIKMAN PRODUCTS CO.
FOR THE PERIODS ENDED JANUARY 27, 1996, DECEMBER 28, 1996 AND DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1997 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD........................................... $ (41,208) $(17,285) $ 16,988
Net loss............................................................. (34,666) (27,932) (37,504)
Investments and advances from Collins & Aikman Products Co........... 58,440 62,014 62,207
Translation gains.................................................... 149 191 167
----------- ------------ ------------
BALANCE, END OF PERIOD................................................. $ (17,285) $ 16,988 $ 41,858
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of these statements.
F-49
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED JANUARY 27, 1996, DECEMBER 28, 1996 AND DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1997 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $ (34,666) $(27,932) $(37,504)
Adjustments to derive cash flows used by operating activities:
Restructuring charge.............................................. 12,897 -- --
Depreciation and leasehold amortization........................... 5,926 5,337 7,235
Amortization of other assets and liabilities...................... 7,969 7,206 --
Cumulative effect of change in accounting for designs and
engravings...................................................... -- -- 9,942
Changes in operating assets:
Accounts receivable, net.......................................... (9,299) (17,701) (5,454)
Inventories....................................................... 10,372 (751) (2,525)
Accounts payable.................................................. (3,215) (611) 3,961
Other, net........................................................ (3,453) 4,243 (1,292)
----------- ------------ ------------
Net cash used by operating activities........................ (13,469) (30,209) (25,637)
----------- ------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment, net...................... (15,542) (16,370) (8,352)
Design, engraving and other.......................................... (8,229) (6,455) (410)
----------- ------------ ------------
Net cash used by investing activities........................ (23,771) (22,825) (8,762)
----------- ------------ ------------
Cash Flows From Financing Activities:
Repayment of long-term debt.......................................... (295) (97) (194)
Net borrowings (repayments) on overdraft facility.................... 14,366 2,125 (4,726)
Allocated debt of Collins & Aikman Products Co....................... (34,830) (10,667) (23,589)
Investments and advances from Collins & Aikman Products Co........... 58,440 62,014 62,207
----------- ------------ ------------
Net cash provided by financing activities.................... 37,681 53,375 33,698
----------- ------------ ------------
Net increase (decrease) in cash........................................ $ 441 $ 341 $ (701)
Cash and cash equivalents, beginning of period......................... -- 441 782
----------- ------------ ------------
Cash and cash equivalents, end of period............................... $ 441 $ 782 $ 81
----------- ------------ ------------
----------- ------------ ------------
Supplemental disclosures, cash paid (received) for:
Interest, excluding interest allocated from Collins & Aikman Products
Co................................................................ $ 2,166 $ 2,256 $ 1,663
----------- ------------ ------------
----------- ------------ ------------
Income taxes--foreign and state...................................... 273 (382) 2,653
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of these statements.
F-50
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
1. ORGANIZATION
Imperial Wallcoverings, Inc., together with its subsidiaries, Imperial
Wallcoverings Limited, ('Imperial UK') and Marketing Service Inc. and with its
affiliate, Imperial Wallcoverings (Canada) Inc. ('Imperial Canada')
(collectively referred to as 'Imperial' or 'the Company') is a leading
manufacturer and distributor of a full range of wallpaper for the residential
and commercial sectors of the wallpaper industry. Imperial is the only producer
of wallpaper in the U.S. that is fully integrated from paper production through
design and distribution. Imperial Wallcoverings, Inc. is currently an indirect
wholly-owned subsidiary of Collins & Aikman Corporation (C&A), through Collins &
Aikman Products Co. ('Products'). On March 13, 1998, C&A sold Imperial to a
company owned by an affiliate of a significant shareholder of C&A (See Note 19).
2. BUSINESS AND BASIS OF PRESENTATION
As indicated in the accompanying consolidated and combined financial
statements, Imperial has incurred substantial losses in recent periods including
operating losses that totaled $24.2 million in fiscal 1995, $19.5 million in
fiscal 1996 and $23.7 million for fiscal 1997. Cash deficits relating to these
losses have been funded by Products. The Company continues to incur significant
losses from operations and is investing in capital equipment as part of its
restructuring plan. Products continues to fund the liquidity needs of Imperial
in order to satisfy the working capital, capital expenditure and other cash
requirements. Products funded the cash requirements of Imperial through March
13, 1998, the date of disposition (See Note 19). Accordingly, the accompanying
consolidated and combined financial statements have been prepared assuming
Imperial will continue as a going concern and, as such, adjustments, if any,
that may be required for presentation on another basis have not been considered.
The accompanying consolidated and combined financial statements do not reflect
any adjustments which may result due to the proposed sale.
The business of Imperial is conducted as subsidiaries of Products.
Transfers of operating funds between Products and Imperial are made on a
noninterest-bearing basis, with the net amounts of these transfers reflected in
investments and advances from (to) Products in the accompanying consolidated and
combined financial statements. The net balance in investments and advances from
(to) Products is classified as equity in the accompanying consolidated and
combined balance sheets since upon the disposition of Imperial by Products the
amounts outstanding will not be repaid.
The accompanying consolidated and combined financials statements present
the financial position, results of operations and cash flows of Imperial as if
it were a separate entity for all periods presented. In accordance with the
provisions of Securities and Exchange Commission Staff Accounting Bulletin No.
73, a portion of the debt and the related interest expense of Products has been
allocated to Imperial primarily as a result of its guarantee of certain
Products' debt. The allocations have been made primarily based upon the ratio of
Imperial's net assets to the consolidated invested capital of Products, which
approximates Imperial's guaranteed share of the related Products' debt. The
average interest rates in effect for fiscal 1995, fiscal 1996 and fiscal 1997,
were 8.1%, 7.9% and 8.8%, respectively. In connection with the disposition of
Imperial, Products' released Imperial from its guarantee of Products' debt and,
accordingly, Imperial will not be required to repay any of the allocated debt
reflected in the accompanying consolidated and combined balance sheets. Interest
has not been computed on the remaining intercompany balances.
Products performs certain services and incurs certain costs for Imperial.
Services provided include tax, treasury, risk management, employee benefits,
legal and other general corporate services. The cost of the services provided by
Products has been allocated to Imperial based on a combination of estimated use
and the relative sales of the Imperial business to the total consolidated
operations of Products. Corporate costs of Products totaling $2.7 million, $2.5
million and $2.1 million have been allocated to Imperial in fiscal 1995, fiscal
1996 and fiscal 1997, respectively. In the opinion of management, the method of
allocating these costs is reasonable.
F-51
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
2. BUSINESS AND BASIS OF PRESENTATION--(CONTINUED)
However, the costs of these services charged to Imperial are not necessarily
indicative of the costs that would have been incurred if Imperial had performed
these functions.
Products administers its self-insurance programs on a corporate-wide basis
and charges its individual participating subsidiaries and divisions based on
estimated claims and loss experience. Costs charged by Products to Imperial for
product, automotive, general liability and workers' compensation claims and
insurance amounted to $2.0 million, $1.8 million and $1.8 million in fiscal
1995, fiscal 1996 and fiscal 1997, respectively. The accompanying consolidated
and combined balance sheets include the related accruals for product,
automotive, general liability and workers' compensation claims.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Combination
The consolidated and combined financial statements include the accounts of
Imperial Wallcoverings, Inc., Imperial Wallcoverings (Canada) Inc., Marketing
Service Inc. and Imperial Wallcoverings Limited. All significant intercompany
items have been eliminated in consolidation and combination.
As of January 27, 1996, Imperial Wallcoverings, Inc. and Imperial
Wallcoverings Limited were separate indirect subsidiaries of Products. On
December 5, 1996, Imperial purchased Imperial UK from Collins & Aikman United
Kingdom Limited at its net book value. For financial reporting purposes, this
transfer between related entities has been treated in a manner similar to a
pooling of interests.
As of December 27, 1997, Imperial Wallcoverings, Inc. owns approximately
24% of Imperial Canada while another C&A subsidiary owns the remainder. As part
of the disposition of Imperial, the operations of Imperial Canada will be
transferred with Imperial. For purposes of the accompanying consolidated and
combined financial statements, Imperial Canada has been presented as if it was
wholly owned.
Use of Estimates
The preparation of consolidated and combined 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 consolidated and combined financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Fiscal Year
During fiscal 1996, the Company changed its fiscal year to end on the last
Saturday in December. Fiscal 1997 represents a 52-week period which ended an
December 27, 1997. Fiscal 1996 represents a 48-week period which ended on
December 28, 1996. Fiscal 1995 was a 52-week period which ended on January 27,
1996.
Foreign Currency
Foreign currency activity is reported in accordance with Statement of
Financial Accounting Standards No. 52, 'Foreign Currency Translation' ('SFAS No.
52'). SFAS No. 52 generally provides that the assets and liabilities of foreign
operations be translated at the current exchange rates as of the end of the
accounting period and that revenues and expenses be translated using average
exchange rates. The resulting translation adjustments arising from foreign
currency translations are accumulated as a component of Investments and Advances
from (to) Products. Translation adjustments during fiscal 1995, fiscal 1996 and
fiscal 1997, were $149,000, $191,000 and $167,000, respectively.
F-52
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Gains and losses resulting from foreign currency transactions are
recognized in income. Recorded balances that are denominated in a currency other
than Imperial's functional currency are adjusted to reflect the exchange rate at
the balance sheet date. Imperial periodically enters into forward exchange
contracts to hedge its exposure to price fluctuations on purchases and sales.
Gains and losses, if any, on contracts are deferred and recognized as a
component of the related transaction. See Note 13.
Revenue Recognition
Revenue is recognized when goods are shipped.
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments with an original maturity of three months or less.
Inventories
Inventories are valued at the lower of cost or market, but not in excess of
net realizable value. Cost is determined on the first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Provisions for
depreciation and amortization are primarily computed on a straight-line basis
over the estimated useful lives of the assets, presently ranging from 3 to 40
years. Leasehold improvements are amortized over the lesser of the lease term or
the estimated useful lives of the improvements.
Long-Lived Assets
In the fourth quarter of fiscal 1995, Imperial adopted Statement of
Financial Accounting Standards No. 121, 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of' ('SFAS No. 121').
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, and that certain long-lived
assets and identifiable intangibles to be disposed of be reported at the lower
of carrying amount or fair value less cost to sell. The adoption of SFAS No. 121
did not have a material impact on Imperial's consolidated and combined results
of operations.
Income Taxes
Currently, Imperial's U.S. operations are included in the consolidated
federal income tax return of C&A; however, federal, state and foreign income
taxes have been provided on a separate return basis.
Environmental
Imperial records its best estimate when it believes it is probable that an
environmental liability has been incurred and the amount of loss can be
reasonably estimated. Accruals for environmental liabilities are included in the
consolidated and combined balance sheets primarily as other noncurrent
liabilities at undiscounted amounts and exclude claims for recoveries from
insurance or other third parties. Accruals for insurance or other third party
recoveries for environmental liabilities are recorded when it is probable that
the claim will be realized.
F-53
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Sample Book Costs
Prior to fiscal 1996, the Company deferred certain costs relating to the
assembly of sample books. These costs were deferred until the sample books were
released, at which time the costs were fully expensed. During fiscal 1996, the
Company prospectively changed its method of accounting for sample books and is
currently expensing these costs as incurred. The Company had $2.7 million of
sample book costs capitalized at January 27, 1996. The Company had no amounts
capitalized at December 28, 1996 and December 27, 1997 relating to sample books.
Designs and Engravings
Prior to December 29, 1996, the Company deferred costs associated with the
design and development of patterns and engraving used in the printing process.
These costs were being amortized over a three-year period representing the
approximate life of the related wallpaper line. The Company recorded
amortization expense of $8.0 million and $7.2 million related to these costs in
fiscal 1995 and fiscal 1996, respectively. Effective December 29, 1996, the
Company changed its method of accounting for such costs and currently expenses
such amounts as incurred. The cumulative effect of the change in accounting for
designs and engravings resulted in $9.9 million of expense for fiscal 1997.
There was no income tax benefit or expense recorded in conjunction with this
change.
Reclassifications
Certain reclassifications have been made to fiscal 1995 and fiscal 1996
amounts to conform with the fiscal 1997 presentation.
4. INVENTORIES
Inventory balances are summarized below (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Raw materials................................................ $ 6,168 $ 5,115 $ 5,155
Work in process.............................................. 2,217 3,720 4,566
Finished goods............................................... 41,767 42,068 43,707
----------- ------------ ------------
$50,152 $ 50,903 $ 53,428
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
During fiscal 1995, as part of developing a plan to reengineer the business
(see Note 11), Imperial reevaluated its various product offerings ('SKUs') and
developed plans to reduce the number of SKUs in certain distribution channels,
which plans have now been implemented. In view of these plans and the
then-recent overall decline in the wallpaper business, Imperial provided an
additional charge of approximately $10.8 million for inventory write-downs. This
is included in cost of goods sold in fiscal 1995.
F-54
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, are summarized below (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Land and improvements........................................ $ 1,009 $ 1,896 $ 1,532
Buildings.................................................... 16,228 20,494 20,383
Machinery and equipment...................................... 53,810 71,229 77,021
Leasehold improvements....................................... 536 571 637
Construction in progress..................................... 10,748 3,981 5,280
----------- ------------ ------------
82,331 98,171 104,853
Less--accumulated depreciation and amortization.............. (42,459) (47,266) (52,831)
----------- ------------ ------------
$39,872 $ 50,905 $ 52,022
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
Depreciation and leasehold amortization of property, plant and equipment
was $5.9 million, $5.3 million and $7.2 million for fiscal 1995, fiscal 1996 and
fiscal 1997, respectively.
6. ACCRUED EXPENSES:
Accrued expenses are summarized below (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Payroll and employee benefits................................ $ 4,246 $ 3,514 $ 4,940
Restructuring................................................ 4,177 3,141 1,047
Medical and other insurance.................................. 2,285 3,259 1,272
Advertising and promotions................................... 322 1,685 1,793
Other........................................................ 4,475 6,753 5,976
----------- ------------ ------------
$15,505 $ 18,352 $ 15,028
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
7. LONG-TERM DEBT
Long-term debt consisted of the following at January 27, 1996, December 28,
1996 and December 27, 1997 (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Allocated debt of Products................................... $62,234 $ 51,766 $ 28,411
Products' mortgage note payable.............................. 3,914 3,715 3,481
Industrial revenue bonds..................................... 679 582 388
----------- ------------ ------------
Total debt................................................. 66,827 56,063 32,280
Less--Current maturities..................................... (412) (428) (446)
----------- ------------ ------------
Total long-term debt....................................... $66,415 $ 55,635 $ 31,834
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
Allocated Debt of Products
Imperial, together with other subsidiaries of Products, is a guarantor of
certain indebtedness of Products. At December 27, 1997, the indebtedness of
Products guaranteed by Imperial totaled $218.8 million. In accordance with the
provisions of Staff Accounting Bulletin No. 73, a portion of the debt and the
related interest expense of Products has been allocated to Imperial as a result
of its guarantee. These allocations have been made based upon the ratio of
Imperial's net assets to the consolidated invested capital of Products, which
approximates Imperial's guaranteed share of the related Products debt. The
average interest rates in effect for fiscal 1995, fiscal 1996 and fiscal 1997
were 8.1%, 7.9% and 8.8%, respectively.
F-55
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
7. LONG-TERM DEBT--(CONTINUED)
Products' Mortgage Note Payable
As of December 27, 1997, Imperial has pledged land and a warehouse facility
in Knoxville, Tennessee with a total cost of $4.7 million as security for the
above mentioned Products mortgage note payable. In accordance with Staff
Accounting Bulletin No. 73, this debt and related interest expense have been
included in the accompanying consolidated and combined financial statements. The
mortgage note payable bears interest at 7.7% per annum with annual principal and
interest payments of $512,000 due through June 2001 and a final payment of $2.5
million due in July 2001.
Industrial Revenue Bonds
At January 27, 1996, December 28, 1996 and December 27, 1997, Imperial had
long-term debt of $679,000, $582,000 and $388,000 respectively, which consisted
of Rhode Island Industrial Revenue Bonds with payments due through fiscal 1999
and bearing interest at an average rate of approximately 7.0%. This debt is
collateralized with a guarantee from Products. At December 27, 1997, the
scheduled annual maturities of the long-term debt, for which Imperial is the
direct borrower, are as follows (in thousands):
<TABLE>
<S> <C>
1998.............................................................. $194
1999.............................................................. 194
----
$388
----
----
</TABLE>
8. RECEIVABLES FACILITY
Effective July 13, 1994, Imperial Canada and Imperial Wallcoverings, Inc.
along with Products and certain C&A affiliates (each of the foregoing, a
'Seller'), entered into a Receivables Sale Agreement (the 'Bridge Receivables
Sale Agreement') with Carcorp, Inc., ('Carcorp'), a wholly-owned subsidiary of
Products. Under the terms of the Bridge Receivables Sale Agreement, Carcorp
purchased and transferred to a purchaser (on a revolving basis and without
recourse), virtually all trade receivables generated by the Sellers. On March
31, 1995, Products repaid and terminated this receivables financing arrangement
and entered, through a trust formed by Carcorp, into a new receivables facility,
including an amended and restated receivables, sale agreement, through which
Carcorp has sold certain interests in the purchased receivables to outside
parties. Imperial Canada was terminated as a Seller effective January 29, 1995,
and Imperial Wallcoverings, Inc. was terminated as a Seller on September 21,
1996.
Receivables sold by the Company prior to the termination remained in the
trust until their collection. As of January 27, 1996 and December 28, 1996, the
face value of the open accounts receivable of Imperial that had been purchased
by Carcorp aggregated $27.8 million and $1.8 million, respectively. The Company
has no open accounts receivable related to Carcorp at December 27, 1997.
The receivables were purchased by Carcorp at the face amount of the
receivables less a defined discount. The discount percentage included a yield
factor, factors for Carcorp's servicing and processing expenses, as well as
factors, which were subject to variation, based upon the collectibility and
aging of the receivables purchased. In connection with the sale of the
receivables to Carcorp, Imperial recorded losses of $4.3 million and $2.6
million in fiscal 1995 and fiscal 1996, respectively. The Company did not record
any losses during the 52-week period ended December 27, 1997.
The Sellers retain the responsibility of servicing the trade receivables
sold to Carcorp, and they are compensated by Carcorp for their servicing
activities. Servicing fee income, which has been included as an offset to
selling, general and administrative expenses in the accompanying consolidated
and combined statements of operations, was $615,000, $550,000 and $206,000 for
fiscal 1995, fiscal 1996 and fiscal 1997, respectively.
F-56
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
9. COMMITMENTS
Leases
The Company has operating leases covering manufacturing facilities,
warehouses, and production equipment, as well as computer hardware and software.
These leases have various lease terms through 2001. At December 27, 1997, future
minimum lease payments under operating leases are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................................. $3,300
1999............................................................. 2,603
2000............................................................. 781
2001............................................................. 653
------
$7,337
------
------
</TABLE>
Rental expense under operating leases was $7.1 million, $6.7 million and
$5.3 million for fiscal 1995, fiscal 1996 and fiscal 1997, respectively.
Capital Expenditures
At December 27, 1997, Imperial has commitments totaling approximately $18.2
million for estimated fiscal 1998 capital expenditures.
10. EMPLOYEE BENEFIT PLANS
Defined Benefit Plans
Certain domestic employees of Imperial who meet eligibility requirements,
along with employees of certain other affiliated companies, participate in a
defined benefit plan administered by Products. Plan benefits are generally based
on years of service and employees' compensation during their years of
employment. Funding of retirement costs for these plans complies with the
minimum funding requirements specified by the Employee Retirement Income
Security Act. Assets of the pension plans are held in a Products master trust
that invests primarily in equity and fixed income securities. Actuarially
determined calculations for Imperial as a stand alone entity are included in the
accompanying consolidated and combined financial statements.
The net periodic pension cost for fiscal 1995, fiscal 1996 and fiscal 1997
includes the following components (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Service cost................................................. $ 706 $ 861 $ 761
Interest cost on projected benefit obligation and
service cost............................................... 1,015 933 939
Actual gain on assets........................................ (2,332) (1,644) (1,605)
Net amortization and deferral................................ 1,073 422 267
----------- ------------ ------------
Net periodic pension cost............................... $ 462 $ 572 $ 362
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
F-57
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
10. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The following table sets forth Imperial's actuarially determined portion of
the plans' funded status and amounts recognized in Imperial's consolidated and
combined balance sheets at January 27, 1996, December 28, 1996 and December 27,
1997 (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations--
Vested benefit obligation.................................. $ (10,968) $ (10,929) $ (11,075)
----------- ------------ ------------
Accumulated benefit obligation............................. $ (11,380) $ (11,328) $ (11,470)
----------- ------------ ------------
Projected benefit obligation................................. $ (13,092) $ (12,512) $ (12,641)
Plan assets at fair value.................................... 14,081 13,648 13,752
----------- ------------ ------------
Funding status............................................... 989 1,136 1,111
Unrecognized net loss........................................ 3,310 2,339 1,728
Prior service cost not yet recognized in net periodic pension
cost....................................................... (1,645) (1,393) (1,119)
----------- ------------ ------------
Pension asset................................................ $ 2,654 $ 2,082 $ 1,720
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.0%. The expected rate of increase in future
compensation levels was 5.5% for fiscal 1995 and fiscal 1996 and 4.5% for fiscal
1997. The expected long-term rate of return on plan assets was 9.0%.
The Company also has a defined benefit pension plan covering the Imperial
Canada salaried employees. At December 28, 1996 and December 27, 1997, the
market value of pension fund assets was approximately $700,000 and $871,000,
respectively. On the basis of the most recent actuarial valuation, the projected
benefit obligation at December 28, 1996 was approximately $550,000 as compared
to $902,000 at December 27, 1997.
Defined Contribution Plan
Certain employees of Imperial who meet eligibility requirements participate
in a Products defined contribution plan which qualifies under Section 401(k) of
the Internal Revenue Code. This savings plan allows eligible employees to
contribute from 1% to 10% of their income on a pretax basis to this savings
plan. Imperial does not make contributions to this plan.
Postretirement Benefit Plans
Products provides life and health coverage for certain Imperial domestic
retirees under plans currently in effect. Many of the domestic employees may, or
will, be eligible for coverage if they reach retirement age while still employed
by Imperial. Actuarially determined calculations for Imperial as a stand alone
entity are included in the accompanying consolidated and combined financial
statements.
F-58
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
10. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The net periodic postretirement benefit cost for Imperial's participation
in these plans includes the following components fiscal 1995, fiscal 1996 and
fiscal 1997 (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Service cost................................................. $ 195 $196 $211
Interest cost on accumulated postretirement
benefit obligation......................................... 659 545 598
Net amortization............................................. (241) (219) (279)
----------- ------ ------
Net periodic postretirement benefit cost................ $ 613 $522 $530
----------- ------ ------
----------- ------ ------
</TABLE>
The following table sets forth the amount of accumulated postretirement
benefit obligation for Imperial's participation in these plans included in
Imperial's consolidated and combined balance sheets (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Retirees..................................................... $ 3,391 $3,109 $3,819
Fully eligible active plan participants...................... 1,925 2,086 1,989
Other active plan participants............................... 2,844 2,996 2,927
----------- ------------ ------------
Accumulated postretirement benefits obligation............... 8,160 8,191 8,735
Unrecognized prior service gain from plan amendments......... 3,766 3,486 3,012
Unrecognized net loss........................................ (2,421) (1,945) (2,137)
----------- ------------ ------------
Total accrued postretirement benefit obligation......... $ 9,505 $9,732 $9,610
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5%. The plans are currently unfunded.
For measurement purposes, a 11%, 10% and 10% annual rate of increase in the per
capita cost of covered health care benefits was assumed at January 27, 1996,
December 28, 1996 and December 27, 1997, respectively; the rate was assumed to
decrease one percentage point per year to 6% and remain at that level
thereafter. The health care cost trend rate assumption does not have an impact
on the amounts reported because of plan amendments. Effective April 1, 1994,
Products amended the postretirement benefit plan that covers substantially all
of the eligible current and retired employees of Imperial. Pursuant to the
amendment, Imperial's obligation for future inflation of health care costs will
be limited to 6% per year through March 31, 1998. Subsequent to March 1998,
Imperial's portion of coverage costs will not be adjusted for inflation in
health care costs.
The Company also has a retiree life and health program for Imperial Canada
salaried employees. The accompanying consolidated and combined balance sheet as
of December 27, 1997 reflects the Company's estimated obligation under the
program of approximately $650,000.
Other
The Company has certain union employees that participate in multi-employer
pension plans under which contributions are governed by the collective
bargaining agreements. Pension expense for such plans totaled approximately
$600,000, $520,000 and $590,000 for fiscal 1995, fiscal 1996 and fiscal 1997,
respectively. The plans' administrators have not provided information to enable
the Company to determine its share of unfunded vested benefits, if any.
F-59
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
11. RESTRUCTURING CHARGE
In fiscal 1995, Imperial provided for the cost to exit one manufacturing
facility and three distribution centers. The closings affected approximately 200
employees. In addition, certain other assets were determined to have been
impaired as a result of the implementation of management's plan to reengineer
certain other manufacturing processes. The components of the reserves for the
facility closings and other asset impairments are as follows (in thousands):
<TABLE>
<CAPTION>
ANTICIPATED ANTICIPATED
LOSSES EXPENDITURES TO
ASSOCIATED WITH CLOSE AND
DISPOSAL OF DISPOSE OF ANTICIPATED
PROPERTY, PLANT IDLED SEVERANCE
AND EQUIPMENT FACILITIES BENEFITS TOTAL
--------------- --------------- ----------- -------
<S> <C> <C> <C> <C>
Provision for restructuring................... $ 8,720 $ 2,767 $ 1,410 $12,897
Write-down of property, plant and equipment to
net realizable value........................ (8,720) -- -- (8,720)
Expenditures
Close facilities............................ -- (1,910) -- (1,910)
Severance benefits.......................... -- -- (1,220) (1,220)
------- ------- ----------- -------
Balance at December 27, 1997.................. $ -- $ 857 $ 190 $ 1,047
------- ------- ----------- -------
------- ------- ----------- -------
</TABLE>
The closure of the three distribution centers was delayed into 1997 due to
construction delays at the new Knoxville distribution center, which became
operational in 1996.
12. INCOME TAXES
Although Imperial's U.S. operations are included in the consolidated
federal income tax return of C&A, federal, state and foreign income taxes are
provided for book purposes on a separate return basis.
Imperial has a tax sharing agreement with C&A. This agreement provides for
tax sharing payments between Imperial and C&A which are calculated in accordance
with Federal income tax regulations. C&A either pays Imperial's amounts it
receives to the Internal Revenue Service or to the companies in the consolidated
return that incurred losses. Increases to Investments and Advances from (to)
Products of $2.2 million in fiscal 1995, $4.7 million in fiscal 1996 and $9.9
million for fiscal 1997 have been made to reflect the difference between the tax
sharing funding and the Federal tax payable calculated on a separate return
basis.
Components of the income tax provision for fiscal 1995, fiscal 1996 and
fiscal 1997, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Current:
Federal.................................................... $ (537) $ -- $ --
State...................................................... 377 377 377
Foreign.................................................... (1,626) -- 66
----------- ------------ ------------
(1,786) 377 443
Deferred--Foreign............................................ 259 (689) (506)
----------- ------------ ------------
Income tax benefit........................................... $ (1,527) $ (312) $ (63)
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
F-60
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
12. INCOME TAXES--(CONTINUED)
Domestic and foreign components of loss before income taxes are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Domestic..................................................... $ (31,173) $ (18,498) $ (24,410)
Foreign...................................................... (5,020) (9,746) (3,215)
----------- ------------ ------------
$ (36,193) $ (28,244) $ (27,625)
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
A reconciliation between income taxes computed at the statutory Federal
rate of 35% and the benefit for income taxes before the cumulative effect of
change in accounting is as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Amount at statutory Federal rate............................. $ (12,668) $ (9,885) $ (9,669)
State income taxes, net of Federal income tax benefit........ 245 245 241
Foreign tax more than Federal tax at statutory rate.......... 390 2,722 685
Other........................................................ (650) (1,685) 1,218
Change in valuation allowance................................ 11,156 8,291 7,462
----------- ------------ ------------
Income tax benefit...................................... $ (1,527) $ (312) $ (63)
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
Deferred income taxes are provided for the temporary differences between
the financial reporting and tax basis of Imperial's assets and liabilities. The
components of the net deferred tax assets as of January 27, 1996, December 28,
1996 and December 27, 1997, were as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 2,590 $ 8,465 $ 17,968
Canadian loss carryforwards................................ -- 1,773 1,689
Employee benefits.......................................... 5,363 6,320 5,750
Inventory reserves......................................... 6,092 6,288 6,347
Other liabilities and reserves............................. 2,600 3,215 6,965
Valuation allowance........................................ (15,707) (23,998) (34,950)
----------- ------------ ------------
Total deferred tax assets............................... 938 2,063 3,769
Deferred tax liabilities--Property, plant and equipment.... (2,120) (2,569) (3,769)
----------- ------------ ------------
Net deferred tax liability.............................. $ (1,182) $ (506) $ --
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The valuation allowances of $15.7 million at January 27, 1996, $24.0
million at December 28, 1996 and $35.0 million at December 27, 1997, were
established because, in Imperial's assessment, it was uncertain whether the net
deferred tax assets would be realized.
At December 27, 1997, the latest income tax reporting period, Imperial
Canada had loss carryforwards totaling approximately $5.4 million which expire
in 2003.
While Imperial had net operating loss carryovers of $51.3 million for book
purposes calculated on a separate return basis as of December 27, 1997; these
amounts differed from its portion of C & A's consolidated net operating loss
carryforwards. At December 27, 1997, the latest income tax reporting period,
Imperial's portion of
F-61
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
12. INCOME TAXES--(CONTINUED)
C&A's consolidated net operating loss carryovers for Federal income tax purposes
is summarized below (in thousands):
<TABLE>
<CAPTION>
EXPIRATION
AMOUNT DATE
------ ----------
<S> <C> <C>
Net operating losses:
Regular tax:
Preacquisition, subject to limitations............................ $2,500 2000-2003
Postacquisition, unrestricted..................................... 800 2006-2011
------
$3,300
------
------
Alternative minimum tax:
Preacquisition, subject to limitations............................ $2,100 2000-2003
Postacquisition, unrestricted..................................... 100 2006-2011
------
$2,200
------
------
Alternative minimum tax credits...................................... $ 350 No limit
------
------
</TABLE>
The utilization of these net operating loss carryovers, to the extent not
impacted by the planned disposition, will result in an additional capital
contribution from C&A, and will not affect Imperial's future results of
operations.
13. FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
accounts receivable, industrial revenue bonds and foreign currency contracts.
The book values of cash and equivalents and accounts receivable approximate fair
value due to their short maturity.
The fair value of Imperial's forward foreign currency contracts is
estimated based upon the spread between the contract and the spot exchange rate
at the date of measurement.
The estimated fair values of Imperial's financial instruments are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, 1996 DECEMBER 28, 1996 DECEMBER 27, 1997
---------------------- ---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Industrial revenue bonds..................... $679 $679 $582 $582 $388 $388
Forward foreign currency contracts........... -- 77 -- -- -- --
</TABLE>
Imperial conducts a significant portion of its operations in Canada through
Imperial Canada. At January 27, 1996, Imperial Canada had contracts to purchase
4.3 million Canadian dollars at a contracted cost of $3.0 million. These
contracts reduce exposure to currency movements affecting existing foreign
currency denominated assets, liabilities and firm commitments resulting
primarily from trade receivables and payables and intercompany loans. The
contract durations match the duration of the currency positions. The Company had
no outstanding contracts at December 28, 1996 and December 27, 1997. Imperial
does not engage in foreign currency speculation.
Imperial's credit risk in these transactions is the cost of replacing, at
current market rates, these contracts in the event of default by the other
party. Management believes the risk of incurring such losses is remote as the
contracts are entered into with major financial institutions.
F-62
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
14. TRANSACTIONS WITH AFFILIATES
Administrative Functions
Imperial has utilized certain centralized general and administrative
functions of Products (see Note 2) and is charged a fee for such services. The
fees charged totaled $2.7 million, $2.5 million and $2.1 million for fiscal
1995, fiscal 1996, and fiscal 1997, respectively.
Canadian Overdraft Facility
Imperial Canada and a Canadian affiliate of Products are the debtors under
a bank demand line of credit in Canada. This line of credit is used to fund the
combined working capital requirements of these Canadian operations. Imperial
Canada pays interest to the affiliate company to the extent its working capital
needs exceed the combined borrowings from the bank. Similarly, Imperial Canada
receives interest payments to the extent its requirements are less than the bank
borrowings. Interest is computed based upon Canadian prime rates plus .75%. The
amount included in the consolidated and combined financial statements represents
Imperial's outstanding borrowings under the arrangement. Interest expense under
these arrangements totaled $2.1 million in fiscal 1995, $1.9 million in fiscal
1996 and $1.6 million in fiscal 1997.
15. INFORMATION ABOUT SEGMENTS OF IMPERIAL'S OPERATIONS
Imperial produces residential and commercial wallpaper primarily for the
North American market. Imperial performs periodic credit evaluations of its
customers' financial condition and, although Imperial does not generally require
collateral, it does require cash payments in advance when the assessment of
credit risk associated with a customer is substantially higher than normal.
Receivables generally are due within 45 days, and credit losses have
consistently been within management's expectations and are provided for in the
consolidated and combined financial statements.
Information about Imperial's operations in different geographic areas for
fiscal 1995, fiscal 1996 and fiscal 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
UNITED OTHER CORPORATE
STATES CANADA COUNTRIES ITEMS TOTAL
-------- ------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
FISCAL 1995 (52 WEEKS)
Net sales.................................. $155,115 $41,794 $ 799 $ -- $197,708
Operating (loss) income(a)................. (21,441) (2,243) (901 ) 363 (24,222)
Depreciation and amortization(b)........... 11,440 2,455 -- -- 13,895
Identifiable assets........................ 87,967 28,214 3,057 -- 119,238
Capital expenditures(c).................... 13,349 2,403 -- -- 15,752
FISCAL 1996 (48 WEEKS)
Net sales.................................. 124,656 31,378 1,537 -- 157,571
Operating loss(a).......................... (12,210) (6,249) (1,057 ) -- (19,516)
Depreciation and amortization(b)........... 10,550 1,993 -- -- 12,543
Identifiable assets........................ 118,246 23,332 3,745 -- 145,323
Capital expenditures(c).................... 16,899 1,115 -- -- 18,014
FISCAL 1997 (52 WEEKS)
Net sales.................................. 126,532 34,863 2,454 -- 163,849
Operating (loss) income(a)................. (23,137) 518 (1,108 ) -- (23,727)
Depreciation and amortization.............. 5,962 1,273 -- -- 7,235
Identifiable assets........................ 120,105 20,502 3,396 -- 144,003
Capital expenditures(c).................... 7,608 1,669 -- -- 9,277
</TABLE>
(Footnotes on next page)
F-63
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
15. INFORMATION ABOUT SEGMENTS OF IMPERIAL'S OPERATIONS--(CONTINUED)
- ------------------
(a) Operating loss is determined by deducting all operating expenses from
revenues. Operating expenses do not include interest expense.
(b) Depreciation and amortization includes the amortization of other assets and
liabilities.
(c) Capital expenditures reflect gross capital expenditure amounts and exclude
amounts related to the purchase and development of designs and engravings.
16. CONTINGENCIES
Imperial is subject to federal, state and local laws and regulations
concerning the environment, and it has received notices that it is a potentially
responsible party in administrative proceedings at one site. It is difficult to
estimate the total cost of remediation due to the complexity of the
environmental laws and regulations, the uncertainty regarding the extent of the
environmental risks and Imperial's responsibility, and the selection of
alternative compliance approaches. When it has been possible to reasonably
estimate Imperial's liability with respect to environmental matters, provisions
have been made in accordance with generally accepted accounting principles and
the Company has recorded an accrual of $850,000 for potential exposures as of
December 27, 1997. In the opinion of Imperial's management, based on the facts
presently known to it, the ultimate outcome of environmental matters will not
have a material effect on Imperial's consolidated and combined financial
position or results of operations.
The tax returns for Imperial Canada are currently under examination by
Revenue Canada for fiscal 1991 to fiscal 1995. Revenue Canada has outstanding
challenges to approximately $15 million of Imperial Canada's previously claimed
tax deductions. The Company disputes the proposed adjustments. If Revenue Canada
were to maintain its position and such position were to be upheld in litigation,
the Company estimates that taxes and interest due would exceed $6 million.
Products has agreed to indemnify the Company for this exposure and accordingly,
no amounts relating to this matter have been reflected in the accompanying
consolidated and combined financial statements.
Additionally, the Company is involved in certain other legal actions and
claims in the ordinary course of business. In the opinion of management, any
liability which may be ultimately incurred would not materially effect the
Company's consolidated and combined financial position or results of operations.
17. CHANGE IN FISCAL YEAR
During fiscal 1996, the Company changed its fiscal year end to the last
Saturday in December. As a result of this change, fiscal 1996 was a 48-week
period. The following information presents comparative data for the periods
ended December 23, 1995 and December 28, 1996 (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 23, DECEMBER 28,
1995 1996
------------ ------------
(47 WEEKS) (48 WEEKS)
<S> <C> <C>
Net sales........................................................ $180,364 $157,751
Operating loss................................................... (658) (19,516)
Net loss......................................................... (11,153) (27,932)
</TABLE>
F-64
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
18. UNAUDITED QUARTERLY FINANCIAL DATA
The unaudited quarterly data below are based on the Company's historical
fiscal periods during fiscal 1996 and fiscal 1997.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER ----------
---------- ---------- ---------- ---------- (48 WEEKS)
(3 MONTHS) (3 MONTHS) (3 MONTHS) (2 MONTHS)
<S> <C> <C> <C> <C> <C>
FISCAL 1996
Net sales.......................................... $ 49,296 $ 40,783 $ 44,076 $ 23,416 $ 157,571
Gross margin....................................... 17,321 14,625 13,469 6,584 51,999
Operating loss..................................... (979) (3,513) (5,794) (9,230) (19,516)
Net loss........................................... (3,738) (5,745) (8,128) (10,321) (27,932)
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER ----------
---------- ---------- ---------- ----------
(52 WEEKS)
(3 MONTHS) (3 MONTHS) (3 MONTHS) (3 MONTHS)
<S> <C> <C> <C> <C> <C>
FISCAL 1997
Net sales.......................................... $ 44,111 $ 42,072 $ 39,168 $ 38,498 $ 163,849
Gross margin....................................... 15,268 14,180 12,788 12,541 54,777
Operating loss..................................... (4,544) (6,394) (6,138) (6,651) (23,727)
Loss before cumulative effect of change
in accounting................................... (5,106) (7,475) (7,413) (7,568) (27,562)
Net loss........................................... (15,048) (7,475) (7,413) (7,568) (37,504)
</TABLE>
19. MERGER
In November 1997, C&A entered into a definitive agreement among Imperial
Wallcoverings, Inc. ('Imperial U.S.'), BDPI Holdings Corporation, an affiliate
of a significant shareholder of C&A, ('MergerCo') and C&A (the 'Imperial
Acquisition Agreement'). Pursuant to a recapitalization agreement, MergerCo was
merged with and into Borden Decorative Products Holding, Inc. ('BDPH') (the
'Merger'), with BDPH surviving. BDPH acquired all of the outstanding common
stock of Imperial U.S. and a wholly owned subsidiary of BDPH acquired
substantially all of the assets and assumed substantially all of the liabilities
of Imperial Canada (collectively the 'Imperial Acquisition'). BDPH changed its
name to 'The Imperial Home Decor Group, Inc. (the 'Issuer'). The acquisition
closed effective March 13, 1998.
The purchase price for the Imperial Acquisition was $71.2 million, (as
defined in the Imperial Acquisition Agreement), subject to adjustment. In
connection with the Imperial Acquisition, C&A was granted an option to purchase
397,812 shares or 6.7% of BDPH's common stock outstanding as of the closing.
20. SUPPLEMENTAL COMBINING FINANCIAL STATEMENTS
In connection with the Merger and the Imperial Acquisition, the Issuer
issued senior subordinated notes (the 'Notes') to finance the transactions and
the related fees and expenses. The Issuer's payment obligations under the Notes
are fully and unconditionally guaranteed on a joint and several basis
(collectively the 'Guarantees') by the issuer's U.S. domestic subsidiaries which
include the former Imperial Wallcoverings, Inc.
Presented below is combining financial information for Imperial
Wallcoverings, Inc. and its wholly owned subsidiary Marketing Service, Inc.
(collectively the 'Guarantor Subsidiaries') with Imperial Canada and Imperial UK
(the 'Non-Guarantors'). Separate financial statements and other disclosures
concerning each of the Guarantors would not provide additional information that
is material to the prospective investors of the Notes and is therefore not
presented.
The elimination entries eliminate significant intercompany balances and
transactions.
F-65
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
SUPPLEMENTAL COMBINING BALANCE SHEET
AS OF JANUARY 27, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL IMPERIAL
CANADA UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
----------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents...................... $ -- $ -- $ 441 $ -- $ 441
Accounts receivable, net....................... 541 8,461 820 -- 9,822
Inventories.................................... 33,600 17,127 1,076 (1,651) 50,152
Other current assets 2,975 1,920 278 -- 5,173
----------- ------------ ----------- ------------ --------
Total current assets...................... 37,116 27,508 2,615 (1,651) 65,588
Property, plant and equipment.................. 30,539 10,632 -- (1,299) 39,872
Designs and engravings, net.................... 10,079 550 -- -- 10,629
Other assets................................... 3,149 -- -- -- 3,149
----------- ------------ ----------- ------------ --------
Total assets.............................. $80,883 $ 38,690 $ 2,615 ($ 2,950) $119,238
----------- ------------ ----------- ------------ --------
----------- ------------ ----------- ------------ --------
LIABILITIES
Canadian overdraft facility.................... $ -- $ 27,996 $ -- $ -- $ 27,996
Current maturities of long-term debt........... 358 43 11 -- 412
Accounts payable............................... 10,591 599 61 -- 11,251
Accrued expenses............................... 13,943 1,547 15 -- 15,505
----------- ------------ ----------- ------------ --------
Total current liabilities................. 24,892 30,185 87 -- 55,164
Long-term debt, including allocated debt of C&A
Products Co.................................. 49,932 13,186 3,297 -- 66,415
Deferred income taxes.......................... -- 1,182 -- -- 1,182
Other, including postretirement benefits....... 13,535 227 -- -- 13,762
Investments and advances to C&A
Products Co.................................. (7,476) (6,090) (769) (2,950) (17,285)
----------- ------------ ----------- ------------ --------
Total liabilities and equity.............. $80,883 $ 38,690 $ 2,615 ($ 2,950) $119,238
----------- ------------ ----------- ------------ --------
----------- ------------ ----------- ------------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this balance sheet.
F-66
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
SUPPLEMENTAL COMBINING BALANCE SHEET
AS OF DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL IMPERIAL
CANADA UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
----------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents...................... $ -- $ -- $ 782 $ -- $ 782
Accounts receivable, net....................... 20,914 5,133 1,476 -- 27,523
Inventories.................................... 33,769 16,677 1,620 (1,163) 50,903
Other current assets........................... 1,104 1,784 (133) -- 2,755
----------- ------------ ----------- ------------ --------
Total current assets...................... 55,787 23,594 3,745 (1,163) 81,963
Property, plant and equipment.................. 41,674 10,756 -- (1,525) 50,905
Designs and engravings, net.................... 9,341 601 -- -- 9,942
Other assets................................... 2,513 -- -- -- 2,513
----------- ------------ ----------- ------------ --------
Total assets.............................. $ 109,315 $ 34,951 $ 3,745 $ (2,688) $145,323
----------- ------------ ----------- ------------ --------
----------- ------------ ----------- ------------ --------
LIABILITIES
Canadian overdraft facility.................... $ -- $ 30,121 $ -- $ -- $ 30,121
Current maturities of long-term debt........... 377 43 8 -- 428
Accounts payable............................... 7,694 2,770 176 -- 10,640
Accrued expenses............................... 16,734 1,618 -- -- 18,352
----------- ------------ ----------- ------------ --------
Total current liabilities................. 24,805 34,552 184 -- 59,541
Long-term debt, including allocated debt of C&A
Products Co.................................. 43,481 10,221 1,933 -- 55,635
Deferred income taxes.......................... -- 506 -- -- 506
Other, including postretirement benefits....... 12,359 294 -- -- 12,653
Investments and advances from (to) C&A Products
Co........................................... 28,670 (10,622) 1,628 (2,688) 16,988
----------- ------------ ----------- ------------ --------
Total liabilities and equity.............. $ 109,315 $ 34,951 $ 3,745 $ (2,688) $145,323
----------- ------------ ----------- ------------ --------
----------- ------------ ----------- ------------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this balance sheet.
F-67
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
SUPPLEMENTAL COMBINING BALANCE SHEET
AS OF DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL
CANADA IMPERIAL UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
---------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents....................... $ -- $ -- $ 81 $ -- $ 81
Accounts receivable, net........................ 26,128 5,384 1,465 -- 32,977
Inventories..................................... 38,865 14,114 1,850 (1,401) 53,428
Other current assets............................ 1,436 1,667 -- -- 3,103
---------- ----------- ----------- ------------ --------
Total current assets....................... 66,429 21,165 3,396 (1,401) 89,589
Property, plant and equipment................... 42,491 10,966 -- (1,435) 52,022
Other assets.................................... 2,392 -- -- -- 2,392
---------- ----------- ----------- ------------ --------
Total assets............................... $111,312 $32,131 $ 3,396 $ (2,836) $144,003
---------- ----------- ----------- ------------ --------
---------- ----------- ----------- ------------ --------
LIABILITIES
Canadian overdraft facility..................... $ -- $25,395 $ -- $ -- $ 25,395
Current maturities of long-term debt............ 404 33 9 -- 446
Accounts payable................................ 11,125 3,451 25 -- 14,601
Accrued expenses................................ 13,187 1,800 41 -- 15,028
---------- ----------- ----------- ------------ --------
Total current liabilities.................. 24,716 30,679 75 -- 55,470
Long-term debt, including allocated debt of C&A
Products Co................................... 26,646 4,082 1,106 -- 31,834
Other, including postretirement benefits........ 13,931 910 -- -- 14,841
Investments and advances from (to) C&A Products
Co............................................ 46,019 (3,540) 2,215 (2,836) 41,858
---------- ----------- ----------- ------------ --------
Total liabilities and equity............... $111,312 $32,131 $ 3,396 $ (2,836) $144,003
---------- ----------- ----------- ------------ --------
---------- ----------- ----------- ------------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this balance sheet.
F-68
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATES
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JANUARY 27, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL
CANADA IMPERIAL UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
---------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Net sales....................................... $169,587 $61,597 $ 799 $(34,275) $197,708
---------- ----------- ----------- ------------ --------
Cost of goods sold.............................. 125,562 48,070 1,170 (33,670) 141,132
Selling, general and administrative/Corp.
allocation.................................... 51,915 15,770 216 -- 67,901
Restructuring charge............................ 12,583 -- 314 -- 12,897
---------- ----------- ----------- ------------ --------
190,060 63,840 1,700 (33,670) 221,930
---------- ----------- ----------- ------------ --------
Operating loss.................................. (20,473) (2,243) (901) (605) (24,222)
Interest expense, net........................... 39 2,076 -- -- 2,115
Interest expense allocated from C&A............. 4,348 1,159 290 -- 5,797
Loss on sale of receivables..................... 4,291 -- -- -- 4,291
Other (income) expense.......................... (238) (245) 56 195 (232)
---------- ----------- ----------- ------------ --------
Loss before income taxes........................ (28,913) (5,233) (1,247) (800) (36,193)
Income tax benefit.............................. -- (1,527) -- -- (1,527)
---------- ----------- ----------- ------------ --------
Net loss...................................... $(28,913) $(3,706) $(1,247) $ (800) $(34,666)
---------- ----------- ----------- ------------ --------
---------- ----------- ----------- ------------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this statement.
F-69
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATES
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL IMPERIAL
CANADA UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
---------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Net sales....................................... $141,686 $ 55,131 $ 1,537 $(40,783) $157,571
---------- ----------- ----------- ------------ --------
Cost of goods sold.............................. 102,590 42,326 2,010 (41,354) 105,572
Selling, general and administrative/Corp.
allocation.................................... 51,877 19,054 584 -- 71,515
---------- ----------- ----------- ------------ --------
154,467 61,380 2,594 (41,354) 177,087
---------- ----------- ----------- ------------ --------
Operating loss.................................. (12,781) (6,249) (1,057) 571 (19,516)
Interest expense, net........................... 41 1,889 -- -- 1,930
Interest expense allocated from C&A............. 2,999 712 133 -- 3,844
Loss on sale of receivables..................... 2,572 -- -- -- 2,572
Other expense (income).......................... 79 (31) 25 309 382
---------- ----------- ----------- ------------ --------
Loss before income taxes........................ (18,472) (8,819) (1,215) 262 (28,244)
Income tax benefit.............................. -- (312) -- -- (312)
---------- ----------- ----------- ------------ --------
Net loss........................................ $(18,472) $ (8,507) $ (1,215) $ 262 $(27,932)
---------- ----------- ----------- ------------ --------
---------- ----------- ----------- ------------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this statement.
F-70
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATES
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL
CANADA IMPERIAL UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
---------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Net sales....................................... $150,595 $67,480 $ 2,454 $(56,680) $163,849
---------- ----------- ----------- ------------ --------
Cost of goods sold.............................. 118,194 45,406 1,914 (56,442) 109,072
Selling, general and administrative/Corp.
allocation.................................... 55,300 21,556 1,648 -- 78,504
---------- ----------- ----------- ------------ --------
173,494 66,962 3,562 (56,442) 187,576
---------- ----------- ----------- ------------ --------
Operating income (loss)......................... (22,899) 518 (1,108) (238) (23,727)
Interest expense, net........................... (108) 1,197 538 -- 1,627
Interest expense allocated from C&A............. 2,514 388 105 -- 3,007
Other (income) expense.......................... (780) 33 11 -- (736)
---------- ----------- ----------- ------------ --------
Loss before income taxes........................ (24,525) (1,100) (1,762) (238) (27,625)
Income tax benefit.............................. -- (63) -- -- (63)
---------- ----------- ----------- ------------ --------
Loss before change in accounting................ (24,525) (1,037) (1,762) (238) (27,562)
Cumulative change in accounting................. 9,341 601 -- -- 9,942
---------- ----------- ----------- ------------ --------
Net loss................................... $(33,866) $(1,638) $(1,762) $ (238) $(37,504)
---------- ----------- ----------- ------------ --------
---------- ----------- ----------- ------------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this statement.
F-71
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATES
SUPPLEMENTAL COMBINING CASH FLOWS
FOR THE PERIOD ENDED JANUARY 27, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL IMPERIAL
CANADA UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
---------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Operating:
Net loss...................................... $(28,913) $ (3,706) $(1,247) $ (800) $(34,666)
Adjustments:
Depreciation and amortization................. 3,562 2,455 -- (91) 5,926
Amortization of other......................... 7,491 478 -- -- 7,969
Restructuring charge.......................... 12,583 -- 314 -- 12,897
Change in operating assets:
Accounts receivable, net...................... (9,327) 848 (820) -- (9,299)
Inventories................................... 9,488 1,264 (1,076) 696 10,372
Accounts payable.............................. (1,120) (2,156) 61 -- (3,215)
Other, net...................................... (3,066) 173 (560) -- (3,453)
---------- ----------- ----------- ------ --------
Net cash used by operating activities...... (9,302) (644) (3,328) (195) (13,469)
---------- ----------- ----------- ------ --------
Investing:
Additions to property, plant and equipment,
net........................................ (12,129) (3,608) -- 195 (15,542)
Designs and engravings and other.............. (7,735) (494) -- -- (8,229)
---------- ----------- ----------- ------ --------
Net cash used by investing activities...... (19,864) (4,102) -- 195 (23,771)
---------- ----------- ----------- ------ --------
Financing:
Repayment of long-term debt................... (295) -- -- -- (295)
Net borrowings on overdraft................... -- 14,366 -- -- 14,366
Allocated debt of C&A......................... (29,052) (9,086) 3,308 -- (34,830)
Investments and advances from C&A............. 58,513 (534) 461 -- 58,440
---------- ----------- ----------- ------ --------
Net cash provided by financing activities.. 29,166 4,746 3,769 -- 37,681
---------- ----------- ----------- ------ --------
Net increase in cash............................ -- -- 441 -- 441
Cash, at beginning of year...................... -- -- -- -- --
---------- ----------- ----------- ------ --------
Cash, at end of year............................ $ -- $ -- $ 441 $ -- $ 441
---------- ----------- ----------- ------ --------
---------- ----------- ----------- ------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this statement.
F-72
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
AND AFFILIATES
SUPPLEMENTAL COMBINING CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL IMPERIAL
CANADA UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
---------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Operating:
Net loss..................................... $ (18,472 ) $ (8,507) $ (1,215) $ 262 $ (27,932)
Adjustments:
Depreciation and amortization................ 3,427 1,993 -- (83) 5,337
Amortization of other........................ 6,770 436 -- -- 7,206
Change in Operating Assets:
Accounts receivable, net..................... (20,373 ) 3,328 (656) -- (17,701)
Inventories.................................. (169 ) 450 (544) (488) (751)
Accounts payable............................. (2,897 ) 2,171 115 -- (611)
Other, net................................... 4,159 (380) 464 -- 4,243
---------- ----------- ----------- ------------ ---------
Net cash used by operating activities..... (27,555 ) (509) (1,836) (309) (30,209)
---------- ----------- ----------- ------------ ---------
Investing:
Additions to property, plant and equipment,
net....................................... (14,563 ) (2,116) -- 309 (16,370)
Designs and engravings and other............. (6,065 ) (390) -- -- (6,455)
---------- ----------- ----------- ------------ ---------
Net cash used by investing activities..... (20,628 ) (2,506) -- 309 (22,825)
---------- ----------- ----------- ------------ ---------
Financing:
Repayment of long-term debt.................. (97 ) -- -- -- (97)
Net borrowings on overdraft.................. -- 2,125 -- -- 2,125
Allocated debt of C&A........................ (6,338 ) (2,965) (1,364) -- (10,667)
Investments and advances from C&A............ 54,618 3,855 3,541 -- 62,014
---------- ----------- ----------- ------------ ---------
Net cash provided by financing
activities.............................. 48,183 3,015 2,177 -- 53,375
---------- ----------- ----------- ------------ ---------
Net Increase in Cash........................... -- -- 341 -- 341
Cash, at beginning of year..................... -- -- 441 -- 441
---------- ----------- ----------- ------------ ---------
Cash, at end of year........................... $ -- $ -- $ 782 $ -- $ 782
---------- ----------- ----------- ------------ ---------
---------- ----------- ----------- ------------ ---------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this statement.
F-73
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIAIRES
WITH AFFILIATES
SUPPLEMENTAL COMBINING CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL IMPERIAL
CANADA UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
---------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Operating:
Net loss...................................... $(33,866) $(1,638) $(1,762) $ (238) $(37,504)
Adjustments:
Depreciation of amortization.................. 6,027 1,298 -- (90) 7,235
Amortization of other......................... 9,341 601 -- -- 9,942
Change in operating assets:
Accounts receivable, net...................... (5,214) (251) 11 -- (5,454)
Inventories................................... (5,186) 2,563 (230) 328 (2,525)
Accounts payable.............................. 3,431 681 (151) -- 3,961
Other, net.................................... (1,777) 472 13 -- (1,292)
---------- ----------- ----------- ------ --------
Net cash (used) provided by operating
activities............................... (27,244) 3,726 (2,119) -- (25,637)
---------- ----------- ----------- ------ --------
Investing:
Additions to property, plant and
equipment, net............................. (6,844) (1,508) -- -- (8,352)
Designs and engravings and other.............. (410) -- -- -- (410)
---------- ----------- ----------- ------ --------
Net cash used by investing activities...... (7,254) (1,508) -- -- (8,762)
---------- ----------- ----------- ------ --------
Financing:
Repayment of long-term debt................... (194) -- -- -- (194)
Net repayments on overdraft................... -- (4,726) -- -- (4,726)
Allocated debt of C&A......................... (16,614) (6,149) (826) -- (23,589)
Investments and advances from C&A............. 51,306 8,657 2,244 -- 62,207
---------- ----------- ----------- ------ --------
Net cash provided (used) by financing
activities............................... 34,498 (2,218) 1,418 -- 33,698
---------- ----------- ----------- ------ --------
Net decrease in cash............................ -- -- (701) -- (701)
Cash, at beginning of year...................... -- -- 782 -- 782
---------- ----------- ----------- ------ --------
Cash, at end of year............................ $ -- $ -- $ 81 $ -- $ 81
---------- ----------- ----------- ------ --------
---------- ----------- ----------- ------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this statement.
F-74
<PAGE>
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS OFFERING MEMORANDUM, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS OFFERING MEMORANDUM 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 OFFERING MEMORANDUM NOR
ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information.......................... iii
Forward-Looking Statements..................... iii
Summary........................................ 1
Risk Factors................................... 16
The Transactions............................... 25
Use of Proceeds................................ 26
Capitalization................................. 27
Unaudited Pro Forma Combined Financial
Information.................................. 28
Selected Historical Financial Information--
IHDG......................................... 35
Selected Historical Financial Information--
Imperial..................................... 37
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 41
Business....................................... 47
Management..................................... 65
Security Ownership............................. 70
Certain Transactions........................... 71
The Exchange Offer............................. 73
Description of the Exchange Notes.............. 81
Description of the Senior Credit Facilities.... 111
Certain U.S. Federal Income Tax
Considerations............................... 113
Book-Entry; Delivery and Form.................. 113
Plan of Distribution........................... 115
Legal Matters.................................. 116
Experts........................................ 116
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1998 (90 DAYS AFTER THE DATE
OF THE PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
THE IMPERIAL HOME DECOR
GROUP INC.
OFFER TO EXCHANGE ITS
11% SENIOR SUBORDINATED NOTES
DUE 2008, SERIES B,
FOR ANY AND ALL OF ITS
OUTSTANDING 11% SENIOR
SUBORDINATED NOTES DUE 2008
------------------------
PROSPECTUS
------------------------
, 1998
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE CORPORATIONS
THE IMPERIAL HOME DECOR GROUP INC.
General Corporation Law of the State of Delaware
Section 145 of the Delaware General Corporation Law (the 'DGCL') provides,
in effect, that any person made a party to any action by reason of the fact that
he is or was a Director, officer, employee or agent of The Imperial Home Decor
Group Inc. (the 'Corporation') may and, in certain cases, must be indemnified by
the Corporation against, in the case of a non-derivative action, judgments,
fines, amounts paid in settlement and reasonable expenses (including attorney's
fees) incurred by him as a result of such action, and in the case of a
derivative action, against expenses (including attorney's fees), if in either
type of action he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation. This
indemnification does not apply, in a derivative action, to matters as to which
it is adjudged that the Director, officer, employee or agent is liable to the
Corporation, unless upon court order it is determined that, despite such
adjudication of liability, but in view of all the circumstances of the case, he
is fairly and reasonably entitled to indemnity for expenses, and, in a
non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
Delaware corporations may limit the personal liability of their directors
for monetary damages for a breach of fiduciary duty, provided, however, that the
directors can still be held personally liable (i) for a breach of the duty of
loyalty to the corporation and its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL (described below), and (iv) for any
transaction from which the director derived an improper personal benefit.
Section 174 of the DGCL makes directors personally liable for unlawful dividends
or unlawful stock repurchases or redemptions in certain circumstances and
expressly sets forth a negligence standard with respect to such liability.
Certificate of Incorporation
Article SEVENTH of the Corporation's Certificate of Incorporation provides
except as otherwise provided by the DGCL as the same exists or may hereafter be
amended, no director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary charges for breach of fiduciary
duty as a director. Any repeal or modification of Article SEVENTH by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
By-laws
Article IV of the Corporation's by-laws provides to the fullest extent
permitted by the DGCL, the Corporation shall indemnify any current or former
Director or officer of the Corporation and may, at the discretion of the Board
of Directors, indemnify any current or former employee or agent of the
Corporation against all expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with any
threatened, pending or completed action, suit or proceeding brought by or in the
right of the Corporation or otherwise, to which he or she was or is a party by
reason of his or her current or former position with the Corporation or by
reason of the fact that he or she is or was serving, at the request of the
Corporation, as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
II-1
<PAGE>
VERNON PLASTICS, INC.
Certificate of Incorporation
Article SEVENTH of the Certificate of Incorporation of Vernon Plastics,
Inc. (the 'Corporation') provides that except as otherwise provided by the DGCL
as the same exists or may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal or modification
of Article SEVENTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
By-laws
Article IV of the Corporation's By-laws provides that the Corporation shall
indemnify Directors and Officers (as such terms are defined in the Certificate
of Incorporation) of the Corporation as specified in the Certificate of
Incorporation. In addition, to the fullest extent permitted by the DGCL, the
Corporation shall indemnify any current or former Director or Officer of the
Corporation and may, at the discretion of the Board of Directors, indemnify any
current or former employee or agent of the Corporation against all expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any threatened, pending or completed action, suit or
proceeding brought by or in the right of the Corporation or otherwise, to which
he was or is a party by reason of his current or former position with the
Corporation or by reason of the fact that he is or was serving, at the request
of the Corporation, as a director, officer, partner, trustee, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
Expenses incurred by a person who is or was a director or officer of the
Corporation in appearing at, participating in or defending any such action, suit
or proceeding shall be paid by the Corporation at reasonable intervals in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized by this Article. If a claim under
this Article is not paid in full by the Corporation within ninety days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the part, the claimant
shall be paid also the expense of prosecuting such claim. It shall be a defense
to any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the DGCL or other applicable law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the DGCL or
other applicable law, nor an actual determination by the Corporation (including
its board of directors, independent legal counsel, or its stockholders) that the
claimant has not met the applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
WDP INVESTMENTS, INC.
Certificate of Incorporation
The SEVENTH Article of the certificate of Incorporation WDP Investments,
Inc. (the 'Corporation') provides that except otherwise provided by the DGCL as
the same exists or may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal of Article
SEVENTH by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
II-2
<PAGE>
By-laws
Article IV of the By-laws of the Corporation provide that to the fullest
extent permitted by the DGCL, the Corporation shall indemnify any current or
former Director or officer of the Corporation and may, at the discretion of the
Board of Directors, indemnify any current or former employee or agent of the
Corporation against all expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with any
threatened, pending or completed action, suit or proceeding brought by or in the
right of the Corporation or otherwise, to which he or she was or is a party by
reason of his or her current or former position with the Corporation or by
reason of the fact that he or she is or was serving, at the request of the
Corporation, as director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
MARKETING SERVICE, INC.
By-laws
Article VI of the By-laws of Marketing Service, Inc. (the 'Corporation')
provide that the Corporation shall indemnify any person who is made, or
threatened to be made, a party to, or its otherwise involved in, any action,
suit or proceeding (whether civil, criminal, administrative, investigative or
otherwise) by reason of the fact that he, his testator or intestate, is or was a
director or officer of the Corporation or, at the request of the Corporation, is
or was serving any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity, to the fullest extent
permitted by the laws of Delaware as from time to time in effect. The
Corporation may, if it so determines in a specific case, indemnify other
employees or agents of the Corporation in the same manner and to the same
extent.
Costs, charges, expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement incurred by any officer or director in defending any
pending, threatened or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than any action by or in the
right of the Corporation), and costs, charges and expenses (including attorneys'
fees) incurred by any officer or director in defending an action by or in the
right of the Corporation shall be paid by the Corporation in advance of the
determination of such director's or officer's entitlement to indemnification
promptly upon receipt of an undertaking by or on behalf of such director or
officer to repay amounts so advanced in the event and to the extent that it
shall ultimately be determined that such director or officer is not entitled to
be indemnified by the Corporation as authorized by this Article. Such amounts
incurred by other employees and agents may be so advanced upon such terms and
conditions, if any, as the Board of Directors deems appropriate. The Board of
Directors may, upon approval of such director or officer, authorize the
Corporation's counsel to represent such director or officer, in any action, suit
or proceeding, whether or not the Corporation is a party thereto.
All rights to indemnification and advances under this Article shall be
deemed to be a contract between the Corporation and each director, officer,
employee or agent of the Corporation who serves or served in such capacity at
any time while this Article is in effect. Any repeal or modification of this
Article or any repeal or modification of relevant provisions of the DGCL or any
other applicable laws shall not in any way diminish any rights to
indemnification and to such advances of such director, officer, employee or
agent or the obligations of the Corporation arising hereunder. The provisions of
this Article shall inure to the benefit of heirs, executors, administrators and
personal representatives of those entitled to indemnification and to such
advances and shall be binding upon any successor to the Corporation to the
fullest extent permitted by the laws of Delaware as from time to time in effect.
The indemnification and advancement provided by this bylaw shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement may be entitled under Delaware law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
Any indemnification or advance required by this Article VI shall be made
promptly, and in any event within 30 days, upon the written request of the
indemnified party. The right to indemnification or advances as granted by this
Article shall be enforceable by the indemnified party in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within 30 days. Such persons' cost and expenses
incurred in connection with successfully establishing a right of indemnification
or advances, in whole or in part, in any such action shall also be indemnified
by the Corporation.
II-3
<PAGE>
The Corporation shall have the power to purchase and maintain insurance to
indemnify (a) itself for any obligation which it incurs as a result of the
indemnification of directors and officers and (b) directors and officers in all
instances, whether or not such indemnification is otherwise provided for by law
or the foregoing provisions of this Article, subject to any specific limitations
of law.
DELAWARE LLC
THE IMPERIAL HOME DECOR GROUP (US) LLC
Delaware Limited Liability Company Act
Section 18-303(a) of the Act states that, except as otherwise provided by
the Delaware Limited Liability Company Act (the 'Act'), the debts, obligations
and liabilities of a limited liability company, whether arising in contract,
tort or otherwise, shall be solely the debts, obligations and liabilities of the
limited liability company, and no member or manager of a limited liability
company shall be obligated personally for any such debt, obligation or liability
of the limited liability company solely be reason of being a member or acting as
a manager of the limited liability company. Section 18-108 of the Act states
that subject to such standards and restrictions, if any, as set forth in its
limited liability company agreement, a limited liability company may, and shall
have the power to, indemnify and hold harmless any member or manager or other
person from and against any and all claims and demands whatsoever.
U.K. COMPANY
IMPERIAL HOME DECOR GROUP HOLDINGS I LIMITED
Section 310 of the U.K. Companies Act 1985 (the 'Act') applies to any
provision, whether contained in a company's articles or in any contract with the
company or otherwise, for exempting any officer of the company or any person
(whether an officer or not) employed by the company as auditor from, or
indemnifying him against, any liability which by virtue of any rule of law would
otherwise attach to him in respect of any negligence, default, breach of duty or
breach of trust of which he may be guilty in relation to the company. Except as
provided by law, any such provision is void. Section 310 does not prevent a
company from purchasing and maintaining for any such officer or auditor
insurance against any such liability, or from indemnifying any such officer or
auditor against any liability incurred by him in defending any proceedings
(whether civil or criminal) in which judgment is given in his favor or he is
acquitted, or in connection with any application under section 144(3) or (4)
(acquisition of shares by innocent nominee) or section 727 (general power to
grant relief in case of honest and reasonable conduct) in which relief is
granted to him by the court.
Paragraph 118 of Table A of the Act provides that subject to the provisions
of the Act but without prejudice to any indemnity to which a director may
otherwise be entitled, every director or other officer or auditor of the company
shall be indemnified out of the assets of the company against any liability
incurred by him in defending any proceedings, whether civil or criminal, in
which judgment is given in his favor or in which he is acquitted or in
connection with any application in which relief is granted to him by the court
from liability for negligence, default, breach of duty or breach of trust in
relation to the affairs of the company.
Memorandum and Articles of Association
Section four of the Memorandum and Articles of Association of Imperial Home
Decor Group Holdings I Limited (the 'Company') provide that the liability of the
Members is limited.
The Memorandum and Articles of Association of the Company provide further
in Section 21 that subject to Section 310 of the Companies Act 1985 and in
addition to such indemnity as is contained in Clause 118 of Table A, every
Director, Officer or Official of the Company shall be indemnified out of the
funds of the Company against all costs, charges, losses, expenses and
liabilities incurred by him in the execution and discharge of is duties or in
relation thereto.
II-4
<PAGE>
ITEM 21. EXHIBITS
Exhibits indicated below are incorporated by reference to documents of the
Company on file with the Securities and Exchange Commission. Exhibit numbers in
parentheses refer to the exhibit numbers in the applicable filing. All other
exhibits are filed herewith.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM EXHIBIT
- ------- -------------------------------------------------------------------------------------------------- -------
<S> <C> <C> <C>
1.1 -- Purchase Agreement dated as of March 11, 1998 among BDPI Holdings Corporation, Chase
Securities Inc. and Bear, Stearns & Co. Inc. as Initial Purchasers.
2.1 -- Recapitalization Agreement dated as of October 14, 1997 among Borden Decorative Products
Holdings, Inc., BDPI Holdings Corporation and Borden, Inc.
2.2 -- First Amendment to Recapitalization Agreement dated as of October 14, 1997 among Borden
Decorative Products Holdings, Inc., BDPI Holdings Corporation and Borden, Inc.
3.1 -- Certificate of Incorporation of Borden Decorative Products Holdings, Inc. filed November 6,
1995.
3.2 -- Certificate of Amendment of Certificate of Incorporation of Borden Decorative Products
Holdings, Inc. filed March 15, 1996.
3.3 -- Certificate of Designations of Pay-In-Kind Preferred Stock of Borden Decorative Products
Holdings, Inc. filed June 7, 1996.
3.4 -- Certificate of Designations of Cash Pay Preferred Stock of Borden Decorative Products
Holdings, Inc. filed June 7, 1996.
3.5 -- Certificate of Amendment of Certificate of Incorporation of Borden Decorative Products
Holdings Inc. filed March 21, 1997.
3.6* -- Certificate of Incorporation of Vernon Plastics, Inc. filed February 26, 1998.
3.7* -- Certificate of Incorporation of Borden Decorative Products Investments, Inc. filed November
6, 1995.
3.8* -- Certificate of Amendment of Certificate of Incorporation of Borden Decorative Products
Investments, Inc., changing its name from Borden Decorative Products Investments, Inc. to
WDP Investments, Inc. filed January 24, 1996.
3.9* -- Certificate of Incorporation of Marketing Service, Inc. filed January 19, 1990.
3.10* -- Certificate of Formation of The Imperial Home Decor Group (US) LLC filed March 2, 1998.
3.11* -- Memorandum and Articles of Association of Imperial Home Decor Group Holdings 1 Limited filed
March 6, 1998.
3.12 -- By-laws of Borden Decorative Products Holdings, Inc.
3.13* -- By-laws of Vernon Plastics, Inc.
3.14* -- By-laws of WDP Investments, Inc.
3.15* -- By-laws of Marketing Services, Inc.
4.1 -- Exchange and Registration Rights Agreement dated March 13, 1998 by the Company and
Subsidiary Guarantors and accepted by Chase Securities Inc. and Bear, Stearns & Co., Inc.
4.2 -- Indenture dated as of March 13, 1998 by and among the Company, the Subsidiary Guarantors and
The Bank of New York, as Trustee.
4.3 -- Form of Note. (Included in Exhibit 4.2)
4.4 -- Form of Exchange Note. (Included in Exhibit 4.2)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM EXHIBIT
- ------- -------------------------------------------------------------------------------------------------- -------
<S> <C> <C> <C>
5.1* -- Opinion of Jones, Day, Reavis & Pogue.
10.1 -- Credit Agreement dated as of March 13, 1998, among The Chase Manhattan Bank, The Chase
Manhattan Bank of Canada, Chase Manhattan Bank Delaware, the Company, The Imperial Home
Decor Group (Canada) ULC and Imperial Home Decor Group Holdings II Limited.
10.2 -- Amended and Restated Acquisition Agreement dated as of the 4th day of November, 1997 and
amended and restated as of the 9th day of March, 1998 among Collins & Aikman Products Co.,
Imperial Wallcoverings, Inc., and BDPI Holdings Corporation.
10.3 -- Agreement dated as of March 13, 1998 among the Company, The Imperial Home Decor Group
Holdings LLC and Collins & Aikman Corporation.
10.4 -- Stockholders Agreement dated as of March 13, 1998 by and among the Company, BDH One, Inc.,
Borden, Inc., and The Imperial Home Decor Group Holdings LLC.
10.5 -- Indemnification Agreement dated as of November 3, 1997 and effective as of October 14, 1997
by and among Blackstone Capital Partners III Merchant Banking Fund L.P., Blackstone Offshore
Capital Partners III L.P., Blackstone Family Investment Partnership III L.P., The Imperial
Home Decor Group Holdings LLC and BDPI Holdings Corporation.
10.6 -- Monitoring Agreement dated as of March 13, 1998 among the Company and Blackstone Management
Associates III L.L.C.
10.7 -- Employment Agreement between the Imperial Wallcoverings, Inc., and Michael Landau dated as
of February 1, 1998.
12.1 -- Statement re: Computation of Ratios
21.1 -- List of Subsidiaries of the Company
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Jones, Day, Reavis & Pogue (Included in Exhibit 5.1)
24.1 -- Power of Attorney of the Company (See Part II of Registration Statement)
24.2 -- Power of Attorney of the Subsidiary Guarantors (See Part II of Registration Statement)
25.1 -- Statement of the eligibility of the Trustee on Form T-1
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 DTC Participants
99.4* -- Form of Letter to Clients and Form of Instruction to Book-Entry Transfer Participants
</TABLE>
- ------------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
The Company hereby undertakes:
(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
II-6
<PAGE>
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) The undersigned registrant undertakes that every prospectus: (i)
that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of 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.
(4) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a Director, officer
or controlling person of the Company 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 Company 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.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
'Securities Act'), the Company has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Cleveland, State of Ohio, on July 10, 1998.
THE IMPERIAL HOME DECOR GROUP INC.
By: ________/s/ JAMES P. TOOHEY_______
James P. Toohey
President, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James P.
Toohey, Keith T. McAslan and William J. Fenstermaker and each of them, his or
her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------------- --------------
<S> <C> <C>
/s/ JAMES P. TOOHEY President, Chief Executive Officer July 10, 1998
- ------------------------------------------ and Director (Principal Executive Officer)
James P. Toohey
/s/ KEITH T. MCASLAN Vice President--Finance and Chief Financial July 10, 1998
- ------------------------------------------ Officer (Principal Financial Officer and
Keith T. McAslan Principal Accounting Officer)
/s/ DAVID A. STOCKMAN Chairman of the Board and Director July 10, 1998
- ------------------------------------------
David A. Stockman
/s/ MICHAEL LANDAU Director July 10, 1998
- ------------------------------------------
Michael Landau
/s/ DAVID I. FOLEY Director July 10, 1998
- ------------------------------------------
David I. Foley
/s/ ANTHONY GRILLO Director July 10, 1998
- ------------------------------------------
Anthony Grillo
/s/ DAVID BLITZER Director July 10, 1998
- ------------------------------------------
David Blitzer
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, in the State
of Ohio, on July 10, 1998.
VERNON PLASTICS, INC.
By: _______/s/ KEITH T. MCASLAN_______
KEITH T. MCASLAN
Vice President, Chief Financial
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James P.
Toohey and Keith T. McAslan and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------------ -------------------
<S> <C> <C>
/s/ JAMES P. TOOHEY President, Chief Executive Officer July 10, 1998
- ------------------------------------------ (Principal Executive Officer)
James P. Toohey
/s/ KEITH T. MCASLAN Vice President, Chief Financial Officer July 10, 1998
- ------------------------------------------ (Principal Financial Officer and
Keith T. McAslan Principal Accounting Officer)
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, in the State
of Ohio, on July 10, 1998.
WDP INVESTMENTS, INC.
By: _______/s/ KEITH T. MCASLAN_______
Keith T. McAslan
Vice President, Chief Financial
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James P.
Toohey and Keith T. McAslan and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------------- -------------------
<S> <C> <C>
/s/ JAMES P. TOOHEY President, Chief Executive Officer July 10, 1998
- ------------------------------------------ (Principal Executive Officer)
James P. Toohey
/s/ KEITH T. MCASLAN Vice President, Chief Financial Officer July 10, 1998
- ------------------------------------------ (Principal Financial Officer and
Keith T. McAslan Principal Accounting Officer)
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, in the State
of Ohio, on July 10, 1998.
MARKETING SERVICE, INC.
By: _______/s/ KEITH T. MCASLAN_______
Keith T. McAslan
Vice President, Chief Financial
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James P.
Toohey and Keith T. McAslan and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------------- -------------------
<S> <C> <C>
/s/ JAMES P. TOOHEY President, Chief Executive Officer July 10, 1998
- ------------------------------------------ (Principal Executive Officer)
James P. Toohey
/s/ KEITH T. MCASLAN Vice President, Chief Financial Officer July 10, 1998
- ------------------------------------------ (Principal Financial Officer and
Keith T. McAslan Principal Accounting Officer)
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, in the State
of Ohio, on July 10, 1998.
THE IMPERIAL HOME DECOR GROUP (US) LLC
By: _______/s/ KEITH T. MCASLAN_______
Keith T. McAslan
Vice President, Chief Financial
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James P.
Toohey and Keith T. McAslan and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------------- -------------------
<S> <C> <C>
/s/ JAMES P. TOOHEY President, Chief Executive Officer July 10, 1998
- ------------------------------------------ (Principal Executive Officer)
James P. Toohey
/s/ KEITH T. MCASLAN Vice President, Chief Financial Officer July 10, 1998
- ------------------------------------------ (Principal Financial Officer and
Keith T. McAslan Principal Accounting Officer)
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, in the State
of Ohio, on July 10, 1998.
IMPERIAL HOME DECOR GROUP HOLDINGS I
LIMITED
By: _______/s/ KEITH T. MCASLAN_______
Keith T. McAslan
Vice President, Chief Financial
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James P.
Toohey and Keith T. McAslan and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------------ -------------------
<S> <C> <C>
/s/ JAMES P. TOOHEY President, Chief Executive Officer July 10, 1998
- ------------------------------------------ (Principal Executive Officer)
James P. Toohey
/s/ KEITH T. MCASLAN Vice President, Chief Financial Officer July 10, 1998
- ------------------------------------------ (Principal Financial Officer and
Keith T. McAslan Principal Accounting Officer)
</TABLE>
II-13
<PAGE>
EXHIBIT INDEX
Exhibits indicated below are incorporated by reference to documents of the
Company on file with the Securities and Exchange Commission. Exhibit numbers in
parentheses refer to the exhibit numbers in the applicable filing. All other
exhibits are filed herewith.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM PAGE
- ------- ---------------------------------------------------------------------------------------------------- ----
<S> <C> <C> <C>
1.1 -- Purchase Agreement dated as of March 11, 1998 among BDPI Holdings Corporation, Chase
Securities Inc. and Bear, Stearns & Co. Inc. as Initial Purchasers.
2.1 -- Recapitalization Agreement dated as of October 14, 1997 among Borden Decorative Products
Holdings, Inc., BDPI Holdings Corporation and Borden, Inc.
2.2 -- First Amendment to Recapitalization Agreement dated as of October 14, 1997 among Borden
Decorative Products Holdings, Inc., BDPI Holdings Corporation and Borden, Inc.
3.1 -- Certificate of Incorporation of Borden Decorative Products Holdings, Inc. filed November 6,
1995.
3.2 -- Certificate of Amendment of Certificate of Incorporation of Borden Decorative Products
Holdings, Inc. filed March 15, 1996.
3.3 -- Certificate of Designations of Pay-In-Kind Preferred Stock of Borden Decorative Products
Holdings, Inc. filed June 7, 1996.
3.4 -- Certificate of Designations of Cash Pay Preferred Stock of Borden Decorative Products
Holdings, Inc. filed June 7, 1996.
3.5 -- Certificate of Amendment of Certificate of Incorporation of Borden Decorative Products
Holdings Inc. filed March 21, 1997.
3.6* -- Certificate of Incorporation of Vernon Plastics, Inc. filed February 26, 1998.
3.7* -- Certificate of Incorporation of Borden Decorative Products Investments, Inc. filed November 6,
1995.
3.8* -- Certificate of Amendment of Certificate of Incorporation of Borden Decorative Products
Investments, Inc., changing its name from Borden Decorative Products Investments, Inc. to WDP
Investments, Inc. filed January 24, 1996.
3.9* -- Certificate of Incorporation of Marketing Service, Inc. filed January 19, 1990.
3.10* -- Certificate of Formation of The Imperial Home Decor Group (US) LLC filed March 2, 1998.
3.11* -- Memorandum and Articles of Association of Imperial Home Decor Group Holdings 1 Limited filed
March 6, 1998.
3.12 -- By-laws of Borden Decorative Products Holdings, Inc.
3.13* -- By-laws of Vernon Plastics, Inc.
3.14* -- By-laws of WDP Investments, Inc.
3.15* -- By-laws of Marketing Services, Inc.
4.1 -- Exchange and Registration Rights Agreement dated March 13, 1998 by the Company and Subsidiary
Guarantors and accepted by Chase Securities Inc. and Bear, Stearns & Co., Inc.
4.2 -- Indenture dated as of March 13, 1998 by and among the Company, the Subsidiary Guarantors and
The Bank of New York, as Trustee.
4.3 -- Form of Note. (Included in Exhibit 4.2)
4.4 -- Form of Exchange Note. (Included in Exhibit 4.2)
5.1* -- Opinion of Jones, Day, Reavis & Pogue.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM PAGE
- ------- ---------------------------------------------------------------------------------------------------- ----
<S> <C> <C> <C>
10.1 -- Credit Agreement dated as of March 13, 1998, among The Chase Manhattan Bank, The Chase
Manhattan Bank of Canada, Chase Manhattan Bank Delaware, the Company, The Imperial Home Decor
Group (Canada) ULC and Imperial Home Decor Group Holdings II Limited.
10.2 -- Amended and Restated Acquisition Agreement dated as of the 4th day of November, 1997 and
amended and restated as of the 9th day of March, 1998 among Collins & Aikman Products Co.,
Imperial Wallcoverings, Inc., and BDPI Holdings Corporation.
10.3 -- Agreement dated as of March 13, 1998 among the Company, The Imperial Home Decor Group Holdings
LLC and Collins & Aikman Corporation.
10.4 -- Stockholders Agreement dated as of March 13, 1998 by and among the Company, BDH One, Inc.,
Borden, Inc., and The Imperial Home Decor Group Holdings LLC.
10.5 -- Indemnification Agreement dated as of November 3, 1997 and effective as of October 14, 1997 by
and among Blackstone Capital Partners III Merchant Banking Fund L.P., Blackstone Offshore
Capital Partners III L.P., Blackstone Family Investment Partnership III L.P., The Imperial
Home Decor Group Holdings LLC and BDPI Holdings Corporation.
10.6 -- Monitoring Agreement dated as of March 13, 1998 among the Company and Blackstone Management
Associates III L.L.C.
10.7 -- Employment Agreement between the Imperial Wallcoverings, Inc., and Michael Landau dated as of
February 1, 1998.
12.1 -- Statement re: Computation of Ratios
21.1 -- List of Subsidiaries of the Company
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Jones, Day, Reavis & Pogue (Included in Exhibit 5.1)
24.1 -- Power of Attorney of the Company (See Part II of Registration Statement)
24.2 -- Power of Attorney of the Subsidiary Guarantors (See Part II of Registration Statement)
25.1 -- Statement of the eligibility of the Trustee on Form T-1
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 DTC Participants
99.4* -- Form of Letter to Clients and Form of Instruction to Book-Entry Transfer Participants
</TABLE>
- ------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 1.1
BDPI Holdings Corporation
$125,000,000
11% Senior Subordinated Notes due 2008
PURCHASE AGREEMENT
March 11, 1998
CHASE SECURITIES INC.
BEAR, STEARNS & CO. INC.
c/o Chase Securities Inc.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Pursuant to the Recapitalization Agreement dated as of October 14, 1997
(the "Recapitalization Agreement"), among BDPI Holdings Corporation, a Delaware
corporation (the "Company"), Borden, Inc., a New Jersey corporation ("Borden"),
and Borden Decorative Products Holdings, Inc., a Delaware corporation that
immediately following the consummation of the Recapitalization and the Imperial
Acquisition on the Closing Date (each as defined in the Offering Memorandum
referred to below) will change its name to The Imperial Home Decor Group Inc.
(the "Issuer"), on the Closing Date the Company will merge with the Issuer, with
the Issuer as the surviving corporation in the merger, and the other components
of the Recapitalization (as defined in the Offering Memorandum) will be
consummated. Pursuant to the Acquisition Agreement dated as of November 4, 1997
(the "Imperial Acquisition Agreement"), among Collins & Aikman Products Co., a
Delaware corporation ("CAPC"), Imperial Wallcoverings, Inc., a Delaware
corporation ("Imperial"), and the Company, the Company will acquire the U.S. and
Canadian Imperial Wallcoverings business of CAPC. In connection with the
foregoing, the Company proposes to issue and sell $125,000,000 aggregate
principal amount of its 11% Senior Subordinated Notes due 2008 (the
"Securities"). The Securities will be issued pursuant to an Indenture to be
dated as of March 13, 1998 (the "Indenture"), among the Issuer and each of the
subsidiaries of the Issuer on the Closing Date listed on Schedule I hereto
(collectively, the "Subsidiary Guarantors") and The Bank of New York, as trustee
(the "Trustee"), and will be guaranteed on an
<PAGE>
2
unsecured senior subordinated basis by the Subsidiary Guarantors. The Company
hereby confirms its agreement with Chase Securities Inc. ("CSI") and Bear,
Stearns & Co. Inc. (together with CSI, the "Initial Purchasers") concerning the
purchase of the Securities from the Company by the Initial Purchasers.
The Securities will be offered and sold to the Initial Purchasers without
being registered under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance upon an exemption therefrom. The Company has prepared a
preliminary offering memorandum dated February 24, 1998 (the "Preliminary
Offering Memorandum"), and will prepare an offering memorandum dated the date
hereof (the "Offering Memorandum") setting forth information concerning the
Issuer and the Securities. Copies of the Preliminary Offering Memorandum have
been, and copies of the Offering Memorandum will be, delivered by the Company to
the Initial Purchasers pursuant to the terms of this Agreement. Any references
herein to the Preliminary Offering Memorandum and the Offering Memorandum shall
be deemed to include all amendments and supplements thereto, unless otherwise
noted. The Company hereby confirms that it has authorized the use of the
Preliminary Offering Memorandum and the Offering Memorandum in connection with
the offering and resale of the Securities by the Initial Purchasers in
accordance with Section 2.
Holders of the Securities (including the Initial Purchasers and their
direct and indirect transferees) will be entitled to the benefits of an Exchange
and Registration Rights Agreement, substantially in the form attached hereto as
Annex A (the "Registration Rights Agreement"), pursuant to which the Issuer will
agree to file with the Securities and Exchange Commission (the "Commission") (i)
a registration statement under the Securities Act (the "Exchange Offer
Registration Statement") registering an issue of senior subordinated notes of
the Issuer (the "Exchange Securities") which are identical in all material
respects to the Securities (except that the Exchange Securities will not contain
terms with respect to transfer restrictions) and (ii) under certain
circumstances, a shelf registration statement pursuant to Rule 415 under the
Securities Act (the "Shelf Registration Statement" and together with the
Exchange Offer Registration Statement, the "Registration Statements").
Capitalized terms used but not defined herein shall have the meanings given
to such terms in the Offering Memorandum.
1. Representations, Warranties and Agreements of the Company. The Company
represents and warrants to, and agrees with, the several Initial Purchasers on
and as of the date hereof and the Closing Date (as defined in Section 3) that:
(a) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its respective date, did not, and on the Closing Date the
Offering Memorandum will not, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not
<PAGE>
3
misleading; provided that the Company makes no representation or warranty
as to information contained in or omitted from the Preliminary Offering
Memorandum or the Offering Memorandum in reliance upon and in conformity
with written information relating to the Initial Purchasers furnished to
the Company by or on behalf of any Initial Purchaser specifically for use
therein (the "Initial Purchasers' Information").
(b) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its respective date, contains all the information that,
if requested by a prospective purchaser of the Securities, would be
required to be provided to such prospective purchaser pursuant to Rule
144A(d)(4) under the Securities Act.
(c) Assuming the accuracy of the representations and warranties of the
Initial Purchasers contained in Section 2 and their compliance with the
agreements set forth therein, it is not necessary, in connection with the
issuance and sale of the Securities to the Initial Purchasers and the
offer, resale and delivery of the Securities by the Initial Purchasers in
the manner contemplated by this Agreement and the Offering Memorandum, to
register the Securities under the Securities Act or, prior to the
effectiveness of any Registration Statement, to qualify the Indenture under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
(d) The Company, the Issuer, Imperial, each of Imperial's subsidiaries
and each of the Issuer's subsidiaries have been duly incorporated and are
validly existing as corporations or limited liability companies in good
standing under the laws of their respective jurisdictions of organization,
are duly qualified to do business and are in good standing as foreign
corporations in each jurisdiction in which their respective ownership or
lease of property or the conduct of their respective businesses requires
such qualification, and have all power and authority necessary to own or
hold their respective properties and to conduct the businesses in which
they are engaged, except where the failure so to qualify or have such power
or authority would not, singularly or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), results of
operations, business or prospects of the Issuer, Imperial, Imperial's
subsidiaries and the Issuer's subsidiaries taken as a whole (a "Material
Adverse Effect").
(e) As of the Closing Date and after giving effect to the consummation
of the Transactions, all the outstanding shares of capital stock of the
Issuer will be duly and validly authorized and issued and will be fully
paid and non-assessable; and the capital stock of the Issuer will conform
in all material respects to the description thereof contained in the
Offering Memorandum. All of the outstanding shares of capital stock of each
subsidiary of the Issuer and each subsidiary of Imperial have been duly and
validly authorized and issued, are fully paid and non-assessable and are
owned directly or indirectly by the Issuer or Imperial, as the case may be,
free and
<PAGE>
4
clear of any lien, charge, encumbrance, security interest, restriction upon
voting or transfer or any other claim of any third party, except that the
capital stock of Reebor Limited is 50% owned by the Issuer and 50% owned by
an unrelated party.
(f) The Company has full right, power and authority to execute and
deliver this Agreement, the Recapitalization Agreement and the Imperial
Acquisition Agreement and, as of the Closing Date, the Issuer and each of
the Subsidiary Guarantors will have full right, power and authority to
execute and deliver the Indenture, the Registration Rights Agreement, the
Letter Agreement (as defined in Section 5(r) below) (in the case of the
Issuer and the Subsidiary Guarantors), the Securities (in the case of the
Issuer only) and the Credit Agreement (all the foregoing are collectively
referred to herein as the "Transaction Documents") to which each is a party
and to perform their respective obligations hereunder and thereunder; and
all corporate or limited liability company action required to be taken for
the due and proper authorization, execution and delivery of each of the
Transaction Documents and the consummation of the transactions contemplated
thereby (i) have been duly and validly taken by the Company, and (ii) will
be duly and validly taken on the Closing Date by the Issuer and each of the
Subsidiary Guarantors.
(g) This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a valid and legally binding agreement of the
Company (and will be duly authorized by the Issuer and the Subsidiary
Guarantors and will be the valid and legally binding agreement of the
Issuer and the Subsidiary Guarantors upon the execution and delivery of the
Letter Agreement on the Closing Date).
(h) The Registration Rights Agreement will be duly authorized by the
Issuer and each of the Subsidiary Guarantors on the Closing Date and, when
duly executed and delivered in accordance with its terms by each of the
parties thereto, will constitute a valid and legally binding agreement of
the Issuer and each of the Subsidiary Guarantors enforceable against the
Issuer and each of the Subsidiary Guarantors in accordance with its terms,
except to the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws affecting creditors' rights generally and by general
equitable principles (whether considered in a proceeding in equity or at
law) and except to the extent that the indemnification and contribution
provisions thereof may be unenforceable.
(i) The Indenture will be duly authorized by the Issuer and each of
the Subsidiary Guarantors on the Closing Date and, when duly executed and
delivered in accordance with its terms by each of the parties thereto, will
constitute a valid and legally binding agreement of the Issuer and each of
the Subsidiary Guarantors enforceable against the Issuer and each of the
Subsidiary Guarantors in accordance with its terms, except to the extent
that such enforceability may be limited by
<PAGE>
5
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws affecting creditors' rights generally and
by general equitable principles (whether considered in a proceeding in
equity or at law). On the Closing Date, the Indenture will conform in all
material respects to the requirements of the Trust Indenture Act and the
rules and regulations of the Commission applicable to an indenture that is
qualified thereunder.
(j) The Securities will be duly authorized by the Issuer and each of
the Subsidiary Guarantors on the Closing Date and, when duly executed,
authenticated, issued and delivered as provided in the Indenture and paid
for as provided herein, will be duly and validly issued and outstanding and
will constitute valid and legally binding obligations of the Issuer, as
issuer, and each of the Subsidiary Guarantors, as guarantors, entitled to
the benefits of the Indenture and enforceable against the Issuer, as
issuer, and each of the Subsidiary Guarantors, as guarantors, in accordance
with their terms, except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered in
a proceeding in equity or at law).
(k) The Letter Agreement will be duly authorized by the Issuer and
each of the Subsidiary Guarantors on the Closing Date and when duly
executed and delivered in accordance with the terms thereof, will
constitute the valid and legally binding agreement of the Issuer and each
of the Subsidiary Guarantors, enforceable against the Issuer and each of
the Subsidiary Guarantors in accordance with its terms, except to the
extent such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws affecting creditors' rights generally and by general equitable
principles (whether considered in a proceeding in equity or at law) and
except to the extent that the indemnification and contribution provisions
thereof may be unenforceable.
(l) The Recapitalization Agreement has been duly authorized, executed
and delivered by the Company, the Issuer and Borden and constitutes the
valid and legally binding agreement of the Company, the Issuer and Borden,
enforceable against the Company, the Issuer and Borden in accordance with
its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws affecting creditors' rights generally and
by general equitable principles (whether considered in a proceeding in
equity or at law).
(m) The Imperial Acquisition Agreement has been duly authorized,
executed and delivered by the Company, Imperial and CAPC and constitutes
the valid and legally binding agreement of the Company, Imperial and CAPC
in accordance with its terms, except to the extent that such enforceability
may be
<PAGE>
6
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered in
a proceeding in equity or at law).
(n) The Credit Agreement will be duly executed by the Issuer and
certain of its subsidiaries on the Closing Date and, when duly executed and
delivered in accordance with its terms by each of the parties thereto, will
constitute a valid and legally binding agreement of the Issuer and such
subsidiaries, enforceable against the Issuer and such subsidiaries in
accordance with its terms, except to the extent that such enforceability
may be limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered in
a proceeding in equity or at law).
(o) Each Transaction Document conforms in all material respects to the
description thereof contained in the Offering Memorandum.
(p) The execution, delivery and performance by the Company, the Issuer
and each of the Subsidiary Guarantors of each of the Transaction Documents
to which each is a party, the issuance, authentication, sale and delivery
of the Securities and compliance by the Issuer and each of the Subsidiary
Guarantors with the terms thereof and the consummation of the transactions
contemplated by the Transaction Documents will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company
(other than liens that secure obligations under the Credit Agreement and
the related guarantees), the Issuer, Imperial, any of Imperial's
subsidiaries or any of the Issuer's subsidiaries pursuant to, any
indenture, mortgage, deed of trust, loan agreement or other material
agreement or instrument to which the Company, the Issuer, Imperial, any of
Imperial's subsidiaries or any of the Issuer's subsidiaries is a party or
by which the Company, the Issuer, Imperial, any of Imperial's subsidiaries
or any of the Issuer's subsidiaries is bound or to which any of the
property or assets of the Company, the Issuer, Imperial, any of Imperial's
subsidiaries or any of the Issuer's subsidiaries is subject except for such
conflicts, breaches, violations or defaults that would not have a Material
Adverse Effect or a material adverse effect on the ability of the Company,
the Issuer, Imperial, any of Imperial's subsidiaries or any of the Issuer's
subsidiaries to perform their respective obligations under the Transactions
Documents to which they are a party, nor will such actions result in any
violation of the provisions of the charter or by-laws (or any comparable
organic documents) of the Company, the Issuer, Imperial, any of Imperial's
subsidiaries or any of the Issuer's subsidiaries or (assuming compliance
with all applicable state securities or "Blue Sky" laws and assuming the
accuracy of the representations and warranties of the Initial Purchasers
<PAGE>
7
in Section 2 hereof) any statute or any judgment, order, decree, rule or
regulation of any court or arbitrator or governmental agency or body having
jurisdiction over the Company, the Issuer, Imperial, any of Imperial's
subsidiaries or any of the Issuer's subsidiaries or any of their properties
or assets except for such violations (other than violations of the charter,
by-laws or any comparable organic documents of the Company, the Issuer,
Imperial, any of Imperial's subsidiaries or any of the Issuer's
Subsidiaries) that would not have a Material Adverse Effect or a material
adverse effect on the ability of the Company, the Issuer, Imperial, any of
Imperial's subsidiaries or any of the Issuer's subsidiaries to perform
their respective obligations under the Transaction Documents to which they
are a party; and no consent, approval, authorization or order of, or filing
or registration with, any such court or arbitrator or governmental agency
or body under any such statute, judgment, order, decree, rule or regulation
is required for the execution, delivery and performance by the Company, the
Issuer and each of the Subsidiary Guarantors of each of the Transaction
Documents to which each is a party, the issuance, authentication, sale and
delivery of the Securities and compliance by the Issuer and each of the
Subsidiary Guarantors with the terms thereof and the consummation of the
transactions contemplated by the Transaction Documents, except for such
consents, approvals, authorizations, filings, registrations or
qualifications (i) which shall have been obtained or made prior to the
Closing Date, (ii) as may be required to be obtained or made under the
Securities Act and applicable state securities laws as provided in the
Registration Rights Agreement or under the TIA with respect to
qualification of the Indenture, (iii) required to be made pursuant to the
Credit Agreement or (iv) the failure of which to obtain would not restrain,
prevent or impose burdensome conditions on the transactions contemplated by
the Transaction Documents.
(q)(i) Deloitte & Touche LLP ("D&T") are independent certified public
accountants with respect to the Issuer and its subsidiaries and (ii) Arthur
Andersen LLP ("Arthur Andersen") are independent certified public
accountants with respect to Imperial and its subsidiaries, in each case
within the meaning of Rule 101 of the Code of Professional Conduct of the
American Institute of Certified Public Accountants ("AICPA") and its
interpretations and rulings thereunder. The historical financial statements
(including the related notes) contained in the Offering Memorandum have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods covered thereby and fairly
present, in all material respects, the financial position of the entities
purported to be covered thereby at the respective dates indicated and the
results of their operations and their cash flows for the respective periods
indicated; and the historical financial information contained in the
Offering Memorandum under the headings "Capitalization", "Selected
Historical Financial Information-BDPH", "Selected Historical Financial
Information-Imperial" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are derived from the
<PAGE>
8
accounting records of the Issuer, Imperial, Imperial's subsidiaries and the
Issuer's subsidiaries, as the case may be, and fairly present the
information purported to be shown thereby. The pro forma financial
information contained in the Offering Memorandum has been prepared on a
basis consistent with the historical financial statements contained in the
Offering Memorandum (except for the pro forma adjustments specified therein
and except with respect to the treatment of sample book, design and
engraving costs and expenditures related to cylinder bases), includes all
material adjustments to the historical financial information required by
Rule 11-02 of Regulation S-X under the Securities Act and the Exchange Act
(other than as disclosed in the Offering Memorandum) to reflect the
transactions described in the Offering Memorandum, gives effect to
assumptions made on a reasonable basis and fairly presents the historical
and proposed transactions contemplated by the Offering Memorandum and the
Transaction Documents. The other historical financial and statistical
information and data included in the Offering Memorandum are, in all
material respects, fairly presented.
(r) There are no legal or governmental proceedings pending to which
the Company, the Issuer, Imperial, any of Imperial's subsidiaries or any of
the Issuer's subsidiaries is a party or of which any property or assets of
the Company, the Issuer, Imperial, any of Imperial's subsidiaries or any of
the Issuer's subsidiaries is the subject that, singularly or in the
aggregate, if determined adversely to the Company, the Issuer, Imperial,
any of Imperial's subsidiaries or any of the Issuer's subsidiaries, could
reasonably be expected to have a Material Adverse Effect; and to the best
knowledge of the Company, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(s) No action has been taken and no statute, rule, regulation or order
has been enacted, adopted or issued by any governmental agency or body that
prevents the issuance of the Securities or suspends the sale of the
Securities in any jurisdiction; no injunction, restraining order or order
of any nature by any federal or state court of competent jurisdiction has
been issued with respect to the Company, the Issuer, Imperial, any of
Imperial's subsidiaries or any of the Issuer's subsidiaries that would
prevent or suspend the issuance or sale of the Securities or the use of the
Preliminary Offering Memorandum or the Offering Memorandum in any
jurisdiction; no action, suit or proceeding is pending against or, to the
best knowledge of the Company, threatened against or affecting the Company,
the Issuer, Imperial, any of Imperial's subsidiaries or any of the Issuer's
subsidiaries before any court or arbitrator or any governmental agency,
body or official, domestic or foreign, that could reasonably be expected to
interfere with or adversely affect the issuance of the Securities or in any
manner draw into question the validity or enforceability of any of the
Transaction Documents or any action taken or to be taken pursuant thereto;
and the Company has no knowledge of any request by any securities authority
in any jurisdiction for additional information to be included in the
Preliminary Offering Memorandum and
<PAGE>
9
the Offering Memorandum.
(t) None of the Company, the Issuer, Imperial, any of Imperial's
subsidiaries or any of the Issuer's subsidiaries is (i) in violation of its
charter or by-laws (or other comparable organic documents), (ii) in default
in any material respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition contained in
any material indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which it is a party or by which it is
bound or to which any of its property or assets is subject or (iii) in
violation in any material respect of any law, ordinance, governmental rule,
regulation or court decree to which it or its property or assets may be
subject, other than, in the case of clause (ii) or (iii), such defaults or
violations that would not, singularly or in the aggregate, have a Material
Adverse Effect.
(u) The Company, the Issuer, Imperial, each of Imperial's subsidiaries
and each of the Issuer's subsidiaries possess all material licenses,
certificates, authorizations and permits issued by, and have made all
declarations and filings with, the appropriate federal, state or foreign
regulatory agencies or bodies that are necessary for the ownership of their
respective properties or the conduct of their respective businesses as
described in the Offering Memorandum, except where the failure to possess
or make the same would not, singularly or in the aggregate, have a Material
Adverse Effect, and none of the Company, the Issuer, Imperial, Imperial's
subsidiaries or the Issuer's subsidiaries has received notification of any
revocation or modification of any such license, certificate, authorization
or permit or has any reason to believe that any such license, certificate,
authorization or permit will not be renewed in the ordinary course.
(v) The Issuer, Imperial, each of Imperial's subsidiaries and each of
the Issuer's subsidiaries have filed all federal, state, local and foreign
income and franchise tax returns required to be filed through the date
hereof and have paid all taxes due thereon, except taxes that are being
contested in good faith and for which adequate reserves have been made, and
no tax deficiency has been determined adversely to the Issuer, Imperial,
any of Imperial's subsidiaries or any of the Issuer's subsidiaries that has
had (nor does the Issuer, Imperial, any of Imperial's subsidiaries or any
of the Issuer's subsidiaries have any knowledge of any tax deficiency that,
if determined adversely to the Issuer, Imperial, any of Imperial's
subsidiaries or any of the Issuer's subsidiaries, could reasonably be
expected to have) a Material Adverse Effect.
(w) None of the Company, the Issuer, Imperial, any of Imperial's
subsidiaries or any of the Issuer's subsidiaries is (i) an "investment
company" or a company "controlled by" an investment company within the
meaning of the Investment
<PAGE>
10
Company Act of 1940, as amended (the "Investment Company Act"), and the
rules and regulations of the Commission thereunder or (ii) a "holding
company" or a "subsidiary company" of a holding company or an "affiliate"
thereof within the meaning of the Public Utility Holding Company Act of
1935, as amended.
(x) The Issuer, Imperial, each of Imperial's subsidiaries and each of
the Issuer's subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(y) As of the Closing Date, the Issuer and each of its subsidiaries
will have insurance covering their respective properties, operations,
personnel and businesses, which insurance will be in amounts and will
insure against such losses and risks as are customary for similar
businesses or is required by law. None of the Issuer, Imperial, Imperial's
subsidiaries or the Issuer's subsidiaries has received notice from any
insurer or agent of such insurer that capital improvements or other
expenditures are required or necessary to be made in order to continue such
insurance.
(z) The Issuer, Imperial, each of Imperial's subsidiaries and each of
the Issuer's subsidiaries own or possess adequate rights to use all
material patents, patent applications, trademarks, service marks, trade
names, trademark registrations, service mark registrations, copyrights,
licenses and know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures) necessary for the conduct of their respective businesses; and
the conduct of their respective businesses will not conflict in any
material respect with, and the Issuer, Imperial, Imperial's subsidiaries
and the Issuer's subsidiaries have not received any notice of any claim of
conflict with, any such rights of others, except where such conflicts would
not, singularly or in the aggregate, have a Material Adverse Effect.
(aa) The Issuer, Imperial, each of Imperial's subsidiaries and each of
the Issuer's subsidiaries have good and marketable title in fee simple to,
or have valid rights to lease or otherwise use, all items of real and
personal property that are material to the business of the Issuer,
Imperial, Imperial's subsidiaries and the Issuer's subsidiaries, in each
case free and clear of all liens, encumbrances, claims and defects and
imperfections of title except such as (i) do not materially interfere with
the use made and proposed to be made of such property by the Issuer,
Imperial, Imperial's
<PAGE>
11
subsidiaries and the Issuer's subsidiaries, (ii) are contemplated by the
Transaction Documents or (iii) could not reasonably be expected to have a
Material Adverse Effect.
(bb) No labor disturbance by or dispute with the employees of the
Issuer, Imperial, any of Imperial's subsidiaries or any of the Issuer's
subsidiaries exists or is threatened that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse
Effect.
(cc) No "prohibited transaction" (as defined in Section 406 of the
Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"), or Section
4975 of the Internal Revenue Code of 1986, as amended from time to time
(the "Code")) or "accumulated funding deficiency" (as defined in Section
302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA
(other than events with respect to which the 30-day notice requirement
under Section 4043 of ERISA has been waived) has occurred with respect to
any employee benefit plan of the Issuer, Imperial, any of Imperial's
subsidiaries or any of the Issuer's subsidiaries which could reasonably be
expected to have a Material Adverse Effect; each such employee benefit plan
is in compliance in all material respects with applicable law, including
ERISA and the Code; the Issuer, Imperial, each of Imperial's subsidiaries
and each of the Issuer's subsidiaries have not incurred and do not expect
to incur liability under Title IV of ERISA with respect to the termination
of, or withdrawal from, any pension plan for which the Issuer, Imperial,
any of Imperial's subsidiaries or any of the Issuer's subsidiaries would
have any liability; and each such pension plan that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which could reasonably be expected to cause the loss of such qualification.
(dd) There has been no storage, generation, transportation, handling,
treatment, disposal, discharge, emission or other release of any kind of
toxic or other wastes or other hazardous substances by, due to or caused by
the Issuer, Imperial, any of Imperial's subsidiaries or any of the Issuer's
subsidiaries (or, to the knowledge of the Issuer or Imperial, any other
entity (including any predecessor) for whose acts or omissions the Issuer,
Imperial, any of Imperial's subsidiaries or any of the Issuer's
subsidiaries is or could reasonably be expected to be liable) upon any of
the property now or previously owned or leased by the Issuer, Imperial, any
of Imperial's subsidiaries or any of the Issuer's subsidiaries, or upon any
other property, in violation of any statute or any ordinance, rule,
regulation, order, judgment, decree or permit or that would, under any
statute or any ordinance, rule (including rule of common law), regulation,
order, judgment, decree or permit, give rise to any liability, except for
any violation or liability that could not reasonably be expected to have,
singularly or in the aggregate with all such violations and liabilities, a
Material
<PAGE>
12
Adverse Effect; and there has been no disposal, discharge, emission or
other release of any kind onto such property or into the environment
surrounding such property of any toxic or other wastes or other hazardous
substances with respect to which the Issuer, Imperial, any of Imperial's
subsidiaries or any of the Issuer's subsidiaries has knowledge, except for
any such disposal, discharge, emission or other release of any kind which
could not reasonably be expected to have, singularly or in the aggregate
with all such discharges and other releases, a Material Adverse Effect.
(ee) None of the Issuer, Imperial, any of Imperial's subsidiaries or
any of the Issuer's subsidiaries, to the best knowledge of the Issuer,
Imperial, each of Imperial's subsidiaries and each of the Issuer's
subsidiaries, any director, officer, agent, employee or other person
associated with or acting on behalf of the Issuer, Imperial, any of
Imperial's subsidiaries or any of the Issuer's subsidiaries has (i) used
any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct
or indirect unlawful payment to any foreign or domestic government official
or employee from corporate funds; (iii) violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977; or (iv) made any
bribe, rebate, payoff, influence payment, kickback or other unlawful
payment, in each case that would, singularly or in the aggregate, result in
a Material Adverse Effect.
(ff) On and immediately after the Closing Date, the Issuer (after
giving effect to the issuance of the Securities and to the other
transactions related thereto as described in the Offering Memorandum) will
be Solvent. As used in this paragraph, the term "Solvent" means, with
respect to a particular date, that on such date (i) the present fair market
value (or present fair saleable value) of the assets of the Issuer is not
less than the total amount required to pay the probable liabilities of the
Issuer on its total existing debts and liabilities (including contingent
liabilities) as they become absolute and matured, (ii) the Issuer is able
to realize upon its assets and pay its debts and other liabilities,
contingent obligations and commitments as they mature and become due in the
normal course of business, (iii) assuming the sale of the Securities as
contemplated by this Agreement and the Offering Memorandum, the Issuer is
not incurring debts or liabilities beyond its ability to pay as such debts
and liabilities mature and (iv) the Issuer is not engaged in any business
or transaction, and is not about to engage in any business or transaction,
for which its property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in
which the Issuer is engaged. In computing the amount of such contingent
liabilities at any time, it is intended that such liabilities will be
computed at the amount that, in the light of all the facts and
circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
(gg) Except as described in the Offering Memorandum, as of the Closing
<PAGE>
13
Date there will be no outstanding subscriptions, rights, warrants, calls or
options to acquire, or instruments convertible into or exchangeable for, or
agreements or understandings with respect to the sale or issuance of, any
shares of capital stock of or other equity or other ownership interest in
the Issuer or any of the Issuer's subsidiaries.
(hh) None of the Issuer, Imperial, any of Imperial's subsidiaries or
any of the Issuer's subsidiaries owns any "margin securities" as that term
is defined in Regulations G and U of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"), and none of the proceeds of
the sale of the Securities will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security, for the purpose of
reducing or retiring any indebtedness which was originally incurred to
purchase or carry any margin security or for any other purpose which might
cause any of the Securities to be considered a "purpose credit" within the
meanings of Regulation G, T, U or X of the Federal Reserve Board.
(ii) None of the Company, the Issuer, Imperial, any of Imperial's
subsidiaries or any of the Issuer's subsidiaries is a party to any
contract, agreement or understanding with any person that would give rise
to a valid claim against the Issuer or the Initial Purchasers for a
brokerage commission, finder's fee or like payment in connection with the
offering and sale of the Securities.
(jj) The Securities satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(kk) None of the Company, the Issuer, Imperial, any of their
respective affiliates or any person acting on its or their behalf (other
than the Initial Purchasers) has engaged or will engage in any directed
selling efforts (as such term is defined in Regulation S under the
Securities Act ("Regulation S")), and all such persons have complied and
will comply with the offering restrictions requirement of Regulation S to
the extent applicable.
(ll) None of the Company, the Issuer, Imperial or any of their
respective affiliates has, directly or through any agent, sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of, any
security (as such term is defined in the Securities Act), which is or will
be integrated with the sale of the Securities in a manner that would
require registration of the Securities under the Securities Act.
(mm) Assuming the accuracy of the representations and warranties of
the Initial Purchasers in Section 2, none of the Company, the Issuer,
Imperial, any of their respective affiliates or any person acting on its or
their behalf has engaged, in connection with the offering of the
Securities, in any form of general solicitation or general advertising
within the meaning of Rule 502(c) under the Securities Act.
<PAGE>
14
(nn) There are no securities of the Issuer registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or listed
on a national securities exchange or quoted in a U.S. automated
inter-dealer quotation system.
(oo) None of the Company, the Issuer, Imperial, any of Imperial's
subsidiaries or any of the Issuer's subsidiaries has taken or will take,
directly or indirectly, any action prohibited by Regulation M under the
Exchange Act in connection with the offering of the Securities.
(pp) No forward-looking statement (within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act) contained in the
Preliminary Offering Memorandum or the Offering Memorandum has been made or
reaffirmed without a reasonable basis or has been disclosed other than in
good faith.
(qq) None of the Issuer, Imperial, any of Imperial's subsidiaries or
any of the Issuer's subsidiaries does business with the government of Cuba
or with any person or affiliate located in Cuba within the meaning of
Florida Statutes Section 517.075.
(rr) The Issuer, Imperial, Imperial's subsidiaries and the Issuer's
subsidiaries have implemented a program to analyze and address the risk
that their computer hardware and software may be unable to recognize and
properly execute date-sensitive functions involving certain dates prior to
and any dates after December 31, 1999 (the "Year 2000 Problem") and have
determined that their computer hardware and software will be able to
process all date information prior to and after December 31, 1999 without
any errors, aborts, delays or other interruptions in operations directly
resulting from the Year 2000 Problem.
(ss) Since the date as of which information is given in the Offering
Memorandum, except as otherwise stated therein, (i) there has been no
material adverse change or any development involving a prospective material
adverse change in the condition, financial or otherwise, or in the
earnings, business affairs, management or business prospects of the Issuer,
Imperial, Imperial's subsidiaries and the Issuer's subsidiaries taken as a
whole, (ii) none of the Issuer, Imperial, any of Imperial's subsidiaries or
any of the Issuer's subsidiaries has incurred any material liability or
obligation, direct or contingent, other than in the ordinary course of
business, (iii) none of the Issuer, Imperial, any of Imperial's
subsidiaries or any of the Issuer's subsidiaries has entered into any
material transaction other than in the ordinary course of business and (iv)
there has not been any change in the capital stock or long-term debt of the
Issuer, Imperial, any of Imperial's subsidiaries or any of the Issuer's
subsidiaries, or any dividend or distribution of any kind declared, paid or
made by the Issuer, Imperial, any of Imperial's subsidiaries or any of the
Issuer's subsidiaries on any class of their respective capital stock.
<PAGE>
15
2. Purchase and Resale of the Securities. (a) On the basis of the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the Company agrees to issue and sell to
each of the Initial Purchasers, severally and not jointly, and each of the
Initial Purchasers, severally and not jointly, agrees to purchase from the
Company, the principal amount of Securities set forth opposite the name of such
Initial Purchaser on Schedule II hereto at a purchase price equal to 97% of the
principal amount thereof. The Company shall not be obligated to deliver any of
the Securities except upon payment for all of the Securities to be purchased as
provided herein.
(b) The Initial Purchasers have advised the Company that they propose to
offer the Securities for resale upon the terms and subject to the conditions set
forth herein and in the Offering Memorandum. Each Initial Purchaser, severally
and not jointly, represents and warrants to and agrees with the Company that (i)
it is purchasing the Securities pursuant to a private sale exempt from
registration under the Securities Act, (ii) it has not solicited offers for, or
offered or sold, and will not solicit offers for, or offer or sell, the
Securities by means of any form of general solicitation or general advertising
within the meaning of Rule 502(c) of Regulation D under the Securities Act
("Regulation D") or in any manner involving a public offering within the meaning
of Section 4(2) of the Securities Act and (iii) it has solicited and will
solicit offers for the Securities only from, and has offered or sold and will
offer, sell or deliver the Securities, as part of their initial offering, only
(A) within the United States to persons whom it reasonably believes to be
qualified institutional buyers ("Qualified Institutional Buyers"), as defined in
Rule 144A under the Securities Act ("Rule 144A"), or if any such person is
buying for one or more institutional accounts for which such person is acting as
fiduciary or agent, only when such person has represented to it that each such
account is a Qualified Institutional Buyer to whom notice has been given that
such sale or delivery is being made in reliance on Rule 144A and in each case,
in transactions in accordance with Rule 144A and (B) outside the United States
to persons other than U.S. persons in reliance on Regulation S under the
Securities Act ("Regulation S").
(c) In connection with the offer and sale of Securities in reliance on
Regulation S, each Initial Purchaser, severally and not jointly, represents and
warrants to and agrees with the Company that:
(i) the Securities have not been registered under the Securities Act
and may not be offered or sold within the United States or to, or for the
account or benefit of, U.S. persons except pursuant to an exemption from,
or in transactions not subject to, the registration requirements of the
Securities Act.
(ii) such Initial Purchaser has offered and sold the Securities, and
will offer and sell the Securities, (A) as part of their distribution at
any time and (B) otherwise until 40 days after the later of the
commencement of the offering of the Securities and the Closing Date, only
in accordance with Regulation S or Rule 144A or any other available
exemption from registration under the Securities Act.
<PAGE>
16
(iii) none of such Initial Purchaser or any of its affiliates or any
other person acting on its or their behalf has engaged or will engage in
any directed selling efforts with respect to the Securities, and all such
persons have complied and will comply with the offering restriction
requirements of Regulation S.
(iv) at or prior to the confirmation of sale of any Securities sold in
reliance on Regulation S, it will have sent to each distributor, dealer or
other person receiving a selling concession, fee or other remuneration that
purchases Securities from it during the restricted period a confirmation or
notice to substantially the following effect:
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered or sold within the United States or to, or for the account
or benefit of, U.S. persons (i) as part of their distribution at any
time or (ii) otherwise until 40 days after the later of the
commencement of the offering of the Securities and the date of
original issuance of the Securities, except in accordance with
Regulation S or Rule 144A or any other available exemption from
registration under the Securities Act. Terms used above have the
meanings given to them by Regulation S."
(v) it has not and will not enter into any contractual arrangement
with any distributor with respect to the distribution of the Securities,
except with its affiliates or with the prior written consent of the
Company.
Terms used in this Section 2(c) have the meanings given to them by Regulation S.
(d) Each Initial Purchaser, severally and not jointly, represents and
warrants to and agrees with the Company that (i) it has not offered or sold and
prior to the date six months after the Closing Date will not offer or sell any
Securities to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply with
all applicable provisions of the Financial Services Act 1986 and the Public
Offers of Securities Regulations 1995 with respect to anything done by it in
relation to the Securities in, from or otherwise involving the United Kingdom;
and (iii) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of the
Securities to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996
or is a person to whom such document may otherwise lawfully be issued or passed
on.
(e) Each Initial Purchaser, severally and not jointly, agrees with the
Company
<PAGE>
17
that, prior to or simultaneously with the confirmation of sale by such Initial
Purchaser to any purchaser of any of the Securities purchased by such Initial
Purchaser from the Company pursuant hereto, such Initial Purchaser shall furnish
to that purchaser a copy of the Offering Memorandum (and any amendment or
supplement thereto that the Company shall have furnished to such Initial
Purchaser prior to the date of such confirmation of sale). In addition to the
foregoing, each Initial Purchaser acknowledges and agrees that the Company and,
for purposes of the opinions to be delivered to the Initial Purchasers pursuant
to Sections 5(d) and (e), counsel for the Company and for the Initial
Purchasers, respectively, may rely upon the accuracy of the representations and
warranties of the Initial Purchasers and their compliance with their agreements
contained in this Section 2, and each Initial Purchaser hereby consents to such
reliance.
(f) The Company acknowledges and agrees that the Initial Purchasers may
sell Securities to any affiliate of an Initial Purchaser and that any such
affiliate may sell Securities purchased by it to an Initial Purchaser.
(g) The Initial Purchasers represent and agree that (i) they have not
solicited, and will not solicit, offers to purchase any of the Securities from,
(ii) they have not sold, and will not sell, any of the Securities to, and (iii)
they have not distributed, and will not distribute, the Offering Document to,
any person or entity in any jurisdiction outside of the United States except, in
each case in compliance in all material respects with all applicable laws. For
the purpose of this Agreement, "United States" means the United States of
America, its territories, its possessions and other areas subject to its
jurisdiction.
3. Delivery of and Payment for the Securities. (a) Delivery of and payment
for the Securities shall be made at the offices of Jones, Day, Reavis & Pogue,
New York, New York, or at such other place as shall be agreed upon by the
Initial Purchasers and the Company, at 10:00 A.M., New York City time, on March
13, 1998, or at such other time or date, not later than seven full business days
thereafter, as shall be agreed upon by the Initial Purchasers and the Company
(such date and time of payment and delivery being referred to herein as the
"Closing Date").
(b) On the Closing Date, payment of the purchase price for the Securities
shall be made to the Company by wire or book-entry transfer of same-day funds to
such account or accounts as the Company shall specify prior to the Closing Date
or by such other means as the parties hereto shall agree prior to the Closing
Date against delivery to the Initial Purchasers of the certificates evidencing
the Securities. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligations
of the Initial Purchasers hereunder. Upon delivery, the Securities shall be in
global form, registered in such names and in such denominations as CSI on behalf
of the Initial Purchasers shall have requested in writing not less than two full
business days prior to the Closing Date. The Company agrees to make one or more
global certificates evidencing the Securities available for inspection by CSI on
behalf of the Initial Purchasers
<PAGE>
18
in New York, New York at least 12 hours prior to the Closing Date.
4. Further Agreements of the Company. The Company agrees with each of the
several Initial Purchasers:
(a) to advise the Initial Purchasers promptly and, if requested,
confirm such advice in writing, of the happening of any event which makes
any statement of a material fact made in the Offering Memorandum untrue or
which requires the making of any additions to or changes in the Offering
Memorandum (as amended or supplemented from time to time) in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; to advise the Initial Purchasers promptly after
it becomes aware of any order preventing or suspending the use of the
Preliminary Offering Memorandum or the Offering Memorandum, of any
suspension of the qualification of the Securities for offering or sale in
any jurisdiction and of the initiation or threatening of any proceeding for
any such purpose; and to use its reasonable best efforts to prevent the
issuance of any such order preventing or suspending the use of the
Preliminary Offering Memorandum or the Offering Memorandum or suspending
any such qualification and, if any such suspension is issued, to use its
reasonable best efforts to obtain the lifting thereof at the earliest
possible time;
(b) to furnish promptly to each of the Initial Purchasers and counsel
for the Initial Purchasers, without charge, as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum (and any
amendments or supplements thereto) as may be reasonably requested;
(c) prior to making any amendment or supplement to the Offering
Memorandum, to furnish a copy thereof to each of the Initial Purchasers and
counsel for the Initial Purchasers and not to effect any such amendment or
supplement to which the Initial Purchasers shall reasonably object by
notice to the Company after a reasonable period to review;
(d) if, at any time prior to completion of the resale of the
Securities by the Initial Purchasers, any event shall occur or condition
exist as a result of which it is necessary, in the opinion of counsel for
the Initial Purchasers or counsel for the Company, to amend or supplement
the Offering Memorandum in order that the Offering Memorandum will not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Offering
Memorandum to comply with applicable law, to promptly prepare such
amendment or supplement as may be necessary to correct such untrue
statement or omission or so that the Offering Memorandum, as so amended or
supplemented, will comply with applicable law;
<PAGE>
19
(e) for so long as the Securities are outstanding and are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act,
to furnish to holders of the Securities and prospective purchasers of the
Securities designated by such holders, upon request of such holders or such
prospective purchasers, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act, unless the Company is then
subject to and in compliance with Section 13 or 15(d) of the Exchange Act
(the foregoing agreement being for the benefit of the holders from time to
time of the Securities and prospective purchasers of the Securities
designated by such holders);
(f) for so long as the Securities are outstanding, to furnish to the
Initial Purchasers copies of any annual reports, quarterly reports and
current reports filed by the Company with the Commission on Forms 10-K,
10-Q and 8-K, or such other similar forms as may be designated by the
Commission, and such other documents, reports and information as shall be
furnished by the Company to the Trustee or to the holders of the Securities
pursuant to the Indenture or the Exchange Act or any rule or regulation of
the Commission thereunder;
(g) to promptly take from time to time such actions as the Initial
Purchasers may reasonably request to qualify the Securities for offering
and sale under the securities or Blue Sky laws of such jurisdictions as the
Initial Purchasers may designate and to continue such qualifications in
effect for so long as required for the resale of the Securities; and to
arrange for the determination of the eligibility for investment of the
Securities under the laws of such jurisdictions as the Initial Purchasers
may reasonably request; provided that the Company, the Issuer and the
Issuer's subsidiaries shall not be obligated to qualify as foreign
corporations or limited liability companies in any jurisdiction in which
they are not so qualified or to file a general consent to service of
process in any jurisdiction;
(h) to assist the Initial Purchasers in arranging for the Securities
to be designated Private Offerings, Resales and Trading through Automated
Linkages ("PORTAL") Market securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers, Inc.
("NASD") relating to trading in the PORTAL Market and for the Securities to
be eligible for clearance and settlement through The Depository Trust
Company ("DTC");
(i) not to, and to cause its affiliates not to, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security
(as such term is defined in the Securities Act) that could be integrated
with the sale of the Securities in a manner that would require registration
of the Securities under the Securities Act;
(j) except following the effectiveness of the Exchange Offer
Registration
<PAGE>
20
Statement or the Shelf Registration Statement, as the case may be, not to,
and to cause its affiliates not to, and not to authorize or knowingly
permit any person acting on their behalf to, solicit any offer to buy or
offer to sell the Securities by means of any form of general solicitation
or general advertising within the meaning of Regulation D or in any manner
involving a public offering within the meaning of Section 4(2) of the
Securities Act; and not to offer, sell, contract to sell or otherwise
dispose of, directly or indirectly, any securities under circumstances
where such offer, sale, contract or disposition would cause the exemption
afforded by Section 4(2) of the Securities Act to cease to be applicable to
the offering and sale of the Securities as contemplated by this Agreement
and the Offering Memorandum;
(k) for a period of 240 days from the date of the Offering Memorandum,
not to offer for sale, sell, contract to sell or otherwise dispose of,
directly or indirectly, or file a registration statement for, or announce
any offer, sale, contract for sale of or other disposition of any debt
securities issued or guaranteed by the Issuer, Imperial, any of Imperial's
subsidiaries or any of the Issuer's subsidiaries (other than the Securities
or the Exchange Notes (as defined in the Registration Rights Agreement))
(collectively, the "Sale of Securities") if, not later than five Business
Days (as defined in the Offering Memorandum) following the receipt of
written notice from the Issuer of a proposed Sale of Securities, the
Initial Purchasers notify the Issuer that in their reasonable judgment such
Sale of Securities would impair their ability to market the Securities.
(l) during the period from the Closing Date until two years after the
Closing Date, without the prior written consent of the Initial Purchasers,
not to, and not permit any of its affiliates (as defined in Rule 144 under
the Securities Act) to, resell any of the Securities that have been
reacquired by them, except for Securities purchased by the Company or any
of its affiliates and resold in a transaction registered under the
Securities Act;
(m) not to, for so long as the Securities are outstanding, be or
become, or be or become owned by, an open-end investment company, unit
investment trust or face-amount certificate company that is or is required
to be registered under Section 8 of the Investment Company Act, and to not
be or become, or be or become owned by, a closed-end investment company
required to be registered, but not registered thereunder;
(n) in connection with the offering of the Securities, until CSI on
behalf of the Initial Purchasers shall have notified the Company of the
completion of the resale of the Securities, not to, and to cause its
affiliated purchasers (as defined in Regulation M under the Exchange Act)
not to, either alone or with one or more other persons, bid for or
purchase, for any account in which it or any of its affiliated purchasers
has a beneficial interest, any Securities, or attempt to induce any person
<PAGE>
21
to purchase any Securities; and not to, and to cause its affiliated
purchasers not to, make bids or purchase for the purpose of creating
actual, or apparent, active trading in or of raising the price of the
Securities, except, in each case, as permitted by Regulation M under the
Exchange Act;
(o) in connection with the offering of the Securities, to make its
officers, employees, independent accountants and legal counsel reasonably
available upon request by the Initial Purchasers;
(p) to furnish to each of the Initial Purchasers on the date hereof a
copy of the independent accountants' report included in the Offering
Memorandum signed by the accountants rendering such report;
(q) to do and perform all things required to be done and performed by
it under this Agreement that are within its control prior to, on or after
the Closing Date, and to use its best efforts to satisfy all conditions
precedent on its part to the delivery of the Securities;
(r) to not take any action prior to the execution and delivery of the
Indenture that, if taken after such execution and delivery, would have
violated any of the covenants contained in the Indenture;
(s) prior to the Closing Date, not to issue any press release or other
communication directly or indirectly or hold any press conference with
respect to the Company, its condition, financial or otherwise, or earnings,
business affairs or business prospects (except for routine oral marketing
communications in the ordinary course of business and consistent with the
past practices of the Company and of which the Initial Purchasers are
notified), without the prior written consent of the Initial Purchasers,
unless in the judgment of the Company and its counsel, and after
notification to the Initial Purchasers, such press release or communication
is required by law; and
(t) to apply the net proceeds from the sale of the Securities as set
forth in the Offering Memorandum under the heading "Use of Proceeds".
5. Conditions of Initial Purchasers' Obligations. The respective
obligations of the several Initial Purchasers hereunder are subject to the
accuracy in all material respects, on and as of the date hereof and the Closing
Date, of the representations and warranties of the Company contained herein and
of the Issuer and the Subsidiary Guarantors contained in the Letter Agreement,
to the accuracy of the statements of the Issuer and each of the Subsidiary
Guarantors and their respective officers made in any certificates delivered
pursuant hereto, to the performance by the Company of its obligations hereunder,
and to each of the following additional terms and conditions:
<PAGE>
22
(a) The Offering Memorandum (and any amendments or supplements
thereto) shall have been printed and copies distributed to the Initial
Purchasers as promptly as practicable on or following the date of this
Agreement or at such other date and time as to which the Initial Purchasers
may agree; and no stop order suspending the sale of the Securities in any
jurisdiction shall have been issued and no proceeding for that purpose
shall have been commenced or shall be pending or threatened.
(b) None of the Initial Purchasers shall have discovered and disclosed
to the Company on or prior to the Closing Date that the Offering Memorandum
or any amendment or supplement thereto contains an untrue statement of a
fact that, in the opinion of counsel for the Initial Purchasers, is
material or omits to state any fact which, in the opinion of such counsel,
is material and is required to be stated therein or is necessary to make
the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of each of the Transaction Documents and
the Offering Memorandum, and all other legal matters relating to the
Transaction Documents and the transactions contemplated thereby, shall be
reasonably satisfactory in all material respects to the Initial Purchasers,
and the Company, the Issuer and the Subsidiary Guarantors shall have
furnished to the Initial Purchasers and their counsel all documents and
information that they or their counsel may reasonably request to enable
them to pass upon such matters.
(d) Jones, Day, Reavis & Pogue shall have furnished to the Initial
Purchasers their written opinion, as counsel to the Company, the Issuer and
the Subsidiary Guarantors, addressed to the Initial Purchasers and dated
the Closing Date, in form and substance to be agreed upon.
(e) The Initial Purchasers shall have received from Cravath, Swaine &
Moore, counsel for the Initial Purchasers, such opinion or opinions, dated
the Closing Date, with respect to such matters as the Initial Purchasers
may reasonably require, and the Company shall have furnished to such
counsel such documents and information as they reasonably request for the
purpose of enabling them to pass upon such matters.
(f) The Company shall have furnished to the Initial Purchasers a
letter (each, an "Initial Letter") of each of D&T and Arthur Andersen,
addressed to the Initial Purchasers and dated the date hereof, in form and
substance satisfactory to the Initial Purchasers, substantially to the
effect set forth in Annex B-1 and B-2, respectively, hereto.
<PAGE>
23
(g) The Company shall have furnished to the Initial Purchasers (i) a
letter (the "D&T Bring-Down Letter") of D&T and (ii) a letter (the "Arthur
Andersen Bring- Down Letter" and, together with the D&T Bring-Down Letter,
the "Bring-Down Letters") of Arthur Andersen, in each case, addressed to
the Initial Purchasers and dated the Closing Date (i) confirming that
before giving effect to the Recapitalization and the Imperial Acquisition
(A) in the case of D&T, they are independent public accountants with
respect to the Issuer and its subsidiaries and (B) in the case of Arthur
Andersen, they are independent public accountants with respect to Imperial
and its subsidiaries, in each case within the meaning of Rule 101 of the
Code of Professional Conduct of the AICPA and its interpretations and
rulings thereunder, (ii) stating, as of the date of the Bring-Down Letters
(or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in
the Offering Memorandum, as of a date not more than three business days
prior to the date of the Bring-Down Letters), that the conclusions and
findings of such accountants with respect to the financial information and
other matters covered by the Initial Letter furnished by D&T or Arthur
Andersen, as the case may be, are accurate and (iii) confirming in all
material respects the conclusions and findings set forth in such Initial
Letter.
(h) The Issuer shall have furnished to the Initial Purchasers a
certificate, dated the Closing Date, of its chief executive officer and
chief financial officer stating that (A) such officers have carefully
examined the Offering Memorandum, (B) in their opinion, the Offering
Memorandum, as of its date, did not include any untrue statement of a
material fact and did not omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and
since the date of the Offering Memorandum, no event has occurred that
should have been set forth in a supplement or amendment to the Offering
Memorandum so that the Offering Memorandum (as so amended or supplemented)
would not include any untrue statement of a material fact and would not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, (C) as of the Closing Date, the
representations and warranties of the Company in this Agreement are true
and correct in all material respects, the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder on or prior to the Closing Date, (D) as of the Closing
Date, the representations and warranties of the Issuer and the Subsidiary
Guarantors in the Letter Agreement are true and correct in all material
respects, the Issuer and the Subsidiary Guarantors have complied with all
agreements and satisfied all conditions on their part to be performed or
satisfied thereunder on or prior to the Closing Date and (E) subsequent to
the date of the most recent financial statements contained in the Offering
Memorandum, there has been no material adverse change in the financial
position or results of operation of the Issuer, Imperial or any of their
respective subsidiaries, or
<PAGE>
24
any change, or any development including a prospective change, in or
affecting the condition (financial or otherwise), results of operations,
business or prospects of the Issuer, Imperial and their respective
subsidiaries taken as a whole.
(i) The Initial Purchasers shall have received a counterpart of the
Registration Rights Agreement which shall have been executed and delivered
by a duly authorized officer of the Issuer and each Subsidiary Guarantor.
(j) The Indenture shall have been duly executed and delivered by the
Issuer, the Subsidiary Guarantors and the Trustee, and the Securities shall
have been duly executed and delivered by the Issuer and duly authenticated
by the Trustee.
(k) The Securities shall have been approved by the NASD for trading in
the PORTAL Market.
(l) If any event shall have occurred that requires the Company under
Section 4(d) to prepare an amendment or supplement to the Offering
Memorandum, such amendment or supplement shall have been prepared, the
Initial Purchasers shall have been given a reasonable opportunity to
comment thereon, and copies thereof shall have been delivered to the extent
practicable to the Initial Purchasers reasonably in advance of the Closing
Date.
(m) There shall not have occurred any invalidation of Rule 144A under
the Securities Act by any court or any withdrawal or proposed withdrawal of
any rule or regulation under the Securities Act or the Exchange Act by the
Commission or any amendment or proposed amendment thereof by the Commission
that in the reasonable judgment of the Initial Purchasers would materially
impair the ability of the Initial Purchasers to purchase, hold or effect
resales of the Securities as contemplated hereby.
(n) Subsequent to the execution and delivery of this Agreement or, if
earlier, the dates as of which information is given in the Offering
Memorandum (exclusive of any amendment or supplement thereto), there shall
not have been any change in the capital stock or long-term debt or any
change, or any development involving a prospective change, in or affecting
the condition (financial or otherwise), results of operations, business or
prospects of the Issuer, Imperial, Imperial's subsidiaries and the Issuer's
subsidiaries taken as a whole, the effect of which, in any such case
described above, is, in the reasonable judgment of the Initial Purchasers,
so material and adverse as to make it impracticable or inadvisable to
proceed with the sale or delivery of the Securities on the terms and in the
manner contemplated by this Agreement and the Offering Memorandum
(exclusive of any amendment or supplement thereto).
<PAGE>
25
(o) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency or body that would, as of the Closing Date, prevent the issuance or
sale of the Securities; and no injunction, restraining order or order of
any other nature by any federal or state court of competent jurisdiction
shall have been issued as of the Closing Date which would prevent the
issuance or sale of the Securities.
(p) Subsequent to the execution and delivery of this Agreement (i) no
downgrading shall have occurred in the rating accorded the Securities or
any of the Issuer's other debt securities or preferred stock by any
"nationally recognized statistical rating organization", as such term is
defined by the Commission for purposes of Rule 436(g)(2) of the rules and
regulations of the Commission under the Securities Act and (ii) no such
organization shall have publicly announced that it has under surveillance
or review (other than an announcement with positive implications of a
possible upgrading), its rating of the Securities or any of the Issuer's
other debt securities or preferred stock.
(q) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or
the over-the-counter market shall have been suspended or limited, or
minimum prices shall have been established on any such exchange or market
by the Commission, by any such exchange or by any other regulatory body or
governmental authority having jurisdiction, or trading in any securities of
the Issuer on any exchange or in the over-the-counter market shall have
been suspended or (ii) any moratorium on commercial banking activities
shall have been declared by federal or New York state authorities or (iii)
an outbreak or escalation of hostilities involving the U.S. or a
declaration by the United States of a national emergency or war or (iv) a
material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) the effect of which, in the
case of this clause (iv), is, in the judgment of the Initial Purchasers, so
material and adverse as to make it impracticable or inadvisable to proceed
with the sale or the delivery of the Securities on the terms and in the
manner contemplated by this Agreement and in the Offering Memorandum
(exclusive of any amendment or supplement thereto).
(r) Substantially simultaneously with the sale of the Securities
hereunder (i) the Recapitalization shall have been consummated on the terms
described in the Offering Memorandum, (ii) the Imperial Acquisition shall
have been consummated on the terms described in the Offering Memorandum,
(iii) the Credit Agreement shall have been executed and delivered and the
initial borrowings thereunder shall have been made and (iv) the Initial
Purchasers shall have received counterparts of an agreement in the form of
Annex C hereto (the "Letter Agreement") that shall have
<PAGE>
26
been executed and delivered by a duly authorized officer of the Issuer and
each Subsidiary Guarantor, whereby, among other things, the Issuer and each
Subsidiary Guarantor will become party to this Agreement and be subject to
the obligations and entitled to the rights and benefits of the Company
under this Agreement, including, but not limited to, those set forth under
Sections 2, 4, 8, 9, 10, 11, 12 and 13 hereof.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchasers.
6. Termination. The obligations of the Initial Purchasers hereunder may be
terminated by the Initial Purchasers, in their absolute discretion, by notice
given to and received by the Company prior to delivery of and payment for the
Securities if, prior to that time, any of the events described in Section 5(m),
(n), (o), (p) or (q) shall have occurred and be continuing.
7. Defaulting Initial Purchasers. (a) If, on the Closing Date, any Initial
Purchaser defaults in the performance of its obligations under this Agreement,
the non-defaulting Initial Purchasers may make arrangements for the purchase of
the Securities (the "Unpurchased Securities") which such defaulting Initial
Purchaser agreed but failed to purchase by other persons satisfactory to the
Company and the non-defaulting Initial Purchasers, but if no such arrangements
are made within 36 hours after such default, then the Issuer shall be entitled
to a further period of 36 hours within which to procure another party or parties
reasonably satisfactory to the non-defaulting Initial Purchaser to purchase such
Unpurchased Securities upon such terms herein set forth. If, however, the
non-defaulting Initial Purchaser shall not have completed such arrangements
within 36 hours after such default or the Issuer has not completed such
arrangements within 72 hours after such default, as the case may be, then this
Agreement shall terminate without liability on the part of the non-defaulting
Initial Purchasers or the Company, except that the Company will continue to be
liable for the payment of expenses to the extent set forth in Sections 8 and 12
and except that the provisions of Sections 9 and 10 shall not terminate and
shall remain in effect. As used in this Agreement, the term "Initial Purchasers"
includes, for all purposes of this Agreement unless the context otherwise
requires, any party not listed in Schedule II hereto that, pursuant to this
Section 7, purchases Securities which a defaulting Initial Purchaser agreed but
failed to purchase.
(b) Nothing contained herein shall relieve a defaulting Initial Purchaser
of any liability it may have to the Company or any non-defaulting Initial
Purchaser for damages caused by its default. If other persons are obligated or
agree to purchase the Securities of a defaulting Initial Purchaser, either the
non-defaulting Initial Purchasers or the Company may postpone the Closing Date
for up to seven full business days in order to effect any changes that in the
opinion of counsel for the Company or counsel for the Initial Purchasers may be
necessary in the Offering Memorandum or in any other document or arrangement,
and the
<PAGE>
27
Company agrees promptly to prepare any amendment or supplement to the Offering
Memorandum that effects any such changes.
8. Reimbursement of Initial Purchasers' Expenses. If (a) this Agreement
shall have been terminated in accordance with Section 6 or 7, (b) the Company
shall fail to tender the Securities for delivery to the Initial Purchasers for
any reason permitted under this Agreement or (c) the Initial Purchasers shall
decline to purchase the Securities for any reason permitted under this
Agreement, the Company shall reimburse the Initial Purchasers for such
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
as shall have been reasonably incurred by the Initial Purchasers in connection
with this Agreement and the proposed purchase and resale of the Securities. If
this Agreement is terminated pursuant to Section 7 by reason of the default of
one or more of the Initial Purchasers, the Company shall not be obligated to
reimburse any defaulting Initial Purchaser on account of such expenses.
9. Indemnification. (a) The Company shall indemnify and hold harmless each
Initial Purchaser, its affiliates, their respective officers, directors,
employees, representatives and agents, and each person, if any, who controls any
Initial Purchaser within the meaning of the Securities Act or the Exchange Act
(collectively referred to for purposes of this Section 9(a) and Section 10 as an
Initial Purchaser), from and against any loss, claim, damage or liability, joint
or several, or any action in respect thereof (including, without limitation, any
loss, claim, damage, liability or action relating to purchases and sales of the
Securities), to which that Initial Purchaser may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act, any other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in the Preliminary Offering Memorandum or the Offering Memorandum
or in any amendment or supplement thereto or in any information provided by the
Company pursuant to Section 4(e) or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and shall reimburse each Initial Purchaser
promptly upon demand for any legal or other expenses reasonably incurred by that
Initial Purchaser in connection with investigating or defending or preparing to
defend against or appearing as a third party witness in connection with any such
loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, an untrue statement or alleged untrue statement in or omission or
alleged omission from any of such documents in reliance upon and in conformity
with any Initial Purchasers' Information; and provided, further, that with
respect to any such untrue statement in or omission from the Preliminary
Offering Memorandum, the indemnity agreement contained in this Section 9(a)
shall not inure to the benefit of any such Initial Purchaser to the extent that
the sale to the person asserting any such loss, claim, damage, liability or
action was an
<PAGE>
28
initial resale by such Initial Purchaser and any such loss, claim, damage,
liability or action of or with respect to such Initial Purchaser results from
the fact that both (A) to the extent required by applicable law, a copy of the
Offering Memorandum was not sent or given to such person at or prior to the
written confirmation of the sale of such Securities to such person and (B) the
untrue statement in or omission from the Preliminary Offering Memorandum was
corrected in the Offering Memorandum unless, such failure to deliver the
Offering Memorandum was a result of non-compliance by the Company with Section
4(b).
(b) Each Initial Purchaser, severally and not jointly, shall indemnify and
hold harmless the Company, its affiliates, their respective officers, directors,
employees, representatives and agents, and each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act
(collectively referred to for purposes of this Section 9(b) and Section 10 as
the Company), from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company may become
subject, whether commenced or threatened, under the Securities Act, the Exchange
Act, any other federal or state statutory law or regulation, at common law or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in the Preliminary Offering Memorandum or the Offering
Memorandum or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, but in each case only
to the extent that the untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with any Initial
Purchasers' Information, and shall reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending or preparing to defend against or appearing as a third party witness
in connection with any such loss, claim, damage, liability or action as such
expenses are incurred.
(c) Promptly after receipt by an indemnified party under this Section 9 of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party pursuant to Section 9(a) or 9(b), notify the indemnifying party in writing
of the claim or the commencement of that action; provided, however, that the
failure to notify the indemnifying party shall not relieve it from any liability
that it may have under this Section 9 except to the extent that it has been
materially prejudiced (through the forfeiture of substantive rights or defenses)
by such failure; and, provided, further, that the failure to notify the
indemnifying party shall not relieve it from any liability that it may have to
an indemnified party otherwise than under this Section 9. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its
<PAGE>
29
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 9 for any legal
or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation; provided,
however, that an indemnified party shall have the right to employ its own
counsel in any such action, but the fees, expenses and other charges of such
counsel for the indemnified party will be at the expense of such indemnified
party unless (1) the employment of counsel by the indemnified party has been
authorized in writing by the indemnifying party, (2) the indemnified party has
reasonably concluded (based upon advice of counsel to the indemnified party)
that there may be legal defenses available to it or other indemnified parties
that are different from or in addition to those available to the indemnifying
party, (3) a conflict or potential conflict exists (based upon advice of counsel
to the indemnified party) between the indemnified party and the indemnifying
party (in which case the indemnifying party will not have the right to direct
the defense of such action on behalf of the indemnified party) or (4) the
indemnifying party has not in fact employed counsel reasonably satisfactory to
the indemnified party to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm of attorneys (in
addition to any local counsel) at any one time for all such indemnified party or
parties. Each indemnified party, as a condition of the indemnity agreements
contained in Sections 9(a) and 9(b), shall use all reasonable efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party (which
consent shall not be unreasonably withheld), effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
reasonably could be expected to be a party and indemnity could have been sought
hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
The obligations of the Company and the Initial Purchasers in this Section 9
and in Section 10 are in addition to any other liability that the Company or the
Initial Purchasers, as the case may be, may otherwise have, including in respect
of any breaches of representations, warranties and agreements made herein by any
such party.
10. Contribution. If the indemnification provided for in Section 9 is
unavailable or insufficient to hold harmless an indemnified party under Section
9(a) or 9(b)
<PAGE>
30
otherwise than as a result of the limitations therein contained, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Initial Purchasers on the other
from the offering of the Securities or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the Initial
Purchasers on the other with respect to the statements or omissions that
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Initial Purchasers on the other
with respect to such offering shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Securities purchased under this
Agreement (before deducting expenses) received by or on behalf of the Company,
on the one hand, and the total discounts and commissions received by the Initial
Purchasers with respect to the Securities purchased under this Agreement, on the
other, bear to the total gross proceeds from the sale of the Securities under
this Agreement, in each case as set forth in the table on the cover page of the
Offering Memorandum. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to the
Company or information supplied by the Company on the one hand or to any Initial
Purchasers' Information on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company and the Initial Purchasers agree
that it would not be just and equitable if contributions pursuant to this
Section 10 were to be determined by pro rata allocation (even if the Initial
Purchasers were treated as one entity for such purpose) or by any other method
of allocation that does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, damage or liability, or action in respect thereof,
referred to above in this Section 10 shall be deemed to include, for purposes of
this Section 10, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending or preparing to
defend any such action or claim. Notwithstanding the provisions of this Section
10, no Initial Purchaser shall be required to contribute any amount in excess of
the amount by which the total discounts and commissions received by such Initial
Purchaser with respect to the Securities purchased by it under this Agreement
exceeds the amount of any damages which such Initial Purchaser has otherwise
paid or become liable to pay by reason of any untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Initial Purchasers' obligations to contribute
as provided in this Section 10 are several in proportion to their respective
purchase obligations and not joint.
<PAGE>
31
11. Persons Entitled to Benefit of Agreement. This Agreement shall inure to
the benefit of and be binding upon the Initial Purchasers, the Company and their
respective successors. This Agreement and the terms and provisions hereof are
for the sole benefit of only those persons, except as provided in Sections 9 and
10 with respect to affiliates, officers, directors, employees, representatives,
agents and controlling persons of the Company and the Initial Purchasers and in
Section 4(e) with respect to holders and prospective purchasers of the
Securities. Nothing in this Agreement is intended or shall be construed to give
any person, other than the persons referred to in this Section 11, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
12. Expenses. The Company agrees with the Initial Purchasers to pay (a) the
costs incident to the authorization, issuance, sale, preparation and delivery of
the Securities to the Initial Purchasers and any taxes payable in that
connection; (b) the costs incident to the preparation, printing and distribution
of the Preliminary Offering Memorandum, the Offering Memorandum and any
amendments or supplements thereto; (c) the costs of reproducing and distributing
each of the Transaction Documents; (d) the costs incident to the preparation,
printing and delivery of the certificates evidencing the Securities, including
stamp duties and transfer taxes, if any, payable upon issuance of the Securities
to the Initial Purchasers; (e) the fees and expenses of the Company's counsel
and independent accountants; (f) the fees and expenses of qualifying the
Securities under the securities laws of the several jurisdictions as provided in
Section 4(h) and of preparing, printing and distributing Blue Sky Memoranda
(including related fees and expenses of counsel for the Initial Purchasers) as
herein provided; (g) any fees charged by rating agencies for rating the
Securities; (h) the fees and expenses of the Trustee and any paying agent
(including related fees and expenses of any counsel to such parties) in
connection with the Indenture and the Securities ; (i) all expenses and
application fees incurred in connection with the application for the inclusion
of the Securities on the PORTAL Market and the approval of the Securities for
book-entry transfer by DTC; and (j) all other costs and expenses incident to the
performance of the obligations of the Company under this Agreement which are not
otherwise specifically provided for in this Section 12; provided, however, that
except as provided in this Section 12 and Section 8, the Initial Purchasers
shall pay their own costs and expenses.
13. Survival. The respective indemnities, rights of contribution,
representations, warranties and agreements of the Company and the Initial
Purchasers contained in this Agreement or made by or on behalf of the Company or
the Initial Purchasers pursuant to this Agreement or any certificate delivered
pursuant hereto shall survive the delivery of and payment for the Securities and
shall remain in full force and effect, regardless of any termination or
cancelation of this Agreement (except as provided in Sections 7 and 8) or any
investigation made by or on behalf of any of them or any of their respective
affiliates, officers, directors, employees, representatives, agents or
controlling persons.
<PAGE>
32
14. Notices, etc.. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be delivered or sent by mail
or telecopy transmission to Chase Securities Inc., 270 Park Avenue, New
York, New York 10017, Attention: Mr. James C. Neary (telecopier no.: (212)
270-0994); or
(b) if to the Company, shall be delivered or sent by mail or telecopy
transmission to the address of the Company set forth in the Offering
Memorandum, Attention: Mr. Bill Fenstermaker (telecopier no.: (216)
765-8677) with a copy to Mr. David Blitzer, The Blackstone Group, 345 Park
Avenue, New York, New York 10154 (telecopier no.: (212) 754-8710);
provided that any notice to an Initial Purchaser pursuant to Section 9(c) shall
also be delivered or sent by mail to such Initial Purchaser at its address set
forth on the signature page hereof. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Initial Purchasers by CSI.
15. Definition of Terms. For purposes of this Agreement, (a) the term
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405
under the Securities Act and (c) except where otherwise expressly provided, the
term "affiliate" has the meaning set forth in Rule 405 under the Securities Act.
16. Initial Purchasers' Information. The parties hereto acknowledge and
agree that, for all purposes of this Agreement, the Initial Purchasers'
Information consists solely of the following information in the Preliminary
Offering Memorandum and the Offering Memorandum: (i) the last paragraph on the
front cover page concerning the terms of the offering by the Initial Purchasers;
(ii) the legend on the inside front cover page concerning over-allotment and
trading activities by the Initial Purchasers; and (iii) the statements
concerning the Initial Purchasers contained in the third, fourth, fifth,
seventh, ninth, twelfth and thirteenth paragraphs under the heading "Plan of
Distribution".
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
18. Counterparts. This Agreement may be executed in one or more
counterparts (which may include counterparts delivered by telecopier) and, if
executed in more than one counterpart, the executed counterparts shall each be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
<PAGE>
33
19. Amendments. No amendment or waiver of any provision of this Agreement,
nor any consent or approval to any departure therefrom, shall in any event be
effective unless the same shall be in writing and signed by the parties hereto.
20. Headings. The headings herein are inserted for convenience of reference
only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE>
34
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us a counterpart hereof, whereupon this instrument
will become a binding agreement between the Company and the several Initial
Purchasers in accordance with its terms.
Very truly yours,
BDPI HOLDINGS CORPORATION,
By______________________________
Name:
Title:
Accepted:
CHASE SECURITIES INC.
By____________________________
Authorized Signatory
Address for notices pursuant to Section 9(c):
1 Chase Plaza, 25th floor
New York, New York 10081
Attention: Legal Department
BEAR, STEARNS & CO. INC.,
By____________________________
Authorized Signatory
Address for notices pursuant to Section 9(c):
245 Park Avenue
New York, NY 10167
Attention: Mr. Gerry Dorros
<PAGE>
SCHEDULE I
Subsidiary Guarantors
The Imperial Home Decor Group (US) LLC
Marketing Service, Inc.
Vernon Plastics, Inc.
WDP Investments, Inc.
Imperial Home Decor Group Holdings I Limited
<PAGE>
SCHEDULE II
Principal Amount
Initial Purchasers of Securities
- ------------------ -------------
Chase Securities $ 93,750,000
Bear, Stearns & Co. Inc. 31,250,000
------------
Total $125,000,000
------------
<PAGE>
ANNEX A
[Form of Exchange and Registration Rights Agreement]
<PAGE>
ANNEX C
March 13, 1998
CHASE SECURITIES INC.
BEAR, STEARNS & CO. INC.
c/o Chase Securities Inc.
270 Park Avenue
New York, NY 10017
Dear Sirs:
Reference is hereby made to the Purchase Agreement dated March 11, 1998
(the "Purchase Agreement"), among BDPI Holdings Corporation, a Delaware
corporation (the "Company"), and each of you pursuant to which the Company has
agreed to issue and sell and each of you have agreed to purchase the Securities
described therein on the terms set forth therein. Capitalized terms used herein
but not otherwise defined herein have meanings assigned thereto in the Purchase
Agreement (including by reference therein to the Offering Memorandum). This is
the letter agreement referred to in Section 5(r) of the Purchase Agreement.
The parties hereto agree that this Letter Agreement is being executed and
delivered in connection with the issue and sale of the Securities pursuant to
the Purchase Agreement, in order to confirm the obligations of The Imperial Home
Decor Group Inc., a Delaware corporation formerly known as Borden Decorative
Products Holdings, Inc. (the "Issuer"), and each of the Subsidiary Guarantors
identified on Schedule I thereto, with respect to the Purchase Agreement and the
Securities after the consummation of the Recapitalization and the Imperial
Acquisition and to induce each of the Initial Purchasers to purchase the
Securities thereunder.
The Issuer and the Subsidiary Guarantors hereby confirm their agreement
with each of you as follows:
SECTION 1. In accordance with Section 5(r) of the Purchase Agreement, the
Issuer and the Subsidiary Guarantors by their respective signatures below each
hereby become a party to the Purchase Agreement with the same force and effect
as if originally named therein as a party and the Issuer and the Subsidiary
Guarantors hereby agree to become bound by and become entitled to the rights and
benefits afforded by all the terms and provisions of the Purchase Agreement
applicable to the Company thereunder including, but not limited to, under
Sections 2, 4, 8, 9, 10, 11, 12 and 13 thereof.
SECTION 2. The Issuer and the Subsidiary Guarantors hereby represent and
warrant to, and agree with each of you as of the date hereof that:
<PAGE>
2
(a) the Issuer and each of the Subsidiary Guarantors have full right,
power and authority to execute and deliver this Letter Agreement and
perform their respective obligations hereunder and all corporate or limited
liability company action required to be taken by each of them for the due
and proper authorization, execution, delivery and performance of this
Letter Agreement and the consummation of the transactions contemplated
hereby has been duly and validly taken and this Letter Agreement has been
duly authorized and validly executed and delivered by the Issuer and each
of the Subsidiary Guarantors and is the valid and legally binding agreement
of the Issuer and each of the Subsidiary Guarantors enforceable against the
Issuer and each of the Subsidiary Guarantors in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity) and
except to the extent that the indemnification and contribution provisions
thereof may be unenforceable; and
(b) the representations, warranties and agreements as to the Issuer
and the Subsidiary Guarantors set forth in Section 1 of the Purchase
Agreement are true and accurate in all material respects on the date hereof
and each reference therein to the knowledge of the Company shall be deemed
to be a reference to the knowledge of the Issuer and the Subsidiary
Guarantors, as the case may be.
SECTION 3. THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 4. This Letter Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument.
<PAGE>
3
SECTION 5. The headings herein are inserted for convenience of reference
only and are not intended to be part of, or to affect the meaning or
interpretation of, this Letter Agreement.
Very truly yours,
THE IMPERIAL HOME DECOR GROUP
INC.
By ______________________
Name:
Title:
THE IMPERIAL HOME DECOR GROUP
(US) LLC,
By ______________________
Name:
Title:
MARKETING SERVICE, INC.,
By ______________________
Name:
Title:
VERNON PLASTICS, INC.,
By ______________________
Name:
Title:
WDP INVESTMENTS, INC.,
By ______________________
Name:
Title:
<PAGE>
4
IMPERIAL HOME DECOR GROUP
HOLDINGS I LIMITED,
By ______________________
Name:
Title:
<PAGE>
RECAPITALIZATION AGREEMENT
Recapitalization Agreement, dated as of October 14, 1997 (hereinafter
"Agreement"), among BORDEN, INC., a New Jersey corporation ("Borden"), BORDEN
DECORATIVE PRODUCTS HOLDINGS, INC., a Delaware corporation and an indirect
wholly owned subsidiary of Borden ("BDPH"), and BDPI HOLDINGS CORPORATION, a
Delaware corporation ("MergerCo").
W I T N E S S E T H:
WHEREAS, BDH One, Inc. ("BDH One"), a Delaware corporation, and certain
members of management of BDPH ("BDPH Management") (collectively, the
"Stockholders"), own all of the issued and outstanding shares of capital stock
of BDPH;
WHEREAS, Borden and certain of its direct and indirect subsidiaries are
presently engaged in the business of the development, production, marketing,
distribution and sale of certain paper and vinyl decorative surface products and
coordinating fabrics and accessories for residential, commercial and industrial
applications (the "Products") primarily in North America, the United Kingdom and
the Far East (which business, which does not include the commercial
wallcoverings and industrial decorative products businesses of Borden's Columbus
Coated Fabrics division or Borden's Orchard division (including The Orchard
Company), is hereinafter referred to as the "Business");
WHEREAS, the parties desire Borden to cause a newly formed unlimited
liability company organized under the laws of Nova Scotia, Canada (the "BDPH
Canadian Subsidiary"), that is a wholly owned subsidiary of Borden Company
Limited, a company organized under the
1
<PAGE>
laws of Canada ("BCL" or the "Asset Seller"), subject to the terms and
conditions of this Agreement, to own certain of the assets and assume certain of
the liabilities of BCL as provided in Article 2 hereof (such transfer, the
"Asset Transfer");
WHEREAS, immediately following the Asset Transfer, Borden will cause BCL to
transfer all of the capital stock of the BDPH Canadian Subsidiary to BDPH (the
"Stock Transfer");
WHEREAS, immediately after the Stock Transfer, MergerCo and BDPH intend to
effect the merger of MergerCo with and into BDPH (the "Merger") in accordance
with the Delaware General Corporation Law (the "DGCL") and the provisions of
this Agreement, pursuant to which each share of common stock, par value $0.01
per share, of BDPH (the "BDPH Common Stock"), and each share of preferred stock,
par value $0.01 per share, of BDPH (the "BDPH Preferred Stock" and, together
with the BDPH Common Stock, the "BDPH Capital Stock"), issued and outstanding
immediately prior to the Effective Time of the Merger (as defined in Section
3.2) will be converted, retained or cancelled as set forth in Article 4 hereof;
and
WHEREAS, it is intended that the Merger be accounted for as a
recapitalization for financial reporting purposes.
NOW, THEREFORE, in consideration of the premises, representations and
warranties and the mutual covenants and agreements contained herein and other
good, valuable and sufficient consideration, the receipt of which is hereby
acknowledged, each of the parties, intending to be legally bound, hereby agrees
as follows:
2
<PAGE>
1. [Intentionally Omitted]
2. OWNERSHIP OF ASSETS AND ASSUMPTION OF LIABILITIES
2.1 Transfer of Assets
Subject to the satisfaction or waiver of the conditions set forth in this
Agreement, at the Closing and as of the Closing Date and immediately prior to
the Merger, Borden shall cause BCL to assign, transfer, convey and deliver to
the BDPH Canadian Subsidiary and the BDPH Canadian Subsidiary shall acquire all
of the assets, rights, properties, claims, contracts and business of BCL which
are principally utilized or held for use in the Business, of every kind, nature,
character and description, tangible and intangible, real, personal or mixed,
wherever located other than (i) the stock or assets of BDPH and the direct and
indirect subsidiaries of BDPH (such companies, which for purposes of Article 6
only shall be deemed to exclude the BDPH Canadian Subsidiary, the "Decorative
Products Companies") and (ii) the Excluded Assets described in Section 2.3
hereof (such assets, the "Acquired Assets"; and together with the assets of the
Decorative Products Companies, the "Assets"). As of the Closing, risk of loss as
to the Acquired Assets shall pass from the Asset Seller to the BDPH Canadian
Subsidiary.
2.2 Acquired Assets
Without limiting the generality or effect of the first sentence of Section
2.1, the Acquired Assets include the following assets of BCL subject in each
case to the limitations set forth in clauses (i) and (ii) of Section 2.1(a)
hereof:
(a) Real Property. All Real Property (as defined in Section 6.7(b))
described or required by the terms hereof to be described on Part I of Schedule
6.7(b) hereto, including all Facilities (as defined in Section 6.7(b)) thereon,
and all buildings, improvements, fixtures, easements, privileges, rights-of-way,
riparian and other water rights, lands underlying any
3
<PAGE>
adjacent streets or roads and appurtenances pertaining to or accruing to the
benefit of such property, in each case subject to the exceptions described on
Schedule 6.7(a) hereto.
(b) Machinery and Equipment. All machinery, equipment and other items of
personal property which are located at the Facilities on the Closing Date or
otherwise principally related to the Business (the "Machinery") and all
warranties and guarantees, if any, express or implied, existing for the benefit
of the Machinery.
(c) Intangible Property.
(i) Patent Rights. All right, title and interest including, without
limitation, any causes of action in respect thereof in the Patent Rights (as
defined in Section 6.10(a)) described or required by the terms hereof to be
described on Part I of Schedule 6.10(a) hereto;
(ii) Trademark Rights. All right, title and interest including, without
limitation, any causes of action in respect thereof in the Trademark Rights (as
defined in Section 6.10(b)) described or required by the terms hereof to be
described on Part I of Schedule 6.10(b) hereto;
(iii) Copyrights. All right, title and interest including, without
limitation, any causes of action in respect thereof in the Copyright Rights (as
defined in Section 6.10(c)) described or required by the terms hereof to be
described on Part I of Schedule 6.10(c) hereto;
(iv) Technology. All right, title and interest including, without
limitation, any causes of action in respect thereof in the Technology (as
defined in Section 6.10(a)); and
(v) Business Information. All written or electronic business information,
management systems and books, records and other information relating principally
to the operation of the Business, including, but not limited to, any of the
foregoing contained in the
4
<PAGE>
information systems listed on Schedule 2.3(e) and advertising, marketing and
sales programs, business and strategic plans, supplier and employee information
and customer lists.
(d) Contracts. All Contracts (as defined in Section 6.8(a)) to which BCL is
a party or by which BCL is bound.
(e) Permits. All Permits (as defined in Section 6.14) which relate
principally to the Business.
(f) Inventories. The finished products (other than finished products that
have been billed and are being held for customers' accounts) principally related
to the Business and owned by BCL on the Closing Date and all work-in-process,
raw materials and packaging materials used in connection therewith, principally
related to the Business and owned by BCL on the Closing Date.
(g) Receivables. All accounts receivable and other receivables of BCL in
existence on the Closing Date (whether or not billed) to the extent related to
the operations of the Business (the "Receivables").
(h) Related Assets. Rights arising in respect of or other assets
constituting prepaid expenses as of the Closing to the extent relating to the
Acquired Assets or the Business.
(i) Other Assets. All other assets of the Business (i) included or
reflected in (A) the Financial Statements (as defined in Section 6.5), to the
extent still in existence on the Closing Date or (B) the Closing Balance Sheet
(as defined in Section 5.2(b)) including, in each case, the notes thereto,
excluding the Excluded Assets (as defined in Section 2.3) or (ii) owned or held
by Borden or any of its affiliates and used principally in the Business.
5
<PAGE>
2.3 Excluded Assets
It is expressly agreed that BCL will retain and the BDPH Canadian
Subsidiary will not acquire the following assets (the "Excluded Assets"):
(a) Non-Acquired Assets. Any assets utilized by BCL principally in
connection with businesses other than the Business or used by BCL at plants or
distribution facilities which are not owned or used by BCL principally in the
operation of the Business as generically described on Schedule 2.3(a).
(b) Cash and Cash Equivalents. Cash and cash equivalents, including,
without limitation, bank deposits, investments in so-called "money market"
funds, commercial paper funds, certificates of deposit, Treasury Bills and
accrued interest thereon ("Cash"), except to the extent arising out of any
Receivable or other asset reflected in the Closing Net Working Capital and
except for petty cash on hand at any of the Facilities and cash and cash
equivalents arising out of or under any Asset following the Closing.
(c) Tax Refunds. Any refunds or credits for (including interest thereon or
claims therefor) Taxes (as defined in Section 6.12) relating to the ownership of
the Acquired Assets and the conduct of the Business prior to the Closing, other
than any Taxes assumed by MergerCo pursuant to Section 15.3 or for which any
Decorative Products Company is directly liable.
(d) Insurance Contracts. Except as expressly provided in Section 8.19, any
contracts of insurance in respect of the Business; and any reimbursement for, or
other benefit associated with prepaid insurance, and any rights associated with
any prepaid expense for which BDPH will not receive the benefit after the
Closing Date, including without limitation any insurance proceeds with respect
to events occurring prior to the Closing Date to the extent BCL
6
<PAGE>
assumes or retains the cost of any such event or indemnifies BDPH with respect
to such event, provided, however, that nothing herein will affect the rights of
BDPH (as an additional insured or otherwise) or any Decorative Products Company
under any such insurance after the Closing.
(e) Excluded Information Systems. Subject to Section 2.2(c)(v), the
information systems of the Business identified in Schedule 2.3(e).
(f) Employee Benefit Assets. Assets relating to the Benefit Plans (as
defined in Section 6.13(b)) to the extent provided in Section 8.7.
(g) Transferred or Disposed Assets. Any assets transferred or otherwise
disposed of by BCL in the ordinary course of the Business prior to the Closing
and in accordance with this Agreement.
(h) Borden Name and Borden Trademarks. (i) All corporate trademarks,
servicemarks, trade names and logos owned by the Asset Seller incorporating the
word "Borden" or trade dress and logos used in connection therewith; (ii) any
translations, adaptations, derivations or combinations of any of the items
indicated in (i); and (iii) all goodwill associated with any of the items
indicated in (i) and (ii), except as otherwise provided in Section 8.6 or the
License Agreement.
2.4 Assumed Liabilities
On the terms and subject to the conditions hereof, as of the Closing Date,
Borden shall cause the BDPH Canadian Subsidiary to assume and agree to pay,
perform and discharge when due, all liabilities and obligations whatsoever,
other than Excluded Liabilities (as defined below), of BCL arising principally
out of or pertaining principally to the Business or the Acquired Assets whether
arising before or after the Closing, and whether known or unknown, fixed or
contingent, to the extent the same are unpaid, undelivered or unperformed on the
Closing Date, including,
7
<PAGE>
but not limited to, any such liability or obligation of a type listed below (the
"Assumed Liabilities"):
(a) all liabilities of BCL principally related to the Business and
included in (i) the Financial Statements, to the extent they are still in
existence on the Closing Date, and (ii) the Closing Balance Sheet;
(b) all liabilities with respect to all actions, suits, proceedings,
disputes, claims or investigations but only to the extent principally
arising out of or principally related to the Business or the Acquired
Assets;
(c) all liabilities for claims, but only to the extent principally
relating to the Business under BCL's self-insurance arrangements;
(d) all obligations and liabilities of BCL under the Contracts, Leased
Real Property (as defined in Section 6.7(b)) and Permits relating
principally to the Business;
(e) all obligations and liabilities of BCL for Product returns,
replacements or allowances or warranty given in the ordinary course of
business to the customers of the Business;
(f) any obligations and liabilities of BCL for trade promotion
programs (including, without limitation, trade allowance programs),
rebates, coupons, non-coupon consumer promotions (including, without
limitation, sweepstakes) and other marketing programs and commitments
principally relating to the Business;
(g) all workers' compensation, product liability, automobile liability
and general liability claims of BCL relating principally to the Business
which occurred prior to the Closing Date, or any incident arising prior to
the Closing Date which results in any such claims after the Closing Date;
8
<PAGE>
(h) all obligations and liabilities of BCL arising as a result of at
any time being the owner or occupant of, or the operator of the activities
conducted at, any of the Facilities, including all such obligations and
liabilities relating to personal injury, property damage and Environmental
Liability (as defined in Section 6.16); and
(i) all obligations and liabilities for which MergerCo or BDPH is
expressly responsible under Sections 8.7, 12 and 15.3 hereof.
2.5 Excluded Liabilities
It is expressly agreed that BCL shall retain and the BDPH Canadian
Subsidiary shall not assume any of the following liabilities or obligations (the
"Excluded Liabilities"):
(a) all obligations and liabilities principally arising out of or relating
to (i) the Excluded Assets, (ii) any business other than the Business, (iii) any
property other than the Facilities, and (iv) any product other than the
Products;
(b) all liabilities or obligations of BCL that do not arise out of or are
not principally related to the Business or the Acquired Assets;
(c) all obligations and liabilities of BCL retained pursuant to Sections
8.7, 12 and 15.3 hereof and all obligations and liabilities under the Benefit
Plans expressly assumed or retained by the Asset Seller or any other affiliate
of Borden pursuant to Section 8.7 hereof or in respect of Taxes for which Borden
is or remains responsible hereunder;
(d) all obligations and liabilities for Taxes owed by BCL in respect of the
Business for which BCL is responsible pursuant to Section 12 hereof;
(e) all obligations and liabilities arising out of those liabilities
specifically set forth on Schedule 2.5(e);
9
<PAGE>
(f) all obligations and liabilities under or relating to Acquired Assets
that cannot be assigned to BDPH;
(g) all obligations and liabilities incurred by BCL after the Closing Date;
and
(h) any other obligations and liabilities which BCL or Borden has expressly
assumed or retained pursuant to this Agreement.
2.6 Certain Definitions. For purposes of this Agreement, the term or phrase
"principally" or "principally related to" and similar phrases refers to an asset
or liability, as the case may be, that primarily is used in or primarily arises
out of the Business and is not primarily used in or does not primarily arise out
of any other business of BCL or Borden other than the Business or the businesses
of BCL or Borden generally.
3. THE MERGER
3.1 The Merger
Subject to the satisfaction or waiver of the conditions set forth in this
Agreement, at the Closing and as of the Closing Date and immediately after the
consummation of the Asset Transfer, MergerCo shall be merged with and into BDPH
in accordance with the DGCL. Upon the Effective Time of the Merger (as defined
below), the separate existence of MergerCo shall cease, and BDPH shall continue
as the surviving corporation (the "Surviving Corporation") and shall continue
under the name "Royal Wall Fashions, Inc." or such other name as MergerCo may
designate prior to the Closing and may be reflected in the Certificate of Merger
(as defined below). After the Closing, all references in this Agreement to
"MergerCo" shall mean "BDPH", as successor by merger.
3.2 Effective Time of the Merger
10
<PAGE>
On the Closing Date, immediately after the consummation of the Asset
Transfer, the parties shall file with the Secretary of State of the State of
Delaware a certificate of merger (the "Certificate of Merger") executed in
accordance with the relevant provisions of the DGCL and shall make all other
filings or recordings required under the DGCL. The Merger shall become effective
at such time as the Certificate of Merger is duly filed with the Secretary of
State of the State of Delaware, or at such other time as is permissible in
accordance with the DGCL and as MergerCo and BDPH shall agree should be
specified in the Certificate of Merger (the time the Merger becomes effective
being the "Effective Time of the Merger").
3.3 Effects of the Merger
The Merger shall have the effects set forth in the applicable provisions of
the DGCL, including without limitation, that BDPH will succeed to all rights and
obligations of MergerCo under the Transaction Documents (as defined in Section
6.2).
3.4 Certificate of Incorporation; By-Laws; Purposes
(a) At the Effective Time of the Merger, and without any further action on
the part of BDPH or MergerCo, the Certificate of Incorporation of BDPH, as in
effect immediately prior to the Effective Time of the Merger, shall be the
certificate of incorporation of the Surviving Corporation following the Merger
until thereafter further amended as provided therein and under the DGCL except
that Article First thereof will be amended to read as follows: "The name of the
Corporation is Royal Wall Fashions, Inc." (or such other name as may be
designated by MergerCo pursuant to Section 3.1.) and except that, upon action of
the Board of Directors of the Surviving Corporation, the certificate of
incorporation of MergerCo may be substituted therefor, with such name change.
11
<PAGE>
(b) At the Effective Time of the Merger, and without any further action on
the part of BDPH or MergerCo, the By-laws of MergerCo as in effect at the
Effective Time of the Merger shall be the By-laws of the Surviving Corporation
following the Merger until thereafter changed or amended as provided therein and
under the DGCL.
3.5 Directors
The directors of MergerCo at the Effective Time of the Merger and/or such
other persons as may be designated by MergerCo shall be the directors of the
Surviving Corporation following the Merger, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
3.6 Officers
The officers of MergerCo at the Effective Time of the Merger shall be the
officers of the Surviving Corporation following the Merger, until the earlier of
their resignation or removal or until their respective successors are duly
elected or appointed and qualified, as the case may be.
4. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF BDPH AND MERGERCO
4.1 Effect on Capital Stock
As of the Effective Time of the Merger, by virtue of the Merger and without
any action on the part of BDPH, MergerCo or any holder of any shares of BDPH
Capital Stock or any shares of capital stock of MergerCo:
(a) Common Stock of MergerCo. All of the shares of common stock of MergerCo
issued and outstanding immediately prior to the Effective Time of the Merger
shall be converted in the Merger into 5,284,375 shares of BDPH Common Stock;
provided that such number shall
12
<PAGE>
be reduced on a share for share basis for each share of BDPH Common Stock, if
any, held by Collins & Aikman Products Co. ("C&A") as of the close of business
on the Closing Date.
(b) Conversion (or Retention) of BDPH Common Stock. Except as otherwise
provided herein and subject to Section 4.2(e), all shares of BDPH Common Stock
issued and outstanding immediately prior to the Effective Time of the Merger
(other than shares cancelled pursuant to Section 4.1(e) and Dissenting Shares)
shall be converted into the right to receive the following (the "Common Stock
Merger Consideration") as follows:
(i)(A) 653,125 shares in aggregate of BDPH Common Stock shall each be
converted into the right to retain one fully paid and non-assessable share
of BDPH Common Stock following the Merger (such retained shares, in the
aggregate, the "Retained Shares"); and (B) all remaining shares of BDPH
Common Stock shall be converted into cash from BDPH following the Merger in
an amount equal to the Per Share Consideration (as calculated by Borden in
accordance with Exhibit I) (such cash consideration in the aggregate, the
"Cash Merger Consideration").
(ii) the right to retain Retained Shares and to receive Cash Merger
Consideration in the Merger shall each be allocated among the holders of
BDPH Common Stock on a consistent basis pro rata to the number of shares of
BDPH Common Stock which the holders of shares of BDPH Common Stock held
immediately prior to the Merger.
(c) Conversion of Preferred Stock of BDPH. Shares of BDPH Preferred Stock
issued and outstanding immediately prior to the Effective Time of the Merger
shall each be converted into the right to receive the Liquidation Preference (as
defined in the Borden Decorative Products MergerCo, Inc. Certificate of
Designations, as adopted on May 30, 1996) equal to the original per share
liquidation preference of $25.00, plus, if and to the extent
13
<PAGE>
applicable, all accrued and unpaid dividends, whether or not declared. The
aggregate amount of merger consideration payable in connection with the
conversion of the Preferred Stock may be referred to as the "Preferred Stock
Merger Consideration" and together with the aggregate Common Stock Merger
Consideration may be referred to as the "Merger Consideration".
(d) [Intentionally omitted]
(e) Cancellation of Treasury Stock and MergerCo Owned BDPH Capital Stock.
Each share of BDPH Capital Stock that is owned by BDPH or by any subsidiary of
BDPH or each share of BDPH Capital Stock that is owned by MergerCo shall
automatically be cancelled and retired and shall cease to exist, and no cash,
share of BDPH Capital Stock or other consideration shall be delivered or
deliverable in exchange therefor.
(f) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of BDPH Common Stock issued and outstanding immediately prior
to the Effective Time of the Merger held by each holder (if any) who has the
right to demand payment for and an appraisal of such shares in accordance with
Section 262 of the DGCL (or any successor provision) ("Dissenting Shares") shall
not be converted into a right to receive Merger Consideration or any cash in
lieu of fractional shares of BDPH Common Stock following the Merger (but shall
have the rights set forth in Section 262 of the DGCL (or any successor
provision)) unless such holder fails to perfect or otherwise loses such holder's
right to such payment or appraisal, if any. If, after the Effective Time of the
Merger, such holder fails to perfect or loses any such right to appraisal, each
such share held by such holder shall be treated as a share that had been
converted as of the Effective Time of the Merger into the right to receive
Merger Consideration in accordance with this Section 4.1.
14
<PAGE>
(g) Cancellation and Retirement of BDPH Capital Stock. As of the Effective
Time of the Merger, all shares of BDPH Capital Stock (other than shares referred
to in Sections 4.1(b)(i)(A) and 4.1(f)) issued and outstanding immediately prior
to the Effective Time of the Merger, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing any such shares of BDPH Capital Stock shall, to
the extent such certificate represents such shares, cease to have any rights
with respect thereto, except the right to receive the Merger Consideration,
including cash in lieu of fractional shares of BDPH Common Stock following the
Merger, to be issued or paid in consideration upon surrender of such certificate
in accordance with Section 4.2.
4.2 Exchange of Certificates
(a) At or prior to the Effective Time, Borden, in its own right to the
extent entitled to payment and as exchange and disbursing agent for its
subsidiaries and BDPH Management, shall establish a separate bank account in
which the aggregate amount of the Merger Consideration, as well as the other
elements of the Aggregate Consideration, will be deposited (the "Disbursing
Account"). As soon as practicable after the Effective Time of the Merger, each
holder of an outstanding certificate or certificates which prior thereto
represented shares of BDPH Capital Stock shall, upon surrender to Borden of such
certificate or certificates and acceptance thereof by Borden, be entitled to a
certificate or certificates representing the number of full shares of BDPH
Common Stock, if any, to be retained by the holder thereof pursuant to this
Agreement and the amount of cash, if any, into which the number of shares of
BDPH Capital Stock previously represented by such certificate or certificates
surrendered shall have been converted pursuant to this Agreement. Borden shall
accept such certificates upon compliance with such reasonable terms and
conditions as Borden may impose to effect an orderly
15
<PAGE>
exchange thereof in accordance with normal exchange practices. If any
certificate for such retained BDPH Common Stock is to be issued in, or if cash
is to be remitted to, a name other than that in which the certificate for BDPH
Common Stock surrendered for exchange is registered, it shall be a condition of
such exchange that the certificate so surrendered shall be properly endorsed,
with signature guaranteed, or otherwise in proper form for transfer and that the
person requesting such exchange shall pay to the BDPH or its transfer agent any
transfer or other taxes required by reason of the issuance of certificates for
such retained BDPH Common Stock in a name other than that of the registered
holder of the certificate surrendered, or establish to the satisfaction of BDPH
or its transfer agent that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 4.2, each certificate for shares of
BDPH Capital Stock shall be deemed at any time after the Effective Time of the
Merger to represent only the right to receive upon such surrender the Merger
Consideration as contemplated by Section 4.1. No interest will be paid or will
accrue on any cash payable as Merger Consideration or in lieu of any fractional
shares of retained BDPH Common Stock, and Borden shall retain any amounts earned
or funds in the Disbursing Account and any amounts or securities to which a
holder of Dissenting Shares ceases to be entitled. Notwithstanding the
foregoing, none of BDPH, Borden or any other party hereto shall be liable to a
holder of shares of BDPH Capital Stock for any Merger Consideration delivered
pursuant hereto to a public official pursuant to applicable abandoned property
laws.
(b) The right of any holder of a certificate representing BDPH Common Stock
to receive the Merger Consideration shall be subject to and reduced by the
amount of any required Tax withholding obligation.
16
<PAGE>
(c) Promptly after the Effective Time, Borden shall make available to BDPH
shareholders entitled to receive the Merger Consideration a form of letter of
transmittal and instructions for use in surrendering such certificates and
receiving the applicable Merger Consideration in exchange therefor.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of BDPH of any shares of BDPH Capital Stock other than Retained
Shares and shares issued pursuant to Section 4.1(a). If, after the Effective
Time, certificates previously representing shares of BDPH Capital Stock are
presented to BDPH, they shall be cancelled and exchanged for the applicable
Merger Consideration as provided in this Article IV, subject to applicable law
in the case of Dissenting Shares.
(e) (i) No certificates or scrip representing fractional shares of BDPH
Capital Stock shall be retained in connection with the Merger, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of BDPH after the Merger; and (ii) notwithstanding any
other provision of this Agreement, each holder of shares of BDPH Common Stock
converted pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of BDPH Common Stock following the Merger (after
taking into account all shares of BDPH Common Stock delivered by such holder)
shall receive, in lieu thereof, a cash payment (without interest) from Borden
equal to the product of (x) such fraction, multiplied by (y) the Per Share
Consideration. Borden shall retain for its own account (or at its option, the
account of one or more Subsidiaries of Borden) all shares of BDPH Common Stock
constituted from fractional shares with respect to which Borden has made a cash
payment pursuant to this Section.
17
<PAGE>
(f) Borden will indemnify BDPH against all liabilities, obligations, claims
and losses to the extent arising out of the failure of Borden to fulfill its
obligations to exchange shares of BDPH Common Stock surrendered by BDPH
Management into the Merger Consideration in accordance with the terms and
provisions of Section 4.2 of this Agreement.
5. AGGREGATE CONSIDERATION AND ADJUSTMENTS
5.1 (a) Payment of the Aggregate Consideration. The aggregate consideration
payable to Borden, Borden's subsidiaries and BDPH Management at Closing in
connection with the transactions contemplated by this Agreement shall equal
$320,000,000 (the "Aggregate Consideration"). The Aggregate Consideration of
$320,000,000 is comprised of the Cash Amount (as defined below) in cash (subject
to Section 8.13(b)) and the Retained Shares. The Aggregate Consideration shall
be paid to Borden, for its own account and as disbursing and exchange agent, at
Closing. The term "Cash Amount" shall mean (i) $320,000,000 less (ii) the
product of (X) 0.123596 multiplied by (Y) the sum of (I) the cash amount of
equity capital provided to MergerCo prior to the Closing by Blackstone Capital
Partners III Merchant Banking Fund L.P. ("Blackstone") and made available as
common equity to the Surviving Corporation as a result of the Merger and (II)
subject to the proviso to Section 4.1(a) hereof, the amount of BDPH Common
Stock, if any, held as of the close of business on the Closing Date by C&A as a
result of the C&A Transaction (valued on a per share basis in the same manner as
the shares of BDPH Common Stock held by Blackstone on the Closing Date
immediately following the Merger); provided that in no event shall the Cash
Amount be less than $309,550,000; and provided, further, that as of the close of
business on the Closing Date, in no event shall the number of shares of BDPH
Common Stock outstanding after giving effect to both the Merger and the C&A
Transaction (as defined in Section 8.3(d)) be greater than 5,937,500.
18
<PAGE>
The cash amount of the Aggregate Consideration shall be paid in immediately
available funds in U.S. dollars to the account or accounts designated by Borden
to MergerCo and BDPH no less than two business days prior to the Closing Date.
Subject to its receipt of the Aggregate Consideration, Borden shall be solely
responsible for allocating the Aggregate Consideration among the Merger
Consideration (and the various components thereof), the Borden Transaction Fees
(as defined in Exhibit I hereto) and any amounts paid prior to or on the Closing
Date in respect of the redemption, purchase or cancellation of any BDPH Options
(as defined in Section 9.3(l)) or any shares of capital stock of BDPH.
(b) Management Options. Borden shall cause BDPH, acting through its Board
of Directors or a duly authorized committee thereof, to take all required action
under the 1996 Stock Purchase and Option Plan of BDPH (the "Option Plan") and
the outstanding options thereunder so that, at the Closing, all such options
shall be cancelled (unless otherwise agreed prior to Closing with respect to a
specific holder or specific holders among MergerCo, Borden and each such
holder). At or prior to the Closing, the Option Plan will be terminated and no
further stock awards, stock options or stock appreciation rights will be granted
thereunder subsequent to the Closing Date.
5.2 Working Capital Adjustment
(a) Calculation of the Working Capital Adjustment. In accordance with the
provisions of this Section 5.2, (x) BDPH shall pay Borden the amount, if any, by
which the Closing Working Capital (as defined in and calculated in accordance
with Schedule 5.2(a)) of the Business is finally determined, accepted, deemed
accepted or agreed pursuant to Section 5.2(c) below, to be greater than the
Target Working Capital (as defined below) and (y) Borden shall pay BDPH the
amount, if any, of any Balance Sheet Indebtedness and the amount, if any by
which
19
<PAGE>
the Closing Working Capital of the Business is finally determined, accepted,
deemed accepted or agreed pursuant to Section 5.2(c) below, to be less than the
Target Working Capital. The term "Target Working Capital" shall mean
$82,000,000. "Balance Sheet Indebtedness" means the amount of Indebtedness set
forth on the Closing Balance Sheet in accordance with GAAP (including (i)
indebtedness for borrowed money, (ii) capitalized leases required to be
reflected as indebtedness in accordance with GAAP, (iii) so long as not
duplicative of other items of Indebtedness, guarantees or similar obligations
with respect to items of the type covered by clauses (i) and (ii) of this
parenthetical and (iv) accrued and unpaid interest and all other amounts due in
connection therewith); provided that guarantees and similar obligations
addressed by clause (iii) of the preceding parenthetical shall be included in
Balance Sheet Indebtedness even if such guarantees and similar obligations would
not themselves be Indebtedness in accordance with GAAP so long as the items
covered by clauses (i) and (ii) of the preceding parenthetical to which such
guarantees and similar obligations relate are themselves Indebtedness in
accordance with GAAP; and provided, further, that to the extent borne by Borden,
the BLC Buy-Out Amount (as defined in Section 8.14) shall not be included as
Balance Sheet Indebtedness.
(b) Closing Balance Sheet. For purposes hereof, Closing Working Capital
will include only the items specified in Schedule 5.2(a) and will be derived
from a balance sheet for the Business as of the close of business on the last
business day immediately preceding the Closing Date (the "Working Capital
Measurement Date") and excluding any effects of the transactions contemplated by
this Agreement (the "Closing Balance Sheet") prepared in accordance with U.S.
generally accepted accounting principles, consistently applied ("GAAP"), and
using the same accounting policies and practices used in the preparation of the
balance sheet as of December 31, 1996 included in the Annual Financial
Statements; provided, however, that
20
<PAGE>
the Closing Balance Sheet and Closing Working Capital will exclude all Excluded
Assets, Excluded Liabilities and any Assets converted into Cash on, but neither
prior to nor after, the Closing Date; and provided, further, that the Closing
Balance Sheet will present fairly the financial position of the Business. Within
60 days after the Closing, MergerCo, with the assistance of its independent
accounting firm ("MergerCo's Accountants"), shall prepare, or cause to be
prepared, the Closing Balance Sheet. Borden shall cooperate fully and shall
provide MergerCo and MergerCo's Accountants with all assistance and access to
books and records necessary for MergerCo to prepare the Closing Balance Sheet.
Without limiting the generality or effect of any other provision hereof, Borden
shall (i) provide MergerCo and its representatives access, during normal
business hours, to the facilities, personnel and accounting and other records of
Borden and its affiliates to the extent reasonably determined by MergerCo to be
necessary to permit MergerCo to prepare or have prepared the Closing Balance
Sheet and to compute the Closing Working Capital as herein provided; provided,
however, that MergerCo will conduct any such review in a manner that does not
unreasonably interfere with the conduct of the Business by Borden or any of its
affiliates, and (ii) take such actions as may be reasonably requested by
MergerCo to close, or to assist in closing, as of the close of business on the
day immediately preceding the Closing Date, the books and accounting records of
the Business and otherwise reasonably to cooperate with MergerCo and its
representatives in the preparation of the Closing Balance Sheet.
(c) Closing Calculation. (i) Borden shall be entitled to full access to the
relevant records and working papers prepared by or for MergerCo and MergerCo's
Accountants to aid in its review of the calculation of the Closing Balance
Sheet, provided, however, that any such review will be conducted in a manner
which does not interfere with the ongoing conduct of
21
<PAGE>
the Business. If Borden believes that the Closing Working Capital calculation
(hereinafter the "Closing Calculation") has not been properly calculated in
accordance with the calculation methodologies set forth in this Section 5.2, it
shall, within 30 days after receipt of the Closing Calculation, give written
notice (the "Borden Objection") to MergerCo, setting forth the basis of the
Borden Objection in reasonable detail and to the extent practicable the
adjustments to the Closing Calculation which Borden believes should be made.
Failure so to notify MergerCo shall constitute acceptance and approval of the
Closing Calculation. If MergerCo agrees that any change proposed by Borden is
appropriate, the change shall be made to the Closing Calculation. If the
proposed change is disputed by MergerCo, then Borden and MergerCo shall
negotiate in good faith to resolve such dispute as expeditiously as possible.
If, after a period of 30 days following the date on which Borden gives MergerCo
notice of any such proposed change, any such proposed change still remains
disputed, then;
(ii) KPMG Peat Marwick LLP or, if KPMG Peat Marwick LLP is unwilling so to
serve, another accounting firm mutually acceptable to MergerCo and Borden (the
"Neutral Accounting Firm"), shall be engaged to resolve any remaining disputes.
The Neutral Accounting Firm shall act as an arbitrator to determine, based
solely on presentations by Borden and MergerCo, and not by independent review,
only those issues still in dispute. The Neutral Accounting Firm's determination,
based upon the calculation methodologies set forth in this Section 5.2, shall be
made within 30 days following the date on which the dispute is submitted or as
promptly as practicable thereafter, shall be set forth in a written statement
delivered to Borden and MergerCo, and shall be final, binding and conclusive.
The fees and any expenses of the Neutral Accounting Firm shall be shared equally
by Borden and MergerCo.
22
<PAGE>
(d) Payment of Aggregate Consideration Adjustment. Payment of any
adjustment in the Aggregate Consideration pursuant to this Section 5.2 shall be
made, if applicable, by wire transfer to an account designated by Borden or
MergerCo, as the case may be, in United States Dollars, in immediately available
federal funds within three business days after (i) the Closing Calculation has
been determined, accepted or deemed accepted by Borden pursuant to Section
5.2(c) or (ii) any proposed change made by Borden has been agreed upon by the
parties or finally determined by the Neutral Accounting Firm as described in
Section 5.2(c) together with interest from the Closing Date to the date of
payment at the "base rate" of LIBOR on the Closing Date plus 155 basis points,
based on a 360-day year.
5.3 Currency Exchange Values
In calculating any adjustments to the Aggregate Consideration under this
Section 5, non- U.S. currency values shall be converted to U.S. Dollar values at
the rate of exchange for foreign currencies per U.S. dollar on the day
immediately prior to the Closing Date, as reported in the Wall Street Journal
(Eastern Edition).
6. REPRESENTATIONS AND WARRANTIES OF BORDEN
Borden represents and warrants to MergerCo and BDPH that:
6.1 Corporate Existence
Borden and the Subsidiaries (as defined below) are corporations duly
organized and validly existing and, where the concept exists, in good standing
under the laws of the jurisdiction of its incorporation and each of said
corporations has the requisite power and authority to own the Decorative
Products Company Stock, as applicable, and to own, lease and operate the Assets
and to carry on the Business as the same is now being conducted. Borden and the
Subsidiaries are each duly authorized, qualified or licensed to do business as a
foreign corporation and, where
23
<PAGE>
the concept exists, in good standing in every jurisdiction wherein, by reason of
the nature of the Business or the character of the Assets, the failure to be so
qualified or in good standing could be reasonably expected to result in a
material adverse effect on the results of operations, financial condition or
business of the Business taken as a whole or on the ability of Borden and the
Subsidiaries to consummate the transactions contemplated hereby (a "Material
Adverse Effect"). For purposes of this Agreement the term "Subsidiaries" shall
mean, collectively, the Decorative Products Companies and BCL. None of the
Decorative Products Companies or BCL is, or is required to be, a registered or
reporting company under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Complete and correct copies of the certificate of incorporation
and by-laws or other constituent documents, each as amended to date, of each
Decorative Products Company and BCL have heretofore been made available to
MergerCo.
6.2 Corporate Authority; Shareholder Authorization
This Agreement and the consummation of all of the transactions provided for
herein and each of the agreements and instruments contemplated to be executed
and delivered by Borden or any of the Subsidiaries hereunder (collectively with
this Agreement, the "Transaction Documents") have been duly authorized by the
Board of Directors of Borden and, where appropriate or required, will be duly
authorized by such Subsidiaries, by all requisite corporate, shareholder
(including without limitation shareholder approval of the Merger) or other
action prior to Closing, and Borden and every Subsidiary party thereto have full
power and authority to execute and deliver the Transaction Documents and to
perform their respective obligations thereunder. This Agreement has been, and
the other Transaction Documents will be, duly executed and delivered by Borden
and every Subsidiary party thereto, and constitutes, and in the case of each
other Transaction Document will constitute, a valid and legally binding
obligation of
24
<PAGE>
each such entity, enforceable in accordance with its terms except as
enforceability may be (i) limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditor's rights, or (ii) subject to general
principles of equity. The execution and delivery of the Transaction Documents by
Borden and every Subsidiary party thereto and the consummation by Borden and
every Subsidiary party thereto of the transactions contemplated thereby, and the
fulfillment of the terms and compliance with the provisions thereof, will not
(a) conflict with or result in a breach of or a default (or in an occurrence
which with the lapse of time or action by a third party, or both, could result
in a default) with respect to any of the terms, conditions or provisions of, (b)
result in the termination of, accelerate the performance required by, (c) result
in the creation of any Lien (as defined in Section 6.3) upon the assets of the
Business in connection with, (d) impair Borden or any Subsidiary's ability to
consummate the transactions contemplated thereby, or (e) give rise to any right
of termination or renegotiation, or purchase or offer right, under: (x) any
statute, rule, regulation, code, order, writ or decree of any governmental
authority applicable to Borden or any Subsidiary or the Business, (y) the
certificate of incorporation or by-laws or other constituent documents of Borden
or any Subsidiary, or (z) any contract, lease, permit or other instrument to
which the Business or Borden or any Subsidiary is a party or subject or by which
any of Borden's, any of the Subsidiary's or the Business' properties or assets
are bound, except in the cases of clauses (x) and (z) for those conflicts,
breaches, defaults, terminations, or accelerations which, individually or in the
aggregate, could not be reasonably expected to have a Material Adverse Effect
and except that no representation is made herein as to the effect of this
Agreement and the transactions contemplated hereby under antitrust laws.
25
<PAGE>
6.3 Decorative Products Company Stock
Except as set forth on Schedule 6.3 hereto and except for the directors'
qualifying shares and other nominal share interests issued to third parties to
comply with requirements of law described thereon, all of the shares of capital
stock of the Decorative Products Companies ("Decorative Products Company Stock")
shown as outstanding on Schedule 6.3 have been validly issued and are fully paid
and nonassessable and are owned by BDPH, BDH One or a wholly owned subsidiary of
BDPH free and clear of all liens, pledges, restrictions, rights of reversion,
defects, claims, charges, security interests, options or other legal or
equitable encumbrances ("Liens"). Schedule 6.3 sets forth for each of the
Decorative Products Companies the authorized capital stock, the number of shares
of outstanding capital stock, the number of shares of such outstanding capital
stock owned by each owner thereof and the name of each such owner. Except as
indicated on Schedule 6.3 hereto, there are no outstanding options, warrants or
other rights of any kind relating to the sale, issuance or voting of any
Decorative Products Company Stock which have been issued, granted or entered
into by Borden or any of the Subsidiaries or any securities convertible into or
evidencing the right to purchase any Decorative Products Company Stock.
6.4 Governmental Approvals; Consents
None of Borden or the Subsidiaries are subject to any order, judgement or
decree which would prevent the consummation of the transactions contemplated in
any of the Transaction Documents. No claim, legal action, suit, arbitration,
governmental investigation, action or other legal or administrative proceeding
is pending or, to the knowledge of Borden, threatened against Borden or any
Subsidiary which would enjoin or delay the transactions contemplated by any of
the Transaction Documents. Except as set forth in Schedule 6.4 hereto,
26
<PAGE>
no consent, approval, order or authorization of, license or permit from, notice
to or registration, declaration or filing with, any governmental authority or
entity, domestic or foreign, or of any third party, is or has been required on
the part of Borden or the Subsidiaries in connection with the execution and
delivery of the Transaction Documents or the consummation of the transactions
contemplated thereby except for such consents, approvals, orders or
authorizations of, licenses or permits, filings or notices the failure of which
to obtain or make would not have a Material Adverse Effect or which have been
obtained and which will remain in full force and effect after the Closing
assuming the compliance therewith by MergerCo.
6.5 Financial Statements
(a) Schedule 6.5 contains a copy of the unaudited consolidated balance
sheet of the Business as of December 31, 1996 and the related consolidated
statement of income and of cash flows for the fiscal year ended on such date,
including the notes related thereto (the "Annual Financial Statements"). The
Annual Financial Statements have been derived from the books and records of
Borden and the Subsidiaries and present fairly the consolidated financial
position and the consolidated results of operations and cash flows of the
Business (including the Acquired Assets and the Assumed Liabilities) as of the
dates and for the periods indicated. The Annual Financial Statements have been
prepared in accordance with the internal accounting practices of the Business,
which practices, individually and in the aggregate, are in accordance with GAAP.
Schedule 6.5 also contains the unaudited consolidated balance sheet of the
Business (including the Acquired Assets and the Assumed Liabilities) as of June
30, 1997 (the "Interim Balance Sheet") and the related unaudited consolidated
statement of income and of cash flows for the six-month period ended on such
date (the "Interim Financial Statements" and together with the Annual Financial
Statements, the "Financial Statements"). The Interim Financial Statements
27
<PAGE>
present fairly the consolidated financial position of the Business (including
the Acquired Assets and the Assumed Liabilities) as of such date and the
consolidated results of operations and consolidated cash flows for the six-month
period then ended subject to normal year-end audit adjustments, none of which is
material, individually or in the aggregate. The Interim Financial Statements
have been prepared in accordance with the internal accounting practices of the
Business, which practices, individually and in the aggregate, are in accordance
with GAAP and consistent with those used in the Annual Financial Statements
except as permitted by GAAP for interim financial reporting or as specified in
Schedule 6.5 or Schedule 6.5(a). The Interim Financial Statements include all
adjustments, consisting solely of normal recurring accruals, necessary for a
fair presentation of the Business' consolidated financial position and results
of operations. The reserves set forth in the Annual Financial Statements under
FAS 106 and 112, respectively, as of December 31, 1996 were adequate and were
recorded in accordance with GAAP. The reserves and accruals for current and
deferred taxes reflected in the Financial Statements were adequate and were
recorded in accordance with GAAP.
(b) From and after the Imperial Termination Date (as defined in Section
13.1(c) of this Agreement), the first three sentences of Section 6.5(a) of this
Agreement shall be deemed to have read in their entirety as of the date hereof
and as of any date hereafter as follows: "Schedule 6.5 contains a copy of the
audited consolidated/combined balance sheets of BDPH and its predecessors with
respect to the Business (the "Predecessors") as of December 31, 1995 and 1996
and the related consolidated/combined statements of income and of cash flows for
the fiscal year ended on such dates, accompanied by the reports thereon of
Deloitte & Touche L.L.P. (the "Annual Financial Statements"). The Annual
Financial Statements present fairly the consolidated/combined financial position
and consolidated/combined results of the operations
28
<PAGE>
and cash flows of BDPH and its Predecessors (including the Acquired Assets and
the Assumed Liabilities) as of the dates and for the periods indicated. The
Annual Financial Statements, including the related notes thereto, have been
prepared in accordance with GAAP, consistently applied. Borden shall deliver the
audited financial statements referred to in this Section 6.5(b) (the "Audited
Financial Statements") as promptly as practicable and in any event within five
days prior to the Imperial Termination Date.
(c) All Financial Statements are qualified by the fact that the Business
was not, prior to January 1, 1996, operated as a separate "stand-alone" entity
within Borden. As a result, the Business received certain allocated charges and
credits as specified in Note (1) accompanying the Financial Statements. Such
charges and credits, while believed by Borden to be reasonable, do not
necessarily reflect the amounts which would have resulted from arms-length
transactions. In addition, in order to present stand-alone Financial Statements
for the Business, a number of significant assumptions have been made, all of
which are believed by Borden to be reasonable and are specified in Note (1) to
the Financial Statements. BORDEN MAKES NO REPRESENTATION WITH RESPECT TO ANY
FINANCIAL INFORMATION FOR THE BUSINESS DELIVERED TO MERGERCO OTHER THAN AS
CONTAINED IN OR PURSUANT TO THIS AGREEMENT.
6.6 Absence of Changes
Except as specified in Schedule 6.6 hereto or as expressly contemplated by
this Agreement, since December 31, 1996, (i) the Business has been conducted in
the ordinary course consistent with past practice and (ii) there has not been
any material adverse change or development that, individually or in the
aggregate, could reasonably be expected to have a material adverse effect on the
Business or its financial condition or results of operations, other
29
<PAGE>
than normal seasonal changes, changes relating to the economy in general or
changes relating to the industry in which the Business operates in general.
6.7 Real and Personal Properties
(a) Borden and/or one or more of the Subsidiaries have good and marketable
title in fee simple (as to real property) to, or a valid and binding leasehold
interest in, the real or personal property included in the Assets or otherwise
pertaining to the Business, free and clear of all Liens, except (i) as set forth
on Schedule 6.7(a); (ii) as disclosed in the Financial Statements; (iii) Liens
for taxes, assessments and other governmental charges not yet due and payable
or, if due, (A) not delinquent or (B) being contested in good faith by
appropriate proceedings during which collection or enforcement against the
property is stayed, and, for those existing on the dates of the Interim
Financial Statements or the Annual Financial Statements, for which adequate
reserves in accordance with GAAP are reflected on the Interim Financial
Statements or the Annual Financial Statements, as the case may be; (iv)
mechanics', workmen's, repairmen's, warehousemen's, carriers' or other like
liens arising or incurred in the ordinary course of business if the underlying
obligations are not past due, and, for those existing on the dates of the
Interim Financial Statements or the Annual Financial Statements, for which
adequate reserves in accordance with GAAP are reflected on the Interim Financial
Statements or the Annual Financial Statements, as the case may be; (v) original
purchase price conditional sales contracts and equipment leases with third
parties entered into in the ordinary course of business; and (vi) with respect
to real property, (A) easements, licenses, covenants, rights-of-way and other
similar restrictions, including, without limitation, any other agreements or
restrictions which would be shown by a current title report or other similar
report or listing, (B) any conditions that may be shown by a current survey,
title report or physical inspection and (C) zoning, building and other
30
<PAGE>
similar restrictions, so long as none of (A), (B) or (C), individually or in the
aggregate, renders the title of such real property unmarketable, materially
detracts from its value or prevents the use of such real property substantially
as currently used (such liens, charges and encumbrances described in clauses
(i)-(vi) hereof are referred to herein as "Permitted Liens").
(b) Schedule 6.7(b) contains a list of all of Borden and the Subsidiaries'
right, title and interest in real property owned, used or held for use by Borden
and the Subsidiaries in the Business ("Owned Real Property") and all leases of
real property owned, used or held for use by Borden and the Subsidiaries in the
Business ("Leased Real Property" and together with Owned Real Property, the
"Real Property"), including all buildings, structures and other improvements
situated thereon (individually, a "Facility" and collectively, the
"Facilities"). Part I of Schedule 6.7(b) lists all of the Real Property owned by
BCL or used or held for use by BCL in the Business. The covenants, easements or
rights-of-way affecting the Real Property do not with respect to each parcel of
Real Property impair the Business' ability to use any such Real Property in the
operation of the Business as presently conducted except for those covenants,
easements and rights of way that, individually or in the aggregate, could not be
reasonably expected to have a Material Adverse Effect. Each lease listed on
Schedule 6.7(b) is in full force and effect, and Borden and the Subsidiaries
have performed all material obligations required to be performed by them to date
under each of the leases and none of Borden or the Subsidiaries, nor to the
knowledge of Borden, any other party thereto, is in default under any of such
leases except for those defaults under leases that, individually or in the
aggregate, could not be reasonably expected to have a Material Adverse Effect.
Borden and the Subsidiaries have delivered to MergerCo a true and correct copy
of each such lease, and all amendments thereto, listed on Schedule 6.7(b).
Except as set forth in Schedule 6.7(b), (i) there are no parties in possession
of
31
<PAGE>
any portion of the Owned or Leased Real Properties as lessees, tenants at
sufferance or trespassers other than Borden and the Subsidiaries and (ii) there
is no pending or, to the knowledge of Borden, threatened special assessment
affecting the Owned Real Properties or any part thereof. Except as provided in
Schedule 6.7(b), none of Borden or the Subsidiaries have received any actual
notice that the location, construction, occupancy, operation or use of the
buildings located on the Owned or Leased Real Properties violates any
restrictive covenant or deed restriction or any other governmental laws, orders,
rules or regulations. There are no pending or, to the knowledge of Borden,
threatened condemnation or similar proceedings affecting the Real Property
except those condemnations or similar proceedings that could not, individually
or in the aggregate, be reasonably expected to have a Material Adverse Effect.
The Business has access to public roads, streets or the like or valid easements
over private streets, roads or other private property for such ingress to and
egress from the Real Property.
6.8 Contracts
(a) Except as otherwise disclosed in Schedule 6.8, there are no outstanding
commitments, contracts, indentures and agreements, written or oral, to which
Borden or any of its Subsidiaries are party to or by which Borden or any of the
Subsidiaries are bound that relate principally to the Business, including,
without limitation, personal property leases, purchase orders for inventory,
service or maintenance agreements, broker agreements, sales representative
agreements and license agreements (all of the foregoing, hereinafter
"Contracts") that (i) involve commitments by Borden or any of its Subsidiaries
for terms of 12 months or longer, (ii) involve payment of more than US$100,000
in the aggregate, (iii) are entered into with salesmen, commissioned agents, or
other sales representatives, or with distributors, dealers or customers, (iv)
involve agreements or arrangements for the sale or lease of any of the assets of
the Business
32
<PAGE>
other than the usual, regular and ordinary course of Business, (v) involve
employment (other than contracts representing the standard terms and conditions
prevailing between Borden, the Subsidiaries and the Business Employees),
severance or consulting by any Business Employee, (vi) grant to any person or
entity a first-refusal, first-offer or other right to purchase or acquire any of
the capital stock or other securities of the Decorative Products Companies,
(vii) impose noncompetition or exclusive dealing obligations relating to the
Business or (viii) evidence or create any Indebtedness, and in the case of (i) -
(iii), are not terminable by their terms, without penalty, on 30 days or less
notice. Contracts disclosed or required by the terms hereof to be disclosed in
Schedule 6.8 are hereafter referred to as the "Disclosed Contracts";
(b) Borden has furnished or made available to MergerCo a true and correct
copy of each Disclosed Contract. Each Contract is valid and in full force and
effect according to its terms and, to Borden's knowledge, the parties thereto
are not in default or breach under any such Contract and there are no claims
affecting the same of any kind pending except where such failure to be valid or
in full force or effect or such breach or claim, individually or in the
aggregate, could not be reasonably expected to have a Material Adverse Effect;
and
(c) Except as listed in Schedule 6.8, all Disclosed Contracts are
assignable (to the extent they are being assigned in the Asset Transfer) without
the requirement of consent from any other party thereto and, except as could not
be reasonably expected to have a Material Adverse Effect, the consummation of
the transactions contemplated by the Transaction Documents does not otherwise
conflict with or give rise to any right or obligation thereunder.
33
<PAGE>
6.9 Litigation, Agencies
Except as set forth in Schedule 6.9, there are no actions, suits,
proceedings (whether adjudicatory, rulemaking, licensing or otherwise) or
investigations pending or, to the knowledge of Borden, threatened in law or in
equity, or before any governmental agency, which, if determined or resolved
adversely or in accordance with the plaintiff's demands, individually or in the
aggregate, could be reasonably expected to have a Material Adverse Effect.
Except as set forth on Schedule 6.9, Borden and its Subsidiaries are not subject
to or in default under any judgment, order, injunction or decree of any court or
government agency relating to the Business except for such defaults, judgments,
orders, injunctions or decrees which, individually or in the aggregate, could
not be reasonably expected to have a Material Adverse Effect.
6.10 Intangible Property Rights
(a) Schedule 6.10(a) lists all material unexpired domestic and foreign
patents and patent applications, as well as all material utility models,
reexamination certificates, reissues, divisionals, continuations and
continuation-in-part applications and any patents issuing thereon, and all
license agreements and other agreements which relate to inventions or
discoveries and any patent applications and patents thereon, as well as
improvements therein owned, used or held for use principally in connection with
the Business (the "Patent Rights"). Part I of Schedule 6.10(a) lists all Patent
Rights owned, used or held for use by BCL (whether or not material), Borden and
its Subsidiaries in the Business. Except as set forth in Schedule 6.10(a) (i)
Borden and its Subsidiaries own, are licensed or have the full right to use the
Patent Rights and the Technology (as defined below) described or required to be
described in Schedule 6.10(a) free and clear of all Liens and without payment of
material royalties or other fees; (ii) there are no pending, or to the knowledge
of Borden, threatened claims challenging the validity,
34
<PAGE>
enforceability or ownership of such Patent Rights or Technology or Borden or its
Subsidiaries' right to use such Patent Rights or Technology except as,
individually or in the aggregate, could not be reasonably expected to have a
Material Adverse Effect; (iii) the Patent Rights described in Schedule 6.10(a)
constitute all of the same owned, used or held for use by Borden and the
Subsidiaries in connection with the operation of the Business and are sufficient
for MergerCo to operate the Business as presently operated by Borden and the
Subsidiaries; (iv) the issued patents under such Patent Rights are valid and
subsisting and all maintenance and other fees and taxes for said patents have
been paid, and, to the knowledge of Borden, none of the claims of said patents
is now being infringed by others except as, individually or in the aggregate,
could not be reasonably expected to have a Material Adverse Effect; (v) there
are no licenses or sublicense agreements now in effect regarding Borden and its
Subsidiaries' use of such Patent Rights or Technology; and (vi) none of Borden
and the Subsidiaries are, to the knowledge of Borden, infringing any U.S. or
foreign patent owned by third parties in the current operation of the Business
and no claim is now pending or, to the knowledge of Borden, is threatened to
such effect, except for such infringements and claims as, individually or in the
aggregate, could not be reasonably expected to have a Material Adverse Effect.
For purposes of this Agreement, the term "Technology" shall mean the patterns,
plans, designs, research data, trade secrets and other proprietary know-how,
inventions, discoveries, formulae and manufacturing processes, computer software
or firmware (except as set forth in Schedule 2.3(a)) operating manuals,
drawings, technology, manuals, data, records, procedures, research and
development records, as well as improvements therein and all licenses or other
rights to use any of the same owned or licensed by others, owned, used or held
for use principally in connection with the Business.
35
<PAGE>
(b) Schedule 6.10(b) lists (i) all material trademarks, service marks,
trademark registrations, service mark registrations, trademark and service mark
applications (including all documents or files pertaining thereto), trade names,
Internet addresses and names, and similar rights; (ii) any and all material
licenses or other rights to use any of the foregoing owned by others and (iii)
any material trade dress associated therewith, used in connection with the
Business (the "Trademark Rights"). Part I of Schedule 6.10(b) lists the
Trademark Rights owned, used or held for use by BCL (whether or not material).
Except as set forth in Schedule 6.10(b), (i) Borden and/or the Subsidiaries own,
are licensed or have the full right to use the Trademark Rights described or
required to be described in Schedule 6.10(b) free and clear of all Liens and
without payment of material royalties or other fees; (ii) all such Trademark
Rights are valid and subsisting, free and clear of any encumbrances or rights of
third parties which would restrict, impair or dilute MergerCo's exclusive right
to use such Trademark Rights except as, individually or in the aggregate, could
not be reasonably expected to have a Material Adverse Effect, and (iii) no claim
by third parties with regard to the use of any of such Trademark Rights is
pending, has been made or, to the knowledge of Borden, threatened and none of
such Trademark Rights is being infringed by others, individually or in the
aggregate, except as could not be reasonably expected to have a Material Adverse
Effect.
(c) Schedule 6.10(c) lists all material copyrights, copyright
registrations, copyright applications (pertaining thereto) and all material
licenses or other rights to use the copyrights of others, in each case used
principally in connection with the Business (the "Copyright Rights"). Part I of
Schedule 6.10(c) lists the Copyright Rights owned, used or held for use by BCL
(whether or not material). Except as disclosed in Schedule 6.10(c), (i) Borden
and the Subsidiaries own, are licensed or have the full right to use the
Copyright Rights described
36
<PAGE>
or required to be described in Schedule 6.10(c) free and clear of all Liens and
without payment of material royalties or other fees and (ii) there are no
pending or, to the best of Borden's knowledge, threatened claims by or against
Borden or any of the Subsidiaries with respect to any Copyright Rights or the
use thereof and no valid basis exists for any such claim.
6.11 Insurance
Schedule 6.11 sets forth a list of all material insurance policies
providing coverage for the properties or operations or liabilities of the
Business ("Insurance"), the type and amount of coverage and the expiration dates
of the policies. Such policies are valid and enforceable in accordance with
their terms, are in full force and effect and insure against risk and
liabilities to the extent and in the manner reasonably deemed appropriate and
sufficient by Borden. Borden and its Subsidiaries will continue in force to the
Closing Date policies of insurance of substantially the same character and
coverage so long as such Insurance continues to be available at commercially
reasonable rates.
6.12 Tax Matters
(a) Except as set forth in Schedule 6.12(a) hereto, there has been filed by
or on behalf of the Decorative Products Companies or BCL, or a filing extension
from the appropriate federal, state, local or foreign governments or
governmental agencies has been obtained with respect to, all material returns
relating to any United States federal, state, provincial, local, territorial and
foreign income, profits, franchise, gross receipts, payroll, sales, employment,
use, property, real estate, excise, value added, estimated, stamp, alternative
or add-on minimum, environmental, withholding and any other taxes, duties or
assessments, together with all interest, penalties and additions imposed with
respect to such amounts (collectively, "Taxes") required to be filed on or prior
to the date of this Agreement (the "Tax Returns"), and
37
<PAGE>
all Taxes shown to be due on such Tax Returns have been paid or adequate
provision in current taxes payable (rather than deferred) in accordance with
GAAP for the payment of all Taxes shown to be due on such Tax Returns has been
made.
(b) Except as set forth in Schedule 6.12(b), no audit or other proceeding
by any court, governmental or regulatory authority, or similar person is pending
or, to the knowledge of Borden, threatened with respect to any Taxes due from or
with respect to any Decorative Products Company or BCL. No assessment of tax has
been proposed in writing against any Decorative Products Company or BCL.
(c) Except as set forth in Schedule 6.12(c), all Tax Returns filed with
respect to Taxes of the Decorative Products Companies and BCL through the tax
year ended December 31, 1993, have been examined and closed or the applicable
period for assessment of Taxes with respect to such tax years under applicable
law, after giving effect to extensions or waivers, has expired.
(d) There are no liens for Taxes (other than for Taxes not yet due and
payable) on any Asset except for Permitted Liens.
(e) Except as set forth in Schedule 6.12(e) hereto, none of the Decorative
Products Companies or BCL is a party to or bound by (nor will any of them become
a party to or bound by prior to the Closing Date) any tax indemnity, tax sharing
or tax allocation agreement.
38
<PAGE>
6.13 Employment and Benefits
(a) Labor Controversies. Except as described on Schedule 6.13(a) and
except, with respect to clauses (i) and (ii) below, for such matters,
individually or in the aggregate, as could not reasonably be expected to have a
Material Adverse Effect, in respect of the Business, (i) Borden and the
Subsidiaries are in compliance with all applicable laws respecting employment
and employment practices, terms and conditions of employment and wages and
hours, (ii) there is no unfair labor practice complaint against Borden or any of
the Subsidiaries pending or, to the knowledge of Borden, threatened, before the
National Labor Relations Board, or any other U.S. or foreign governmental or
regulatory authority or court, (iii) there is no labor strike, dispute, slowdown
or stoppage actually pending or threatened against or affecting Borden or any of
the Subsidiaries, (iv) Borden and the Subsidiaries have not experienced any
strike, work stoppage or other labor difficulty, and (v) none of Borden or the
Subsidiaries are a party to, or subject to, a collective bargaining agreement,
and no collective bargaining agreement relating to Business Employees is being
negotiated. None of the collective bargaining agreements listed on Schedule
6.13(a) and assumed by MergerCo pursuant to Section 8.7(c) cover any employees
other than Business Employees.
(b) Employee Benefit Plans. (i) For purposes of this Agreement, "Benefit
Plans" shall mean all "employee benefit plans" (within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including, without limitation, "multiemployer plans" within the
meaning of Sections 3(37) and 4001(a)(3) of ERISA), "multiple employer plans"
within the meaning of Section 413(c) of the Code, retirement savings, stock
purchase, stock option, severance, vacation, employment, change-in-control,
fringe benefit, collective bargaining, bonus, incentive, deferred compensation
and all other
39
<PAGE>
employee benefit plans, agreements, programs, policies or other arrangements
(whether or not subject to ERISA or United States laws) (A) under which any
employee or former employee of the Business (collectively, the "Business
Employees") has any present or future right to benefits and (B) under which
Borden or any of its affiliates has any present or future liability. For
purposes of this Agreement, "U.S. Benefit Plans," "Canada Benefit Plans" and
"U.K. Benefit Plans" shall mean all Benefit Plans under which any Business
Employee who is or was primarily employed in the United States, Canada or the
United Kingdom, respectively (collectively, the "U.S Business Employees,""Canada
Business Employees" or "U.K. Business Employees," respectively), has any present
or future right to benefits. Schedule 6.13(b)(i) sets forth a list of each
material Benefit Plan.
(ii) Except as described on Schedule 6.13(b)(ii)-1, each Material Benefit
Plan has been established and administered in accordance with its terms and in
compliance with the applicable provisions of ERISA, the Code and other
applicable laws (foreign or domestic), except where a failure to do so,
individually or in the aggregate, could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Except for
liabilities generically described on Schedule 6.13(b)(ii)-2, neither Borden nor
any Subsidiary nor any other ERISA Affiliate has any liability to provide
medical benefits, life insurance benefits or supplemental pension benefits in
respect of any current of former Business Employee beyond their retirement.
(iii) Except as described on Schedule 6.13(b)(iii), the Internal Revenue
Service has issued, with respect to each Benefit Plan intended to be tax
qualified under Sections 401(a) and 501(a) of
40
<PAGE>
the Code, a letter determining that such Benefit Plan is so qualified and its
related trust is exempt from United States federal income tax under Sections
401(a) and 501(a) of the Code (including without limitation the requirements of
the Tax Reform Act of 1986), respectively, and there has been no occurrence
affecting the form or operation of any such Benefit Plan since the date of any
such determination letter which is likely to materially adversely affect such
qualification.
(iv) To Borden's or any Subsidiary's knowledge, there are no actions or
claims existing or pending (other than routine claims for benefits) or
threatened with respect to any Benefit Plan, and neither Borden nor any
Subsidiary nor any other ERISA Affiliate has been notified of any audit or
investigation of a Benefit Plan by any governmental entity that would have a
Material Adverse Effect. "ERISA Affiliate" means any entity, trade or business
that would be treated as under common control with Borden or as a member of a
controlled group including Borden within the meaning of Section 414 of the Code
or Section 4001 of ERISA.
(v) Except as described on Schedule 6.13(b)(v), assuming that all Business
Employees remain in the employment of the Business immediately after the Closing
(regardless of whether such employment is thereafter continued), the Asset
Transfer, the Stock Transfer and the Merger in themselves will not: (A) entitle
any such individual to severance pay, unemployment compensation or other similar
payment; (B) accelerate the time of payment or vesting of any amount; (C)
increase the amount of compensation due to any such individual; (D) constitute a
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) or (E) entitle any such individual to an "excess parachute payment"
within the meaning of Section 280G of the Code.
(vi) Schedule 6.13(b)(vi) sets forth the calculations of the funding status
of the ERIP, the Sunworthy Plan and the Borden Scheme as calculated by William
M. Mercer Limited and Towers Perrin, actuaries in Canada and the U.K.,
respectively, in accordance
41
<PAGE>
with the assumptions set forth in Schedules 8.7(h)-1 through 8.7(h)-3. These
calculations are the last performed before the date of this Agreement.
Notwithstanding the foregoing, Borden makes no representation about the validity
of the calculations or assumptions in Schedules 6.13, 8.7(h)-1, 8.7(h)-2,
8.7(h)-3 or 8.7(h) or that any other actuary or individual would arrive at the
same calculations or conclusions.
(c) Employment Contracts. Except as described on Schedule 6.13(c), there
are no employment or severance contracts between Borden or the Subsidiaries, on
the one hand, and any Business Employee, on the other hand, other than contracts
representing the standard terms and conditions prevailing between Borden or the
Subsidiaries and any Business Employees in existence pursuant to the standard
practices of the countries in which Borden or the Subsidiaries conduct their
business.
6.14 Compliance with Laws
Except as disclosed on Schedule 6.14 and except for those failures to have,
to be in full force in effect, to file, retain and maintain and to comply in
each case that individually or in the aggregate, could not be reasonably
expected to have a Material Adverse Effect, (i) with respect to the Business,
Borden and the Subsidiaries have all licenses, permits or franchises issued by
any United States or foreign, federal, state, provincial, municipal or local
authority or regulatory body and other governmental certificates, authorizations
and approvals (collectively "Permits") required by every United States or
foreign, federal, state, provincial, municipal or local governmental or
regulatory body for the operation of the Business and the use of its assets and
properties as presently operated or used; (ii) with respect to the Business, all
such Permits are in full force and effect and no action, claim or proceeding is
pending, nor to the knowledge of Borden threatened, to suspend, revoke, revise,
limit, restrict or terminate any of such Permits or
42
<PAGE>
declare any such Permit invalid; (iii) Borden and its Subsidiaries have filed
all necessary reports and maintained and retained all necessary records
pertaining to such Permits; and (iv) with respect to the Business, Borden and
the Subsidiaries have otherwise complied with all of the laws, ordinances,
regulations and orders applicable to its existence, financial condition,
operations, assets, properties or Business, and Borden has not received any
notice to the contrary.
6.15 Finders; Brokers
With the exception of fees and expenses payable to Morgan Stanley & Co.
Incorporated, which shall be Borden's sole responsibility, none of Borden or any
of the Subsidiaries is a party to any agreement with any finder or broker, or in
any way obligated to any finder or broker for any commissions, fees or expenses
in connection with the origin, negotiation, execution or performance of any
Transaction Document.
6.16 Environmental Matters
Except as disclosed on Schedule 6.16:
(a) In respect of the Business, Borden and its Subsidiaries are in
compliance with all Environmental Laws (as defined below) applicable to the
nature, scope and extent of the Business as presently conducted by Borden
and its Subsidiaries, except for violations of Environmental Laws that
could not, individually or in the aggregate, have a Material Adverse
Effect;
(b) In respect of the Business, Borden and its Subsidiaries hold, and
are in compliance with, all Licenses and Permits, required under
Environmental Laws applicable to the nature, scope and extent of the
Business as presently conducted by Borden and its Subsidiaries, except for
the absence of, or noncompliance with, such
43
<PAGE>
Licenses and Permits that could not, individually or in the aggregate, have
a Material Adverse Effect; and
(c) In respect of the Business, Borden and its Subsidiaries have not
received any written request for information, notice of violation or
noncompliance or notice of the institution or pendency of any lawsuit,
action, proceeding, investigation or claim by any person alleging any
Environmental Liability arising from or relating to the conduct of the
Business, except for all such cases that could not, individually or in the
aggregate, have a Material Adverse Effect.
(d) The business is not subject to any cleanup, remediation,
monitoring or corrective action, liability or requirement under any
Environmental Law applicable to the nature, scope and extent of the
Business as presently conducted by Borden and its Subsidiaries except for
cleanup, remediation, monitoring or corrective action, liability or
requirements as would not individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(e) As used herein:
"Environmental Laws" means any domestic, foreign, federal, state,
interstate or local statute, law or regulation in effect prior to the Closing
Date (insofar as they result in a liability or obligation on or after the
Closing Date) or as of the Closing Date or any order, injunction, judgment,
decree, common law or other enforceable requirement of any governmental entity,
and relating to the protection of the environment, including any of the
foregoing related to: (i) Remedial Actions; (ii) the reporting, licensing,
permitting or investigating of the emission, discharge, release or threatened
release of Hazardous Substances into the air, surface water,
44
<PAGE>
groundwater or land; or (iii) the manufacture, release, distribution, use,
generation, treatment, storage, disposal, transport or handling of Hazardous
Substances;
"Environmental Liability" means any liability or obligation arising under
Environmental Laws to the extent arising from any condition existing or any act
or omission at or prior to the Closing Date.
"Hazardous Substance" means (i) any substance or material regulated under
applicable Environmental Laws or (ii) gasoline, diesel fuel or other petroleum
hydrocarbons or polychlorinated biphenyls, asbestos or radioactive matter.
"Remedial Action" means any response action, removal action, remedial
action, corrective action, monitoring program, sampling program, investigation
or other cleanup activity pertaining to any Hazardous Substance.
6.17 Entire Business
Except for the Excluded Assets and except as set forth in Schedule 6.17,
the Assets and the Decorative Products Companies Stock constitute, together with
the rights and services made available in the Services Agreement and the Borden
Home License Agreement (each as hereinafter defined), all the assets, properties
and rights (i) necessary to conduct the Business in all material respects as
currently conducted, (ii) reflected in the Financial Statements (except for
assets disposed of in the ordinary course of the Business since the dates
thereof) or the Closing Balance Sheet, or (iii) which relate to the Business.
6.18 Millennium Compliance
(a) Schedule 6.18 describes the measures that have been implemented to
determine the extent to which the computer systems used in the Business (other
than the information systems listed on Schedule 2.3(e)) (the "Computer Systems")
are not in Millennium
45
<PAGE>
Compliance, and the material details of any program undertaken with a view
toward causing the Computer Systems to achieve Millennium Compliance.
(b) As used herein, "Millennium Compliance" means that the Computer Systems
are capable of the following before, during and/or after January 2000:
(i) handling date information involving all and any dates before,
during and/or after January 1, 2000, including accepting input, providing
output and performing date calculations in whole or in part;
(ii) operating, accurately without interruption on and in respect of
any and all dates before, during and/or after January 1, 2000 and without
any change in performance;
(iii) responding to and processing two digit year input without
creating any ambiguity as to the century; and
(iv) storing and providing date input information without creating any
ambiguity as to the century.
6.19 Affiliate Agreements and Liabilities
Except as set forth on Schedule 6.19 or as expressly contemplated by this
Agreement or the Schedules and Exhibits hereto, there are no written or oral
Contracts, liabilities or obligations pertaining to the Business between any
Decorative Products Company or BCL, on the one hand, and any of Borden or its
subsidiaries or any affiliate thereof (other than the Decorative Products
Companies), on the other hand, which will continue to exist or under or a result
of which there will be any liability on or after the Closing, including, without
limitation, any such Contracts relating to the provision of any services by the
Business to any of Borden or its subsidiaries or affiliates, or by any of Borden
or its subsidiaries or affiliates to the Business.
46
<PAGE>
6.20 Labor Relations
Except as set forth on Schedule 6.20, the Business is not a party to any
collective bargaining agreement covering employees, there are no controversies
or unfair labor practice proceedings pending or, to the best of Borden's
knowledge, threatened between the Business and any Business Employee or any
labor or other collective bargaining unit representing any Business Employee
that, individually or in the aggregate, could reasonably be expected to result
in a labor strike, dispute, slow-down or work stoppage or otherwise have a
Material Adverse Effect. Except as set forth on Schedule 6.20, no organizational
effort is presently being made or, to the knowledge of Borden, threatened by or
on behalf of any labor union.
6.21 Product Liability
Except as disclosed on Schedule 6.21 and except as could not, individually
or in the aggregate, be reasonably expected to have a Material Adverse Effect,
(i) there is no notice, demand, claim, action, suit, inquiry, hearing,
proceeding, notice of violation or investigation of a civil, criminal or
administrative nature by or before any court or other governmental or regulatory
authority against or involving any product, substance or material (collectively,
a "Material"), or class of claims or lawsuits involving a Material manufactured,
produced, distributed or sold by or on behalf of the Business which is pending
or, to Borden's knowledge, threatened, on behalf of the purchaser of any
Material, resulting from an alleged defect in design, manufacture, materials or
workmanship of any Material manufactured, produced, distributed or sold by or on
behalf of the Business, or any alleged failure to warn, or from any breach of
express or implied specifications or warranties or representations (each such
defect, failure or breach, a "Product Claim"), and (ii) there has not been, nor
is there under consideration or investigation by the Business, any Materials
recall, rework, retrofit or post-sale warning (collectively, recalls,
47
<PAGE>
reworks, retrofits and post-sale warnings are referred to in this Agreement as
"Recalls") conducted by or on behalf of the Business concerning any Materials
manufactured, produced, distributed or sold by or on behalf of the Business or,
to the knowledge of Borden and its Subsidiaries, any Recall conducted by or on
behalf of any entity as a result of any alleged defect in any Material supplied
by the Business. Except as disclosed in Schedule 6.21, there is no Product Claim
pending or, to the knowledge of Borden, threatened, on behalf of a customer of
the Business or any governmental or regulatory authority which, individually or
in the aggregate, has had or could reasonably be expected to have a Material
Adverse Effect. Since December 31, 1996, and except as individually or in the
aggregate, could not be reasonably expected to have a Material Adverse Effect,
no events, conditions, circumstances, activities, practices, incidents, actions,
omissions or plans have existed or occurred that could give rise to any
liability or otherwise form the basis of any material claim based on or related
to any Product or Material that was or allegedly was designed, formulated,
manufactured, produced, distributed or sold by or on behalf of the Business.
6.22 No Undisclosed Liabilities
There were no material liabilities of or relating to the Business as of
December 31, 1996 that are of a type required to be disclosed in a balance sheet
prepared in accordance with GAAP, except (a) as set forth in Schedule 6.22 or
(b) as reflected in the Annual Financial Statements. Since December 31, 1996,
the Decorative Products Companies have not incurred any material liabilities,
except (i) as set forth in Schedule 6.22, (ii) those reflected on the Interim
Financial Statements or (iii) liabilities incurred in the ordinary course of
business and not in violation of this Agreement.
48
<PAGE>
6.23 BDPH Preferred Stock
After giving effect to the Merger, the BDPH Preferred Stock will no longer
be outstanding, and BDPH will have no liabilities or obligation in respect
thereof (except the liability to pay the Aggregate Consideration in accordance
with Section 4.1(c) hereof).
6.24 No Other Representations or Warranties
Except for the representations and warranties contained in this Section 6,
any Transaction Document, the Schedules or Exhibits thereto or any certificate
delivered in connection with the Closing, neither Borden, the Subsidiaries nor
any other person makes any other express or implied representation or warranty
on behalf of Borden and the Subsidiaries including, without limitation, as to
the probable success or profitability of the ownership, use or operation of the
Business, the Decorative Products Companies and the Assets by MergerCo after the
Closing.
6.25 Expiration of Representations and Warranties
Subject to Sections 11 and 12 hereof, the respective representations and
warranties of Borden contained herein shall survive the Closing but shall expire
and be terminated and extinguished on April 1, 1999, and thereafter Borden shall
have no liability whatsoever with respect to any such representation or
warranty, provided, however, that (i) the representations and warranties in
Sections 6.1, 6.2, 6.3, 6.4, 6.7(a), 6.12 and 6.15 (collectively, the "Five-Year
Reps") will survive the Closing until the fifth anniversary thereof and (ii)
nothing herein will affect the parties' relative rights and obligations in
respect of a claim for breach of any representation or warranty made within the
applicable survival period provided herein.
49
<PAGE>
7. REPRESENTATIONS OF MERGERCO
MergerCo represents and warrants to Borden that:
7.1 Corporate Existence
MergerCo is a corporation duly organized and validly existing and in good
standing under the laws of the jurisdiction of its incorporation. MergerCo is
duly authorized, qualified or licensed to do business as a foreign corporation
and in good standing in every jurisdiction wherein, by reason of the nature of
the Business or the character of the Assets, the failure to be so qualified or
in good standing would reasonably be likely to result in the material adverse
effect on the ability of MergerCo to consummate the transactions contemplated
hereby (a "MergerCo Material Adverse Effect").
7.2 Corporate Authority; Shareholder Authorization
This Agreement and the consummation of all of the transactions provided for
herein and each of the Transaction Documents have been duly authorized by the
Board of Directors of MergerCo and by all requisite corporate, shareholder
(including approval of the Merger by MergerCo's shareholders), or other action
prior to Closing, and MergerCo has full power and authority to execute and
deliver the Transaction Documents and to perform its obligations thereunder.
This Agreement has been, and the other Transaction Documents will be, duly,
executed and delivered by MergerCo and each Transaction Document constitutes a
valid and legally binding obligation of MergerCo, enforceable in accordance with
its terms (i) except as enforceability may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditor's rights or (ii)
subject to general principles of equity. The execution and delivery of the
Transaction Documents by MergerCo or the consummation by MergerCo of the
transactions contemplated thereby and the fulfillment of the terms and
compliance with the
50
<PAGE>
provisions hereof, will not (a) conflict with or result in a breach of or a
default (or in an occurrence which with the lapse of time or action by a third
party, or both, could result in a default) with respect to any of the terms,
conditions or provisions of, (b) result in the termination of, accelerate the
performance required by, (c) impair MergerCo's ability to consummate the
transactions contemplated hereby, (d) give rise to any right of termination or
renegotiation, or purchase or offer right, under: (x) any statute, rule,
regulation, code, order, writ or decree of any governmental authority applicable
to MergerCo, (y) the certificate of incorporation or by-laws or other
constituent documents of MergerCo, or (z) any contract, lease, permit or other
instrument to which MergerCo is a party or subject or by which any of MergerCo's
properties or assets are bound, except in the cases of clauses (x) and (z) for
those conflicts, breaches, defaults, terminations, or accelerations which,
individually or in the aggregate, could not reasonably be expected to have a
MergerCo Material Adverse Effect and except that no representation is made
herein as to the effect of this Agreement and the transactions contemplated
hereby under antitrust laws.
7.3 Governmental Approvals; Consents
MergerCo is not subject to any order, judgement or decree which would
prevent the consummation of the transactions contemplated hereby. No claim,
legal action, suit, arbitration, governmental investigation, action or other
legal or administrative proceeding is pending or, to the knowledge of MergerCo,
threatened against MergerCo which would enjoin or delay the transactions
contemplated hereby. Except as set forth in Schedule 7.3 hereto, no consent,
approval, order or authorization of, license or permit from, notice to or
registration, declaration or filing with, any governmental authority or entity,
domestic or foreign, or of any third party, is or has been required on the part
of MergerCo in connection with the execution and delivery of
51
<PAGE>
this Agreement, or the consummation of the transactions contemplated hereby
except for such consents, approvals, orders or authorizations of, licenses or
permits, filings or notices the failure of which to obtain or make would not
have a MergerCo Material Adverse Effect or which have been obtained and which
will remain in full force and effect after the Closing.
7.4 Finders; Brokers
MergerCo is not a party to any agreement with any finder or broker, or in
any way obligated to any finder or broker for any commissions, fees or expenses,
in connection with the origin, negotiation, execution or performance of this
Agreement for which Borden or any of its Affiliates (other than, if the Closing
occurs, the Decorative Product Companies), have any liability.
7.5 Purchase for Investment
MergerCo is aware that no shares of capital stock or other securities being
acquired pursuant to the transactions contemplated hereby are registered under
the Securities Act of 1933, as amended (the "Securities Act"), or under any
state or foreign securities laws. MergerCo is not an underwriter, as such term
is defined under the Securities Act.
7.6 Financial Capacity
MergerCo has in hand a binding commitment letter (the "Commitment Letter"),
which is currently in effect and true and a correct copy of which is attached
hereto as Schedule 7.6, from the financial institutions indicated therein, as
well as the equity Commitment Letter (the "Blackstone Commitment Letter") of
Blackstone, to provide secured debt and equity financing contemplated by
MergerCo and BDPH for the transactions described in this Agreement and has
obtained a highly confident letter with respect to the subordinated debt
financing so contemplated
52
<PAGE>
(collectively, the "Financing"). Blackstone has undertaken to provide the equity
capital contemplated by the Commitment Letter.
7.7 [Intentionally omitted]
7.8 No Other Representations or Warranties
Except for the representations and warranties contained in this Section 7,
neither MergerCo nor any other person makes any other express or implied
representation or warranty on behalf of MergerCo.
7.9 Expiration of Representations and Warranties
Subject to Sections 11 and 12 hereof, the respective representations and
warranties of MergerCo contained herein shall survive the Closing but shall
expire and be terminated and extinguished on April 1, 1999 and thereafter
MergerCo shall have no liability whatsoever with respect to any such
representation or warranty, provided, however, that (i) the representations and
warranties in Sections 7.1, 7.2, 7.3 and 7.4 (collectively, "Long-Term Reps")
will survive the Closing until the fifth anniversary thereof and (ii) nothing
herein will affect the parties' relative rights and obligations in respect of a
claim for breach of any representation or warranty made within the applicable
survival period provided herein. 8. AGREEMENTS OF MERGERCO AND BORDEN
8.1 Operation of the Business
Except as otherwise contemplated by this Agreement or as disclosed in
Schedule 8.1, Borden covenants that until the Closing it will, and it will cause
the Subsidiaries (including BDPH) to, use all reasonable efforts to continue, in
a manner consistent with the past practices of the Business, to maintain and
preserve intact the Business and to maintain the ordinary and customary
relationships of the Business with its employees, suppliers, customers and
others
53
<PAGE>
having business relationships with it with a view toward preserving for BDPH to
and after the Closing Date the Business, the Assets and the goodwill associated
therewith. Until the Closing Date, Borden shall, and Borden shall cause the
Subsidiaries (including BDPH) to, continue to operate and conduct the Business
in the ordinary course consistent with past practice (including, without
limitation, in respect of the creation and distribution of sample books and
other marketing efforts, and customer returns and allowances policies) and
maintain its books and records in accordance with GAAP and will not, and shall
cause the Subsidiaries (including BDPH) not to, without the prior written
approval of MergerCo or as otherwise contemplated by this Agreement or Schedule
8.1, take any of the following actions:
(a) with respect to any Decorative Products Company, amend its charter or
by-laws (or analogous organizational documents), issue, deliver, sell, pledge or
otherwise encumber any shares of capital stock of any class or series, or any
securities convertible into or exchangeable for shares of capital stock, or
issue any options, warrants or other rights to acquire any shares of capital
stock;
(b) sell, transfer or otherwise dispose of or encumber any of their
properties or assets pertaining to the Business, other than (A) in the ordinary
course of business and (B) transfers by a Decorative Product Company to another
Decorative Products Company or by Borden or another Subsidiary to a Decorative
Product Company;
(c) cancel any debts or waive any claims or rights pertaining to the
Business, except in the ordinary course of business;
(d) grant any increase in the compensation of directors, officers or
employees who are Business Employees except for increases to employees (but not
officers or directors) (i)
54
<PAGE>
in the ordinary course of business and consistent with past practice or (ii) as
required by any Benefit Plan (as defined in Section 6.13(b));
(e) fail to make capital expenditures as contemplated by Schedule 8.1(e);
(f) except with respect to endorsement of negotiable instruments in the
ordinary course of its Business, incur, assume, guarantee or otherwise become
liable in respect of any Indebtedness. For purposes of this Agreement,
"Indebtedness" means any liability or obligation (whether primary or secondary
as a guarantor or other surety other than arising out of the endorsement of
checks for collection in the ordinary course of business), for borrowed money
(other than purchase money borrowing and other borrowings which are repaid in
full prior to the Closing), for the deferred purchase price of any asset (other
than inventory in the ordinary course of business), under a capitalized lease or
any other liability or obligation which should be shown as indebtedness on a
balance sheet for the Business prepared in accordance with GAAP, whether or not
evidenced by a note, bond or similar instrument;
(g) fail to observe, in all material respects, their duties and obligations
under the Disclosed Contracts or any other material Contract;
(h) amend, modify or cancel any Disclosed Contract or any other material
Contract, except in the ordinary course of business consistent with past
practice or adopt or amend any Benefit Plan;
(i) fail to continue existing practices relating to maintenance of Assets
owned, leased or otherwise held in connection with the Business or by any
Decorative Products Company;
(j) dispose of, permit to lapse, or otherwise fail to preserve any of the
Patent Rights, Trademark Rights, Copyright Rights and Technology or other
similar rights, or amend
55
<PAGE>
any Contract relating thereto, dispose of or permit to lapse any material
Permit, or dispose of or disclose to any person or entity other than an
authorized representative of MergerCo, any trade secret (except for such of the
foregoing as may occur by operation of law or the terms of any of the
foregoing);
(k) with respect to any Decorative Products Company, make any investments
in, or acquisitions of, or enter into any joint venture, partnership or similar
arrangement with, any person or entity;
(l) settle or compromise or agree to settle any claim related to the
Business that is in excess of $50,000 against any person or entity;
(m) take or omit to take any action that would cause any representation of
Borden or BDPH (i) that is qualified as to materiality to become untrue or (ii)
that is not qualified as to materiality to become untrue in all material
respects;
(n) make any change in the accounting methods, principles or practices of
the Business, except as required by GAAP;
(o) (i) split, combine or reclassify any Decorative Products Company Stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of Decorative Products Company Stock or
(ii) purchase, redeem or otherwise acquire any shares of Decorative Products
Company Stock or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities; or
(p) agree, whether in writing or otherwise, to do any of the foregoing.
56
<PAGE>
8.2 Investigation of Business
MergerCo may, prior to the Closing Date, make or cause to be made such
investigation of the business, assets and properties of the Business and of its
financial and legal condition as MergerCo deems necessary or advisable. Borden
will, or it will cause the Subsidiaries to, permit MergerCo and its authorized
agents or representatives, including its independent accountants, to have full
access to the assets, properties, employees, officers, books and records of the
Business at reasonable hours to review information and documentation relative to
the properties, books, contracts, commitments and other records of the Business,
provided, however, that MergerCo shall not have access to customer lists to the
extent disclosure thereof to MergerCo is prohibited by applicable law prior to
Closing. MergerCo and its representatives will hold in confidence all
confidential information obtained from Borden and the Subsidiaries and their
officers, agents, representatives or employees in accordance with the provisions
of the letter dated April 25, 1997 between MergerCo and Borden ("Confidentiality
Letter").
8.3 Mutual Cooperation; No Inconsistent Action
(a) Subject to the terms and conditions hereof, Borden and MergerCo agree
to use their reasonable best efforts to take, or cause to be taken, all
commercially reasonable actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement, including all of the following (i) obtain prior
to Closing all licenses, certificates, permits, approvals, authorizations,
qualifications and orders of governmental authorities as are necessary for the
consummation of the transactions contemplated hereby, including without
limitation such consents and approvals as may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"Hart-Scott Act"), and any similar foreign legislation; (ii) effect all
necessary registrations and
57
<PAGE>
filings and (iii) satisfy the conditions to Closing. Borden and MergerCo shall
cooperate fully with each other to the extent reasonable in connection with the
foregoing.
(b) MergerCo and Borden shall timely and promptly make all filings which
may be required by each of them in connection with the consummation of the
transactions contemplated hereby under the Hart-Scott Act and any similar
foreign legislation. Each party shall furnish to each other such necessary
information and assistance as the other party may reasonably request in
connection with the preparation of any necessary filings or submissions by it to
any U.S. or foreign governmental agency, including, without limitation, any
filings necessary under the provisions of the Hart-Scott Act. Each party shall
provide the other party the opportunity to make copies of all correspondence,
filings or communications (or memoranda setting forth the substance thereof)
between such party or its representatives, on the one hand, and the Federal
Trade Commission (the "FTC"), the Antitrust Division of the United States
Department of Justice (the "Antitrust Division") or any similar foreign
governmental agency or members of their respective staffs, on the other hand,
with respect to this Agreement or the transactions contemplated hereby.
(c) Other than to the extent applicable law expressly requires Borden and
its Subsidiaries to do so, BDPH shall be responsible for making all filings and
giving all notices relating to, and otherwise pursuing all licenses, permits,
consents, approvals, authorizations and orders of foreign governmental
authorities and making all registrations and filings with foreign governmental
authorities (collectively, the "Foreign Governmental Consents"), to be made or
given subsequent to the Closing Date, which, to the best knowledge of BDPH or
MergerCo, are required in connection with the transactions contemplated hereby
and shall provide a copy of any such filings or notices to Borden. In connection
with and as a condition to BDPH's obligations
58
<PAGE>
under the preceding sentence, Borden shall fully cooperate with and assist BDPH
in identifying and obtaining all such licenses, permits, consents, approvals,
authorizations or orders and in making all such registrations and filings.
(d) Each of Borden and MergerCo shall notify and keep the other advised in
reasonable detail as to (i) any litigation or administrative proceeding pending
and known to such party, or to its knowledge threatened, which challenges the
transactions contemplated hereby or the acquisition (the "C&A Transaction") of
Collins & Aikman Products Co.'s Imperial Wallcoverings business ("Imperial") and
(ii) any event or circumstance which would constitute a breach of their
respective representations and warranties in this Agreement, provided that the
failure of Borden or MergerCo to comply with clause (ii) shall not subject
Borden or MergerCo to any liability hereunder except as and to the extent Borden
or MergerCo would be responsible for a breach of such representations and
warranties pursuant to Section 11 (including, without limitation, the
limitations on recovery and the time periods for bringing claims thereunder).
Subject to the provisions of Section 13 hereof, Borden and MergerCo shall not
and shall cause their respective affiliates not to take any action inconsistent
with their obligations under this Agreement or which would materially hinder or
delay the consummation of the transactions contemplated by this Agreement.
8.4 Public Disclosures
Prior to the Imperial Termination Date, neither MergerCo nor Borden will
issue any press release or make any other public disclosures concerning the
existence or contents of this Agreement or the transactions contemplated hereby.
On or after the Imperial Termination Date, neither MergerCo nor Borden will
issue any press release or make any other public disclosures concerning this
transaction or the existence or contents of this Agreement or the transactions
59
<PAGE>
contemplated hereby without the prior written consent of the other party, which
shall not be unreasonably withheld or delayed. Until the first anniversary of
the Closing Date the parties agree that prior to filing any report or document
with the Securities and Exchange Commission containing language describing the
Agreement and the transactions contemplated by or directly related to the
Transaction Documents, each shall allow the other party reasonable time to
comment on such language. Notwithstanding the above, nothing in this Section
will preclude any party from making any disclosures it determines in good faith
to be required by law or regulation or necessary and proper in conjunction with
the filing of any tax return or other document required to be filed with any
federal, state or local governmental body, authority or agency; provided, that
the party required to make the release or statement shall, if practicable in the
circumstances, allow the other party reasonable time to comment on such release
or statement in advance of such issuance.
8.5 Access to Records and Personnel
(a) The parties shall retain the books, records, documents, instruments,
accounts, correspondence, writings, evidences of title and other papers,
including independent accountants' workpapers, relating to the Business or the
Assets in their possession (the "Books and Records") for the longer of (i) the
period of time set forth in their respective records retention policies on the
Closing Date or (ii) for such longer period as may be required by law or any
applicable court order.
(b) The parties will allow each other reasonable access to such Books and
Records, and to personnel having knowledge of the whereabouts and/or contents of
such Books and Records (and will instruct such personnel to fully cooperate with
the other party) for legitimate business reasons, such as the preparation of tax
returns, the defense of litigation, the
60
<PAGE>
preparation of audited financial statements and in connection with the financing
of the transactions contemplated hereby, provided, however, such access shall
not interfere with the normal operation of the providing party's business.
Borden will use its reasonable best efforts to cause the independent accountants
that issued the reports relating to the 1995, 1996 and 1997 audited Financial
Statements of the Business to consent to BDPH's use of such audited Financial
Statements as may be required by applicable law in the disclosure documents
relating to the financing contemplated by this Agreement or any subsequent
financing involving a public offering. Each party shall be entitled to recover
its out-of-pocket costs (including, without limitation, copying costs and
accountants' fees and expenses) incurred in providing such records and/or
personnel to the other party. The requesting party will hold in confidence all
confidential information identified as such by, and obtained from, the
disclosing party, any of its officers, agents, representatives or employees,
provided, however, that information which was (i) in the public domain; (ii) was
in fact known to the requesting party prior to disclosure by the disclosing
party, its officers, agents, representatives or employees; or (iii) becomes
known to the requesting party from or through a third party not under an
obligation of non-disclosure to the disclosing party, shall not be deemed to be
confidential information.
8.6 Use of Materials Bearing the "Borden" Trademark
(a) Except as otherwise provided in the Borden Home License Agreement
(defined below), for a period of 6 months after the Closing Date, Borden hereby
grants to BDPH a non-exclusive non-assignable, royalty-free license to use the
Borden(R) trademark (hereinafter in this Section 8.6 the "Trademark") on any and
all packaging materials for Products on which the Trademark appears as of the
Closing Date ("Packaging Materials"); provided that any such products
manufactured by BDPH are manufactured, in all material respects, at the quality
61
<PAGE>
standards of Borden and consistent, in all material respects, with the quality
standard used prior to Closing. Any such Packaging Materials bearing the
Trademark not used within 6 months after the Closing Date may not be thereafter
used by BDPH and shall be destroyed at MergerCo's sole expense unless otherwise
agreed to by Borden in writing. Within the later of (i) one month after any
extension granted by Borden pursuant to the previous sentence and (ii) 7 months
following the Closing Date, BDPH shall provide to Borden evidence reasonably
satisfactory to Borden that all such Packaging Materials have been used or
destroyed. BDPH shall defend, indemnify and hold Borden harmless from any
product liability or similar claims arising from Products manufactured and sold
by BDPH using such Packaging Materials. On and after the Closing, BDPH shall not
be authorized to execute any purchase order bearing the Trademark and BDPH
agrees immediately after Closing to destroy any and all such purchase order
forms.
(b) On or prior to the Closing, Borden shall have delivered to MergerCo
evidence that the inter-company trademark licensing agreements between Borden
and its affiliates (other than Decorative Products Companies), on the one hand,
and the Decorative Product Companies, on the other hand, listed on Schedule
8.6(b) hereto shall have been terminated.
(c) On the Closing Date, BDPH and Borden shall execute and deliver a
transition license agreement, substantially in the form of Exhibit A hereto (the
"Borden Home License Agreement"), pursuant to which Borden shall grant to BDPH a
non-assignable license to use, for a period of one year following the Closing
Date, certain Borden Home-related trademarks.
8.7 Employee Relations and Benefits
62
<PAGE>
(a) Conduct Prior to Closing Date. Borden and its Subsidiaries shall be
under no obligation to terminate any Business Employee; provided, however, that
the Decorative Products Companies shall be under no obligation to maintain
employment of any Business Employee following the Closing Date by virtue of any
provision of this Agreement.
(b) Continuity of Employment. The parties agree that all Business Employees
employed immediately prior to the Closing will be employed in the Business
immediately after the Closing; provided, however, that the Decorative Products
Companies shall be under no obligation to employ any Business Employee following
the Closing Date.
(c) Collective Bargaining Agreements. The BDPH Canadian Subsidiary shall
assume and be bound by the terms of the collective bargaining agreements listed
on Schedule 8.7(c) which pertain to the Acquired Assets and Assumed Liabilities
to be acquired or assumed by the BDPH Canadian Subsidiary (the "Collective
Bargaining Agreements") as of the Closing Date.
(d) Comparable Benefits. Subject to Section 8.7(m), for one year following
the Closing Date, BDPH shall offer such compensation and benefits (including,
but not limited to, health, welfare, pension, vacation, savings and severance
benefits), effective as of the Closing Date, to the Business Employees who are
not in a unit represented by a collective bargaining agent that are comparable
in the aggregate to the compensation and benefits that are in effect for
Imperial employees immediately prior to Closing.
(e) Benefit Plan Participation. Except as expressly provided in this
Section 8.7 or except as otherwise required by applicable law, all Business
Employees shall cease active participation in (and accrual of additional
benefits under) all Benefit Plans as of the Closing Date.
63
<PAGE>
(f) Employment Liabilities. Except as otherwise specifically provided in
this Section 8.7, BDPH shall be responsible and liable for (i) all liabilities
and obligations relating to the participation of the Business Employees under
the Benefit Plans before, on or after the Closing Date (including, but not
limited to, medical, dental and life insurance benefits for the benefit of
Business Employees who are receiving disability income payments under any
Benefit Plan, but excluding all liabilities and obligations relating to the
Borden, Inc. Employees Retirement Income Plan (the "Borden U.S. Pension Plan"),
any withdrawal liability incurred by or asserted with respect to any Benefit
Plan that is a multiple employer plan or multiemployer plan, and long-term
disability income benefits payable to U.S. Business Employees and Canada
Business Employees for long-term disability claims reported to Borden by the
making of application for disability benefits prior to Closing, which excluded
liabilities shall be assumed and/or retained by Borden) and (ii) all liabilities
and obligations in connection with the employment (or termination of employment)
of the Business Employees before, on or after Closing including the assumption
of the employment agreements with respect to the Business Employees.
(g) U.S. Defined Contribution Plans. (i) As of Closing, Borden shall cause
the active participation by the U.S. Business Employees in the Borden, Inc.
Retirement Savings Plan, the Borden, Inc. Union Savings Plan and the Borden,
Inc. Associate Savings Plan (collectively, the "U.S. Savings Plans") to cease.
Borden shall (A) as of Closing cause the trustees of the Savings Plans to
identify, in accordance with the applicable spinoff provisions set forth under
Section 414(l) of the Code, the assets of the U.S. Savings Plans representing
the full account balances of the U.S. Business Employees for all periods of
participation through Closing (including, as applicable, all employee
contributions, employer contributions and all earnings
64
<PAGE>
attributable thereto); and (B) as soon as practicable (but in no event later
than nine months) after Closing, make all required filings and submissions to
appropriate governmental authorities and all required amendments to the U.S.
Savings Plans and related trust agreements necessary to provide for the transfer
of assets described in this Section 8.7(g). The U.S. Savings Plans shall be
amended to provide that (A) there shall be no contributions thereto with respect
to the U.S. Business Employees for periods after Closing and (B) all transferred
employer contributions shall be fully vested.
(ii) BDPH shall (A) give Borden written notice of the name of the trustee
of the defined contribution plan designated by BDPH to which the assets and
liabilities for benefits of the U.S. Savings Plans are to be transferred (the
"BDPH U.S. Savings Plan"), accompanied by a copy of the most recent favorable
IRS determination letter for such plan received by BDPH, as promptly as possible
after Closing, but in any event prior to the date on which such transfer is to
occur; and (B) as soon as practicable (but in no event later than nine months)
after Closing, make all required filings and submissions to appropriate
governmental authorities. As soon as practicable after Closing, and pursuant to
the procedures set forth below, Borden shall cause the trustees of the U.S.
Savings Plans to transfer to the trustee of the BDPH Savings Plan the following
amount (the "U.S. Savings Total Transfer Amount"): (A) the full account balances
(in kind or in cash as determined by Borden, and notes for any loans to the U.S.
Business Employees) of all U.S. Business Employees, whose account balances shall
have been credited with appropriate earnings and contributions, if any,
attributable to the period ending at the close of business on the Closing Date,
plus (B) earnings on such account balances attributable to the period from the
Closing Date to U.S. Savings Transfer Date, as defined below, reduced by (C) any
benefit or withdrawal payments in respect of the U.S. Business Employees prior
to the U.S.
65
<PAGE>
Savings Transfer Date. The "U.S. Savings Transfer Date" shall be the first day
of the month following a 15th day of a month by which BDPH has requested the
transfer and Borden has received copies of the applicable favorable IRS
determination letter; provided, however, that in no instance shall such date
occur more than nine months after Closing. On the U.S. Savings Transfer Date,
Borden shall transfer 90% of its good faith estimate of the U.S. Savings Total
Transfer Amount. Upon the completion of a calculation of the U.S. Savings Total
Transfer Amount by the record keeper for the U.S. Saving Plans (such calculation
to occur no later than 120 days after the U.S. Savings Transfer Date and such
calculation to be binding on BDPH), the U.S. Savings Plans shall transfer to the
BDPH U.S. Savings Plan an amount equal to the difference between the U.S.
Savings Total Transfer Amount and any amounts previously transferred to the BDPH
U.S. Savings Plan or, if applicable, the BDPH U.S. Savings Plan shall transfer
to the U.S. Savings Plans an amount equal to the difference between any amounts
previously transferred to the BDPH U.S. Savings Plan and the U.S. Savings Total
Transfer Amount. In consideration of the transfer of assets hereunder, BDPH
shall, as of the U.S. Savings Transfer Date, cause the BDPH U.S. Savings Plan to
assume the liabilities for benefits payable to plan participants and
beneficiaries in respect of participants for whom assets (including notes) are
transferred.
(iii) BDPH shall (A) permit repayment to the BDPH U.S. Savings Plan of the
outstanding loans of the U.S. Business Employees (under the U.S. Savings Plans)
by way of regular paycheck deductions and (B) take all steps required to
effectuate such repayment (including, but not limited to, the amendment of its
plans).
66
<PAGE>
(iv) Any transfer of plan assets shall consist of cash, participants notes
and fixed investment contracts (valued at their book value as of the date or
dates of transfer) as determined by Borden.
(h) International Benefit Plans. Schedule 8.7 (h) describes additional
obligations of BDPH and Borden with respect to Benefit Plans that are not U.S.
Benefit Plans (collectively, the "International Benefit Plans"). To the extent
that an International Benefit Plan is not specifically addressed in Schedule
8.7(h), such International Benefit Plan shall be governed by the general
provisions of this Section 8.7 and by applicable local laws.
(i) Pre-Closing Claims. In respect of pre-Closing benefits claims
(including, without limitation, workers compensation claims, claims under
Borden's self-insured retention programs and welfare benefit claims) assumed or
retained by BDPH pursuant to Section 8.7, following the Closing until such time
as BDPH provides Borden with reasonably satisfactory evidence that it has made
arrangements to promptly process such claims, Borden shall have the option, but
not the obligation, to process and pay such claims and BDPH hereby agrees to
promptly reimburse Borden the amount paid in respect of such claims, as well as
Borden's incremental costs of processing such claims.
(j) Post-Retirement Benefits. As of Closing, no Business Employee shall be
eligible to receive "Post-Retirement Benefits" from Borden (including, but not
limited to, retiree medical and retiree life benefits). To the extent that
Business Employees receive (or are eligible to receive) any of the
Post-Retirement Benefits generically described on Schedule 8.7(j) from Borden
immediately prior to Closing, such Business Employees shall receive the same
PostRetirement Benefits from BDPH following Closing.
67
<PAGE>
(k) Welfare Plans. Except with respect to the disability benefits retained
by Borden pursuant to Section 8.7(f)(i) above, with respect to any BDPH Benefit
Plan that is a "welfare benefit plan" (as defined in Section 3(1) of ERISA, or
would be a "welfare benefit plan" if such plan was subject to ERISA) for the
benefit of Business Employees on and after Closing, BDPH shall (a) cause there
to be waived any pre-existing condition limitations and (b) give effect, in
determining any deductible and maximum out-of-pocket limitations, to claims
incurred and amounts paid by, and amounts reimbursed to, such employees with
respect to similar plans maintained by Borden immediately prior to Closing.
Notwithstanding any other Section in this Agreement, BDPH shall assume all
liabilities (whether incurred before, during or after the Closing) with respect
to the FAS 106 and FAS 112 liabilities (including, but not limited to,
PostRetirement and Post-Employment Benefits) of the Business Employees.
(l) Accrued Vacation. With respect to any accrued but unused vacation time
to which any Business Employee is entitled pursuant to the vacation policies,
which, in the case of non-union vacation policies, are described on Schedule
8.7(l)-1, applicable to such employee (the "Vacation Policy") as of the Closing
Date, BDPH shall allow such Business Employee to use such accrued vacation;
provided, however, that if BDPH deems it necessary to disallow such employee
from taking such accrued vacation, BDPH shall be liable for and pay in cash an
amount that is consistent with vacation time accrued under the Vacation Policy
to such employee.
(m) Severance. With respect to Business Employees covered by the Collective
Bargaining Agreements, such Business Employees shall be covered by such
severance benefits, if any, as provided by such Collective Bargaining
Agreements. With respect to U.K. Business Employees, MergerCo shall provide such
Business Employees terminated within 12 months of
68
<PAGE>
Closing, who otherwise qualify therefor, with severance benefits in accordance
with the severance practices set forth in Schedule 8.7(m)-1. With respect to all
other Business Employees, MergerCo shall provide severance benefits in
accordance with the severance practices of Imperial set forth in Schedule
8.7(m)-2 to such Business Employees (who are either salaried or non-union hourly
employees) terminated within 12 months of Closing who otherwise qualify
therefor.
(n) Service Credit. With respect to the Business Employees, BDPH shall
recognize all service with Borden and its Subsidiaries for purposes of
eligibility and vesting under the BDPH Benefit Plans.
(o) WARN Act. BDPH agrees to provide any required notice under the Worker
Adjustment and Retraining Notification Act ("WARN") and any other similar
applicable law and to otherwise comply with any such statute with respect to any
"plant closing" or "mass layoff" (as defined in WARN) or similar event affecting
U.S. Business Employees and occurring on or after Closing or arising as a result
of the transactions contemplated hereby.
(p) COBRA. BDPH agrees to provide any required notice under the
Consolidated Omnibus Budget Reconciliation Act of 1986, as amended, and any
other applicable law on or after Closing.
(q) No Rights Conferred on Employees. Nothing herein, expressed or implied,
shall confer upon any employee or former employee of Borden, BDPH or any
Decorative Products Company or any of their affiliates (including, without
limitation, the Business Employees) any rights or remedies including, without
limitation, any right to employment or continued employment for any specified
period) of any nature or kind whatsoever, under or by reason of this Agreement.
69
<PAGE>
(r) Retention of Certain Severance Liabilities. Borden agrees to retain all
liabilities and obligations for any severance liabilities arising solely from
the Asset Transfer, the Stock Transfer and the Merger, provided that any
severance liabilities or obligations arising from the acts or omissions of
MergerCo, or, following the Closing, BDPH and its Subsidiaries, shall be the
responsibility of BDPH.
8.8 Intentionally Omitted
8.9 "As Is" Condition
Except as otherwise specifically provided by Borden in the representations
and warranties of Borden set forth herein, and subject to the limitations with
respect to such representations and warranties contained in this agreement,
MergerCo agrees that it shall accept all Assets in an "As Is" "Where Is"
condition at the Closing Date. EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED BY
BORDEN IN THE REPRESENTATIONS AND WARRANTIES OF BORDEN SET FORTH IN THE
TRANSACTION DOCUMENTS, AND SUBJECT TO THE LIMITATIONS WITH RESPECT TO SUCH
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, BORDEN MAKES NO
WARRANTY WITH RESPECT TO THE VALUE, CONDITION OR USE OF THE ASSETS, WHETHER
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
8.10 Intercompany Transactions
Effective as of the Closing Date, all intercompany receivables or payables
and loans (including intercompany obligations with respect to foreign currency
contracts or other derivative financial contracts) then existing between Borden
and any affiliates of Borden which are not Decorative Products Companies
(collectively the "Borden Affiliates") on the one hand, and any
70
<PAGE>
of the Decorative Products Companies, on the other hand, shall be netted and the
remaining balance will be deemed to be treated as an intercompany dividend or
capital contribution, as the case may be, and all Contracts between such parties
will terminate except as specified in Schedule 8.10.
8.11 Non-Solicitation
Until the Closing shall actually have occurred, MergerCo acknowledges that
it remains subject to paragraph 12 of the Confidentiality Letter.
8.12 Guarantees
BDPH shall use its commercially reasonable efforts (which shall not include
agreeing to any modifications of the terms of the underlying obligations or the
payment of any amounts) to cause itself or one or more of its affiliates to be
substituted in all respects for the Borden Affiliates, effective as of the
Closing, in respect of all obligations of the Borden Affiliates under each of
the guarantees, indemnities, surety bonds, letters of credit and letters of
comfort obtained by the Borden Affiliates for the benefit of the Business listed
on Schedule 8.12 (the "Guarantees").
8.13 Financing
(a) If MergerCo is unable to arrange and/or cause BDPH to obtain any
portion of the financing described in the Commitment Letters due to facts or
circumstances relating to Imperial or the C&A Transaction, then MergerCo shall
use its reasonable best efforts to arrange and/or cause BDPH to obtain
alternative financing for the consummation of the transactions (excluding the
C&A Transaction) contemplated hereby from other sources or in any other
commercially reasonable manner, provided, however, that reasonable best efforts
shall not be deemed to include acceptance of financial or other terms that
MergerCo determines are not, taken
71
<PAGE>
as a whole, at least as favorable in all material respects to MergerCo as the
terms contained in the Commitment Letters. MergerCo will inform Borden within 24
hours of any determination that it is unable to arrange any financing.
(b) At Closing, MergerCo will be capitalized as contemplated by the
Blackstone Commitment Letter. In the event that Blackstone contributes
additional equity capital (the amount of such additional contribution, together
with any shares of BDPH Common Stock received by C&A from Blackstone following
the Closing Date in the C&A Transaction (provided such common stock is expressed
in the definitive documentation of the C&A Transaction on or prior to the
Imperial Termination Date as a fixed number of shares and is not amended with
respect to such number of shares without the prior written consent of Borden),
valued on the same basis as the shares of BDPH Common Stock held by Blackstone
on the Closing Date immediately following the Merger, the "C&A Capital Amount")
to BDPH in connection with a closing of the C&A Transaction which is subsequent
to the Closing Date and subject to the condition that no additional shares of
BDPH Common Stock or common stock of any subsidiary of BDPH and no options,
warrants, appreciation rights or other rights of any kind relating to the BDPH
Common Stock or the common stock of any subsidiary of BDPH are issued in
connection with the C&A Transaction, then the Cash Refund Amount (as defined
below), if any, shall be paid by Borden to BDPH by wire transfer within 2
business days of notice thereof in writing to Borden following the closing of
the C&A Transaction. The term "Cash Refund Amount" shall mean the excess, if
any, of (i) the Cash Amount as actually calculated at the Closing over (ii) the
Cash Amount as it would have been calculated at the Closing had the C&A Capital
Amount been provided to MergerCo prior to the Closing; provided, that in no
event shall
72
<PAGE>
the Cash Amount calculated pursuant to either clause (i) or clause (ii) of this
definition ever be less than $309,550,000.
(c) From and after the opening of business on the Closing Date, BDPH shall
be responsible for funding all disbursements of the Business; Borden will be
responsible therefor prior thereto. Any cash, cash equivalents, similar
investments, certificates of deposit, Treasury bills and other marketable
securities at the Closing shall be treated by the parties consistent with
Section 2.3(c).
8.14 Buy-Out of BLC Assets
The "BLC Master Lease" shall mean the master lease dated June 1, 1990
between Citicorp Bankers Leasing Corporation ("Citicorp") and Borden pursuant to
which the machinery and equipment described in Schedule 8.14 (the "BLC Assets")
are leased to Borden by Citicorp. Prior to the Closing Date, Borden and MergerCo
shall each use commercially reasonable efforts to assign the BLC Master Lease,
relating to the BLC Assets, to BDPH, provided, however, that nothing herein will
require BDPH, MergerCo or any affiliate of MergerCo (or any subsidiary of BDPH
or any post-merger affiliate of BDPH) to expend money or incur any liability or
obligation to obtain such assignment. If, prior to the Closing Date, Citicorp
has not agreed to such assignment effective prior to the Closing, then Borden
shall pay to Citicorp immediately prior to the Closing, by wire transfer of
immediately available funds, the BLC Buy-Out Amount (as defined below). If such
assignment is procured prior to the Closing Date on or prior to the Closing
Date, MergerCo shall arrange to have all BLC Assets which by law are required to
carry liability or other insurance insured in accordance with applicable law.
The "BLC Buy-Out Amount" shall mean approximately $639,240 (the equity balance
payable by Borden as of September 30, 1997 under the BLC Master Lease to acquire
title to the BLC Assets) less any
73
<PAGE>
lease payments on such BLC Assets made by Borden from the date on which the
foregoing equity balance was calculated through the Closing Date.
8.15 Services Agreement
On the Closing Date, BDPH and Borden shall execute and deliver agreements,
substantially in the form attached hereto as Exhibit B (the "Services
Agreements"), pursuant to which Borden shall agree to provide certain services
on the terms and subject to the conditions set forth therein.
8.16 Nondisclosure; Noncompetition
(a) From and after the Closing Date, Borden shall not, and shall cause its
subsidiaries not to use, divulge, furnish or make accessible to anyone (except
to the extent otherwise required in the opinion of Borden's counsel, by
applicable law, regulation or legal process) any proprietary, material
non-public, confidential or secret information to the extent relating to the
Business (including, without limitation, customer lists, supplier lists and
pricing and marketing arrangements with customers or suppliers), and Borden and
its subsidiaries shall cooperate reasonably with MergerCo in preserving such
proprietary, confidential or secret aspects of the Business. After the Closing
Date and to the extent provided in the applicable confidentiality letter, Borden
shall use its reasonable best efforts to retrieve (or obtain an agreement to
destroy) any written evaluation and due diligence materials distributed to
parties (other than MergerCo and affiliates of MergerCo and other than parties
who are involved in the sales process for Borden's Columbus Coated Fabrics
division and/or Orchard division), and any materials incorporating or based on
such materials, in connection with the sales process undertaken by Borden in
connection with the proposed sale of the Business and take such other actions as
BDPH may request to enforce Borden's rights under any agreements similar to the
74
<PAGE>
confidentiality letter for the benefit of BDPH; provided that BDPH shall
reimburse Borden for its out-of-pocket costs in connection with its obligations
in this sentence.
(b) For a period of two years after the Closing Date, other than as a
result of the BDPH Common Stock owned pursuant to this Agreement, Borden shall
not, and shall cause its subsidiaries not to, directly or indirectly,
manufacture or sell any Products manufactured or sold by the Residential
Wallcoverings and Vernon Plastics businesses as of the Closing, or own stock or
otherwise have an equity interest in any person or entity engaged in such
business (other than holding less than 5% of the stock of a publicly held
corporation engaged in such business). Notwithstanding the foregoing, Borden may
engage in a transaction whereby, directly or indirectly, it acquires (whether by
merger, stock purchase, purchase of assets or otherwise), any person or
business, or any interest in any person or business, engaged at the time of such
acquisition in the manufacture or sale of any products manufactured or sold by
the Business as of the Closing provided that, at the time of such transaction,
no more than 25% of such person's or business's revenues result from products of
a type manufactured by the Business as of the Closing. None of Borden and its
subsidiaries will, for a period of two years from the Closing Date, solicit for
hire any employees of the Business without the prior written consent of
MergerCo; provided, however, that the foregoing provision will not prevent
Borden from hiring any such person (i) who contacts Borden on his or her own
initiative without any direct or indirect solicitation by or encouragement from
Borden, (ii) who responds to a public advertisement placed by Borden, (iii) who
has not been employed by BDPH during the preceding six months or (iv) who has
been terminated by BDPH. Borden and its subsidiaries agree that a violation of
this Section 8.16 will case irreparable injury to MergerCo, and MergerCo will be
entitled, in addition to any other rights and remedies it may have at law or in
equity, to an
75
<PAGE>
injunction enjoining and restraining Borden and its subsidiaries from doing or
continuing to do any such violation and any other violations or threatened
violations of Section 8.16.
(c) Borden and its subsidiaries acknowledge and agree that the covenants
set forth in this Section 8.16 are reasonable and valid in scope and in all
other respects. If any of such covenants is found to be invalid or unenforceable
by a final determination of a court of competent jurisdiction (i) the remaining
terms and provisions hereof shall be unimpaired and (ii) the invalid or
unenforceable term or provision shall be deemed replaced by a term or provision
that is valid and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable term or provision. In the event that,
notwithstanding the first sentence of this Section 8.16(c), any of the
provisions of this Section 8.16 relating to scope of the covenants contained
therein or the nature of the business restricted thereby shall be declared by a
court of competent jurisdiction to exceed the maximum restrictiveness such court
deems enforceable, such provision shall be deemed to be replaced by the maximum
restriction deemed enforceable by such court.
8.17 PVC Contract. Following the Closing, in connection with any sale by
BDPH of the Vernon plastics division of the Business in a single transaction,
Borden will cause its Subsidiary which acts as general partner of BCP (as
defined in Section 9.3(o)) to cooperate, subject to such Subsidiary's duties as
general partner, if any, in any required assignment of the contract referred to
in Section 9.3(o).
8.18 Stockholders Agreement
On the Closing Date, Blackstone, BDPH and Borden shall execute and deliver
an agreement ("Stockholders Agreement"), incorporating the terms of the term
sheet attached hereto as Annex B, pursuant to which Borden, BDPH and Blackstone
will agree to certain rights and
76
<PAGE>
obligations with respect to the BDPH Common Stock owned by such parties. Borden
and MergerCo will endeavor to agree upon the definitive form of the
Stockholders' Agreement prior to the Imperial Termination Date.
8.19 Insurance Covenant
With respect to any loss, liability or damage suffered after the Closing
Date resulting from or arising out of the conduct of the Business on or prior to
the Closing Date or for which the Asset Seller or any of its affiliates (other
than BDPH) (a "Borden Insured Party") would be entitled to assert, or cause any
other person to assert, a claim for recovery under any policy of Insurance
underwritten by third parties not affiliated with Borden, at the reasonable
request of BDPH and to the extent permitted under such applicable policies of
Insurance without the payment of additional premiums in connection therewith,
such Borden Insured Party will assert one or more claims under the policies of
Insurance covering such loss, liability or damage if BDPH is not itself entitled
to assert such claim, but such Borden Insured Party is so entitled; provided,
however, that all of the Borden Insured Parties' reasonable out-of-pocket costs
and expenses incurred in connection with the foregoing, including without
limitation any liability, obligation or expense referred to in the last sentence
hereof, are, at the option and in the sole discretion of the entity incurring
such costs and expenses, paid in advance of the entity incurring such costs and
expenses, or promptly reimbursed by MergerCo and/or BDPH. To the extent required
under the terms of the policies of Insurance to give effect to the foregoing,
Borden will be deemed, solely for the purpose of asserting claims for recovery
under such Insurance to have assumed or retained liability for such loss,
liability or damage but only to the extent of the policy limits of the
applicable policy of Borden Insurance; provided, however, that (i) BDPH and/or
Holding's obligations under Section 11.2 will not be affected by the provisions
hereof and (ii)
77
<PAGE>
with respect to any claim made by any Borden Insured Party under any Insurance
pursuant to this section, BDPH and/or MergerCo will indemnify, defend and hold
harmless Borden and each of its affiliates (other than BDPH) and their
respective directors, officers, partners, employees, agents and representatives
(including without limitation any predecessor or successor of any of the
foregoing) from and against any Borden Losses relating to, resulting from or
arising out of any deductible, policy limit, obligation, indemnity, reinsurance
due to the liquidation or insolvency of the reinsurer, self-insurance retention
or retroactive or retrospective premium resulting from claims made hereunder or
other like arrangement by which any such entity, including without limitation
any captive insurance company, retains any liability or obligation under any
such policy of Insurance or otherwise.
8.20 Certain Purchasers. Promptly after the Imperial Termination Date,
Borden shall offer to purchase, subject to the occurrence of the Closing, any
and all shares of BDPH Common Stock to be owned beneficially or of record
following the Merger by persons other than Borden or any subsidiary of Borden
who were holders of shares of BDPH Common Stock prior to the Merger for cash at
a price per share equal to the Per Share Consideration and, following the
occurrence of the Closing, shall purchase promptly all such shares from holders
accepting such offer. If any such shares are not so purchased, the parties will
endeavor to cause all shareholders to become parties to the Stockholders'
Agreement.
9. CONDITIONS
9.1 Conditions Precedent to Obligations of MergerCo and Borden
The respective obligations of MergerCo and Borden to consummate the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions:
78
<PAGE>
(a) No Injunction, etc. At the Closing Date, there shall be no injunction,
restraining order or decree of any nature of any court or governmental agency or
body of competent jurisdiction that is in effect that restrains or prohibits
this Agreement or any material transaction contemplated hereby, including
without limitation, the consummation of the Asset Transfer, the Stock Transfer
or the Merger, and no governmental authority (an "Enforcement Authority") shall
have initiated any action to restrain, enjoin or otherwise prohibit the
consummation of the transactions contemplated by this Agreement which action
remains outstanding at the time in question.
(b) Regulatory Authorizations. All (i) consents, approvals, authorizations
and orders of federal, state and foreign governmental and regulatory authorities
as are necessary in connection with the Asset Transfer, the Stock Transfer or
the Merger or which if not obtained could be reasonably likely to subject BDPH,
MergerCo, Borden or any Subsidiary, or any officer, director or agent of any
such person to civil or criminal liability or could render such transfer void or
voidable (the "Required Consents") shall have been obtained, except for Required
Consents the failure to obtain which, individually or in the aggregate, are not
material to the operations of the Business taken as a whole and the failure of
which to obtain would not subject MergerCo, BDPH or Borden or Borden's
affiliates, or any officers, directors or agent of any such person to civil or
criminal liability; provided that for purposes of this clause (b) applicable
waiting periods specified under the Hart-Scott Act with respect to the
transactions contemplated by this Agreement shall have lapsed or been
terminated.
79
<PAGE>
9.2 Conditions Precedent to Obligation of Borden
The obligation of the Borden to consummate the transactions provided for in
this Agreement is subject to fulfillment of each of the following conditions:
(a) Accuracy of MergerCo's Representations and Warranties; Covenants of
MergerCo. The representations and warranties of MergerCo contained in this
Agreement that are qualified as to materiality shall be true and correct and the
representations and warranties of MergerCo set forth in this Agreement and that
are not so qualified shall be true and correct in all material respects, in each
case on the date of this Agreement (except to the extent cured prior to the
Closing Date) and on the Closing Date as though made on the Closing Date, except
to the extent such representations and warranties speak as of an earlier date;
provided that for purposes only of the condition set forth in this Section
9.2(a) any breach of a representation or warranty will be considered both
individually and together with any other such breaches; MergerCo shall have
complied in all material respects with all covenants contained in this Agreement
to be performed by it prior to Closing; and Borden shall have received a
certificate signed by an officer of MergerCo to such effect.
(b) Stockholders Agreement. Blackstone and BDPH shall have executed and
delivered to Borden the Stockholders Agreement.
(c) Borden Home License Agreement. MergerCo shall have executed and
delivered to Borden the Borden Home License Agreement.
(d) Services Agreement. MergerCo shall have executed and delivered to
Borden the Services Agreement.
(e) Exemption Certificates. MergerCo shall have executed and delivered to
Borden all certificates required by all relevant taxing authorities that are
necessary to support any
80
<PAGE>
applicable exemption from the imposition of any sales or similar tax on the
transfer of the Acquired Assets or the Decorative Products Company Stock.
(f) Stock Certificates. Subject to compliance with the provisions of
Section 4.2(f), Borden shall have received stock certificates representing the
Retained Shares.
(g) Corporate Documents. Borden shall have received from MergerCo certified
copies of the resolutions duly adopted by the Board of Directors of MergerCo
approving the execution and delivery of the Transaction Documents by MergerCo
and the consummation of the transactions contemplated thereby, and such
resolutions shall be in full force and effect as of the Closing Date.
(h) Opinion of Counsel. Borden shall have received an opinion of Jones,
Day, Reavis & Pogue, counsel to MergerCo, substantially to the effect set forth
in Exhibit C.
9.3 Conditions Precedent to Obligation of MergerCo
The obligation of MergerCo to consummate the transactions provided for in
this Agreement is subject to fulfillment of each of the following conditions:
(a) Accuracy of Representations and Warranties of Borden; Covenants of
Borden. The representations and warranties of Borden and BDPH contained in this
Agreement that are qualified as to materiality shall be true and correct and the
representations and warranties of Borden set forth in this Agreement and that
are not so qualified shall be true and correct in all material respects, in each
case on the date of this Agreement (except to the extent cured prior to the
Closing Date) and on the Closing Date as though made on the Closing Date, except
to the extent such representations and warranties speak as of an earlier date;
provided that for purposes only of the condition set forth in this Section
9.3(a) any breach of a representation or warranty will be considered both
individually and together with any other such breaches; Borden shall
81
<PAGE>
have complied in all material respects with all covenants contained in this
Agreement to be performed by it prior to Closing; and MergerCo shall have
received a certificate signed by an officer of Borden to such effect;
(b) Financing. All conditions precedent to BDPH's being entitled to receive
the proceeds of the Financing shall have been satisfied or waived.
(c) Stockholders Agreement. Borden shall have executed and delivered to
MergerCo the Stockholders Agreement.
(d) Borden Home License Agreement. Borden shall have executed and delivered
to MergerCo the Borden Home License Agreement;
(e) Services Agreement. Borden shall have executed and delivered to
MergerCo the Services Agreements;
(f) Termination Agreement. Borden and its affiliates shall have executed
and delivered to MergerCo a termination agreement ("Termination Agreement"),
terminating the inter-company trademark licensing agreements listed on Schedule
8.6(b);
(g) Certain Payments. If applicable, Borden shall have made the payments
contemplated by Section 8.14;
(h) Corporate Documents. MergerCo shall have received from Borden and the
Subsidiaries certified copies of the resolutions duly adopted by the Boards of
Directors of Borden and the Subsidiaries, and certified copies of the
resolutions duly adopted by the shareholders of Borden and the Subsidiaries
where required, approving the execution and delivery of the Transaction
Documents by Borden and the consummation of the transactions contemplated
thereby, and such resolutions shall be in force and effect as of the Closing
Date;
82
<PAGE>
(i) Consents. Consent, if and to the extent required, to the assignment to
the BDPH Canadian Subsidiary of the lease of the property at 195 Walker Drive,
Brampton, Ontario shall have been obtained or, in Borden's sole discretion, in
lieu of any such consent, a new lease putting the Business in substantially the
same position as such consent shall have been entered into.
(j) Material Adverse Effect. Since the date of the Interim Balance Sheet,
there shall not have occurred (i) a Material Adverse Effect or (ii) any event
which could reasonably be expected to have a Material Adverse Effect;
(k) Opinion of Counsel. MergerCo shall have received an opinion of the
General Counsel of Borden substantially to the effect set forth in Exhibit D;
(l) No Outstanding BDPH Warrants or Options. After giving effect to the
transactions contemplated to occur at the Closing, there will not be outstanding
any options, warrants, convertible securities or other rights of any kind
exercisable, convertible or exchangeable into or evidencing the right to
purchase any capital stock of BDPH ("BDPH Options").
(m) No C&A Injunctions, Etc. (i) At the Closing Date, there shall be no
injunction, restraining order or decree of any nature of any court or
governmental agency or body of competent jurisdiction that is in effect that
restrains or prohibits the C&A Transaction (or the operative acquisition
agreements in connection therewith) and no Enforcement Authority shall have
initiated any action to restrain, enjoin or otherwise prohibit the consummation
of the C&A Transaction (or the operative acquisition agreements in connection
therewith) on antitrust or competition grounds.
83
<PAGE>
(ii) The applicable waiting periods specified under the Hart-Scott Act
with respect to the transactions contemplated by the C&A Transaction shall have
lapsed or been terminated and all consents, approvals, authorizations and orders
of federal, state and foreign governmental and regulatory authorities which if
not obtained could be reasonably expected to subject MergerCo or any officer,
director or agent of MergerCo to criminal liability shall have been obtained.
(n) Release of Liens. Borden shall have delivered to MergerCo evidence
reasonably satisfactory to MergerCo of the release and termination of all Liens
(other than Permitted Liens) in respect of Balance Sheet Indebtedness.
(o) New PVC Contract. BDPH and Borden Chemical and Plastics Operating
Limited Partnership, a Delaware Partnership ("BCP"), shall have entered into a
new contract (the "New PVC Contract") for the purchase by BDPH or, if in
existence, a wholly owned subsidiary of BDPH designated by MergerCo, and BCP's
sale of polyvinyl chloride on terms at least as favorable as those terms
contained in the PVC Purchase Agreement made as of November 30, 1987, between
Borden and BCP, having a term expiring on November 30, 2002.
(p) Asset Transfer. The Asset Transfer and the Stock Transfer shall have
been consummated, BCL and the BDPH Canadian Subsidiary shall have executed and
delivered a Bill of Sale and an Assumption Agreement substantially in the form
of Exhibits E and F, respectively, a copy of which Bill of Sale and Assumption
Agreement shall have been provided to MergerCo and Borden shall have delivered
to MergerCo evidence satisfactory to MergerCo that the Stock Transfer has been
consummated.
84
<PAGE>
10. CLOSING
10.1 Generally
(a) Unless this Agreement shall have been terminated and the transactions
herein shall have been abandoned pursuant to Section 13 hereof, the closing of
the transactions contemplated by this Agreement (the "Closing") shall take place
at a location in New York City to be agreed upon by the parties, at 10:00 a.m.,
New York City time, on December 31, 1997 (or as soon as practicable thereafter
as all of the conditions to the Closing set forth in Section 9 hereof are
satisfied or waived), or such other date, time and place as shall be agreed upon
by Borden and MergerCo (the actual date and time being herein called the
"Closing Date").
(b) Subject to the terms and conditions of this Agreement, the respective
deliveries to be performed by MergerCo and Borden and the Subsidiaries will take
place in the sequence specified in Section 5.1(a).
(c) Notwithstanding the foregoing, the parties hereto agree that, unless
otherwise agreed to in writing, the Closing shall not be deemed to have occurred
until such time as all of the transfers, transactions and deliveries
contemplated by Section 5.1(a) hereof been completed in accordance with the
requirements of such Section and no transfer, transaction or delivery
contemplated by Section 5.1(a) shall be deemed to be valid or in full force and
effect until such time as all of the transfers, transactions and deliveries
contemplated by Section 5.1(a) have been consummated.
10.2 MergerCo Deliveries
At the Closing, MergerCo shall deliver or cause BDPH to deliver, (i) the
Aggregate Consideration in accordance with the sequence set forth in Section
5.1(a) hereof, (ii) the documents described in Section 9.2 hereof and (iii) such
other documents and instruments as
85
<PAGE>
counsel for MergerCo and Borden mutually agree to be reasonably necessary to
consummate the transactions described herein.
10.3 Borden Deliveries
At the Closing, Borden shall deliver, or cause one or more of the
Subsidiaries or affiliates to deliver, to BDPH, the following executed
instruments in such form and substance as indicated in any applicable Schedule
hereto, or as is reasonably acceptable to MergerCo:
(a) a copy of the certificate of incorporation of each of the Decorative
Products Companies, as amended, certified as of a date not earlier than 10 days
prior to the Closing Date, by the corporate Secretary for each of said
corporations;
(b) the documents described in Section 9.3 hereof;
(c) stock certificates representing shares of BDPH duly endorsed or
accompanied by stock powers duly executed;
(d) warranty deeds to any Owned Real Properties of BCL; and
(e) such other documents and instruments as counsel for MergerCo and Borden
mutually agree to be reasonably necessary to consummate the transactions
described herein.
86
<PAGE>
11. INDEMNIFICATION
11.1 Indemnification by Borden
(a) Borden shall defend, indemnify and hold BDPH, MergerCo and their
respective affiliates harmless from and against and in respect of any and all
losses, claims, demands, actions, suits or proceedings (by any person or entity,
including without limitation any governmental authority in connection therewith
or in enforcing BDPH's, MergerCo's and their respective affiliates' rights
hereunder), liabilities, damages, judgements, settlements and expenses,
including reasonable attorneys' fees in connection therewith or in enforcing
BDPH's, MergerCo's and their respective affiliates' rights hereunder incurred
directly by any such person or entity (hereinafter "MergerCo Losses") which
arise out of (i) any breach of any of the representations or warranties
contained in Section 6 hereof, in any other Transaction Document or in any
certificate delivered in connection with the Closing, (ii) any breach of any of
the covenants of Borden (other than the covenant set forth in clause (ii) of the
first sentence of Section 8.3(d)) in this Agreement), (iii) the ownership,
operation or use of any of the Excluded Assets, (iv) any direct or derivative
claim or action by a holder of BDPH Common Stock or any rights to purchase BDPH
Capital Stock, including, without limitation, any action by such a holder who
has demanded payment for and an appraisal of such shares in accordance with
Section 262 of the DGCL, (v) liabilities and obligations of the Decorative
Products Companies that do not arise principally out of or pertain principally
to the Business or the Assets and (vi) any of the Excluded Liabilities and any
liabilities retained by Borden pursuant to Section 8.7. MergerCo or BDPH shall
give Borden prompt written notice of any third party claim which may give rise
to any indemnity obligation under this Section, together if reasonably possible
with the estimated amount of such claim, and Borden shall have the right to
assume the defense of any
87
<PAGE>
such claim through counsel of its own choosing, by so notifying MergerCo within
30 days of receipt of MergerCo's or BDPH's written notice; provided, however,
that Borden's counsel shall be reasonably satisfactory to MergerCo. Failure to
give prompt notice shall not affect the indemnification obligations hereunder in
the absence of actual prejudice and then only to the extent proximately
resulting therefrom. If MergerCo or BDPH desires to participate in any such
defense assumed by Borden, it may do so at its sole cost and expense (except
that Borden shall be responsible for the fees and expenses of counsel to
MergerCo or BDPH to the extent MergerCo or BDPH is advised, in writing by its
counsel, that either (x) Borden's counsel has a conflict of interest, or (y)
there are legal defenses available to MergerCo that are different from or
additional to those available to Borden (but only to the extent of such
additional defenses)). If Borden declines to assume any such defense, it shall
be liable for all reasonable costs and expenses of defending such claim incurred
by MergerCo or BDPH, including reasonable fees and disbursements of counsel.
Neither party shall, without the prior written consent of the other party, which
shall not be unreasonably withheld or delayed, settle, compromise or offer to
settle or compromise any such claim or demand on a basis which would result in
the imposition of a consent order, injunction or decree which would restrict the
future activity or conduct of the other party or any subsidiary or affiliate
thereof or if such settlement or compromise does not include an unconditional
release of the other party for any liability arising out of such claim or demand
or any related claim or demand.
(b) The foregoing obligation to indemnify MergerCo, BDPH and their
respective affiliates set forth in Section 11.1(a) shall be subject to each of
the following limitations:
88
<PAGE>
(i) Borden's indemnification obligation for any breach of the
representations and warranties described in Section 6 of this Agreement
shall survive until April 1, 1999 (other than the Five-Year Reps which
shall survive until the fifth anniversary of the Closing), and thereafter
all such representations and warranties of Borden under this Agreement
shall be extinguished. No claim for the recovery of such MergerCo Losses
may be asserted by MergerCo after April 1, 1999 (other than claims asserted
for breaches of the Five-Year Reps which shall survive and may be asserted
until the fifth anniversary of the Closing); provided, however, that claims
first asserted in writing with reasonable specificity within the applicable
period shall not thereafter be barred;
(ii) No reimbursement for MergerCo Losses asserted against Borden
under Section 11.1(a)(i), above shall be required unless and until the
cumulative aggregate amount of such MergerCo Losses equals or exceeds US
$2,500,000 (the "Threshold") and then only to the extent that the
cumulative aggregate amount of MergerCo Losses exceeds the Threshold;
provided that in calculating such Threshold any MergerCo Losses which
individually and when considered together with any related MergerCo Losses
total less than US $25,000 each ("De Minimis MergerCo Losses") shall be
excluded in their entirety and Borden in any event shall have no liability
hereunder to BDPH, MergerCo and their respective affiliates under Section
11.1(a)(i) for any such De Minimis MergerCo Losses.
(iii) Borden's liability to MergerCo and its affiliates under Section
11.1(a)(i) for MergerCo Losses in excess of the Threshold shall not exceed
$80,000,000.
(c) The indemnities provided in this Section 11.1 shall survive the
Closing. The indemnity provided in this Section 11.1 shall be the sole and
exclusive remedy of the
89
<PAGE>
indemnified party against the indemnifying party at law or equity for any matter
covered by paragraphs (a) and (b).
(d) In no event shall Borden be liable to MergerCo or its affiliates for
special, indirect, incidental, consequential or punitive damages, except for
such instances, if any, where the MergerCo Losses result from a third-party
claim to which Borden is required to indemnify MergerCo or its affiliates
pursuant to Subsection 11.1 (a)(iii)-(v) of this Agreement.
(e) The indemnities provided in this Section 11.1 shall survive any
investigation prior to Closing by or on behalf of MergerCo or any knowledge or
information MergerCo may have, subject to the limitations on indemnification set
forth in Section 11.1(b)(i) of this Agreement.
11.2 Indemnification by BDPH
(a) BDPH shall defend, indemnify and hold Borden and its affiliates
harmless from and against and in respect of any and all actual losses, claims,
demands, actions, suits or proceedings (by any person or entity, including
without limitation any governmental authority in connection therewith or in
enforcing Borden's and its Affiliates' rights hereunder), liabilities, damages,
judgements, settlements and expenses, including reasonable attorney fees, in
connection therewith or in enforcing Borden's and its Affiliates' rights
hereunder incurred directly by Borden and its affiliates (hereinafter the
"Borden Losses"; together with MergerCo Losses, "Losses") arising out of (i) any
breach of any of the representations or warranties contained in Section 7
hereof, (ii) any breach of any of the covenants of MergerCo (other than the
covenant set forth in clause (ii) of the first sentence of Section 8.3(d)) in
this Agreement, (iii) the ownership, operation or use of the Assets after the
Closing and (iv) any Assumed Liabilities and any liabilities retained by BDPH
pursuant to Section 8.7. Borden shall give BDPH prompt written notice of any
third party claim which may give rise to any indemnity obligation under this
Section, together if
90
<PAGE>
reasonably possible with the estimated amount of such claim, and BDPH shall have
the right to assume the defense of any such claim through counsel of its own
choosing, by so notifying Borden within 30 days of receipt of Borden's written
notice; provided, however, that BDPH's counsel shall be reasonably satisfactory
to Borden. Failure to give prompt notice shall not affect the indemnification
obligations hereunder in the absence of actual prejudice. If Borden desires to
participate in any such defense assumed by BDPH it may do so at its sole cost
and expense (except that BDPH shall be responsible for the fees and expenses of
counsel to Borden to the extent the Borden is advised, in writing by its
counsel, that either (x) BDPH's counsel has a conflict of interest, or (y) there
are legal defenses available to Borden that are different from or additional to
those available to BDPH (but only to the extent of such additional defenses)).
If BDPH declines to assume any such defense, it shall be liable for all costs
and expenses of defending such claim incurred by Borden and its affiliates,
including reasonable fees and disbursements of counsel. Neither party shall,
without the prior written consent of the other party, which shall not be
unreasonably withheld or delayed, settle, compromise or offer to settle or
compromise any such claim or demand on a basis which would result in the
imposition of a consent order, injunction or decree which would restrict the
future activity or conduct of the other party or any subsidiary or affiliate
thereof or if such settlement or compromise does not include an unconditional
release of the other party for any liability arising out of such claim or
demand.
(b) The foregoing obligation to indemnify Borden and its affiliates set
forth in Section 11.2(a) shall be subject to each of the following limitations:
(i) BDPH's indemnification obligation for any breach of the
representations and warranties described in Section 7 of this Agreement
shall survive until April 1, 1999 other than the Long-Term Reps which shall
survive until the fifth anniversary of the
91
<PAGE>
Closing, and thereafter all such representations and warranties of MergerCo
under this Agreement shall be extinguished. No claim for the recovery of
such Borden Losses may be asserted by Borden after April 1, 1999 (other
than claims asserted for breaches of the Long-Term Reps which shall survive
and may be made until the fifth anniversary of the Closing); provided,
however, that claims first asserted in writing with specificity within such
period shall not thereafter be barred;
(ii) No reimbursement for the Borden Losses asserted against MergerCo
under Section 11.2(a)(i), above shall be required unless and until the
cumulative aggregate amount of such Borden Losses equals or exceeds US
$2,500,000.00 (the "MergerCo Threshold") and then only to the extent that
the cumulative aggregate amount of the Borden Losses, as finally
determined, exceeds the MergerCo Threshold; provided that in calculating
such Threshold any Losses which individually and when considered together
with any related Borden Losses total less than US$25,000 each ("De Minimis
Losses") shall be excluded in their entirety and in any event shall have no
liability hereunder to Borden and its affiliates for any such De Minimis
Losses.
(iii) BDPH's liability to Borden and its affiliates under Section
11.2(a)(i) for the Borden Losses in excess of the MergerCo Threshold shall
not exceed $80,000,000.
(c) The indemnities provided in this Section 11.2 shall survive the
Closing. The indemnity provided in this Section 11.2 shall be the sole and
exclusive remedy of the indemnified party against the indemnifying party at law
or equity for any matter covered by paragraphs (a) and (b).
(d) In no event shall MergerCo or BDPH be liable to Borden or its
affiliates for special, indirect, incidental, consequential or punitive damages
except for such instances, if any,
92
<PAGE>
where the Borden Losses result from a third party claim to which BDPH is
required to indemnify Borden of its affiliates pursuant to Subsections
11.2(a)(iii)-(iv) of this Agreement.
(e) The indemnities provided in this Section 11.2 shall survive any
investigation prior to Closing by or on behalf of Borden or any knowledge or
information that Borden may have, subject to the limitations or indemnification
set forth in Section 11.2(b)(i) of this Agreement.
11.3 Indemnification Calculations
(a) The amount of any Borden Losses or MergerCo Losses for which
indemnification is provided under this Section 11 shall be computed net of any
net insurance proceeds received by the indemnified party in connection with such
Losses, reduced by all costs and expenses related thereto and any retrospective
or other premium increase or expense resulting therefrom. If the amount with
respect to which any claim is made under this Section 11 (an "Indemnity Claim")
gives rise to a currently realizable Tax Benefit (as defined below) to the party
making the claim, the indemnity payment shall be reduced by the amount of the
Tax Benefit available to the party making the claim if and to the extent
actually realized by such party. To the extent such Indemnity Claim does not
give rise to a currently realizable Tax Benefit, if the amount with respect to
which any Indemnity Claim is made gives rise to a subsequently realized Tax
Benefit to the party that made the claim, such party shall refund to the
indemnifying party the amount of such Tax Benefit when, as and if realized. For
the purposes of this Agreement, any subsequently realized Tax Benefit shall be
treated as though it were a reduction in the amount of the initial Indemnity
Claim, and the liabilities of the parties shall be redetermined as though both
occurred at or prior to the time of the indemnity payment. For purposes of this
Section 11.3, a "Tax Benefit" means an amount by which the tax liability of the
party (or group of corporations including the party) is actually reduced
(including, without limitation, by deduction, reduction of
93
<PAGE>
income by virtue of increased tax basis or otherwise, entitlement to refund,
credit or otherwise), after first taking into account all other losses,
deductions, credits and other tax items available to the parties, plus any
related interest received from the relevant taxing authority. Where a party has
other losses, deductions, credits or items available to it, the Tax Benefit from
any losses, deductions, credits or items relating to the Indemnity Claim shall
be deemed to be realized only after any other losses, deductions, credits or
items. For the purposes of this Section 11, a Tax Benefit is "currently
realizable" to the extent such Tax Benefit is realized in the current taxable
period or year or in any tax return with respect thereto (including through a
carryback to a prior taxable period) or in any taxable period or year prior to
the date of the Indemnity Claim. In the event that there should be a
determination disallowing the Tax Benefit, the indemnifying party shall be
liable to refund to the indemnified party the amount of any related reduction
previously allowed or payments previously made to the indemnifying party
pursuant to this Section 11.3. The amount of the refunded reduction or payment
shall be deemed a payment under this Section 11.3 and thus shall be paid subject
to any applicable reductions under this Section 11.3.
(b) If the amount of any Borden Losses or MergerCo Losses, at any time
subsequent to the making of an indemnity payment, is reduced by recovery,
settlement or otherwise under or pursuant to any insurance coverage, or pursuant
to any claim, recovery, settlement, rebate or other payment by or against any
other person, the amount of such reduction, together with interest thereon from
the date of payment thereof at the rate of interest described in Section 5.2(d),
will promptly be repaid by the indemnitee to the indemnifying party. Upon making
any indemnity payment the indemnifying party will, to the extent of such
indemnity payment, be subrogated to all rights of the indemnitee or an insurer
of the indemnitee in respect of the Loss to which the indemnity payment relates;
provided, however, that (i) the indemnifying party shall
94
<PAGE>
then be in compliance with its obligations under this Agreement in respect of
such loss and (ii) until the indemnitee recovers full payment of its loss, any
and all claims of the indemnifying party against any such third person on
account of said indemnity payment will be subrogated and subordinated in right
of payment to the indemnitee's rights against such third person. Without
limiting the generality or effect of any other provision hereof, each such
indemnitee and indemnifying party will duly execute upon request all instruments
reasonably necessary to evidence and perfect the above-described subrogation and
subordination rights.
(c) The parties agree that any indemnification payments made pursuant to
this Agreement shall be treated for tax purposes as an adjustment to the
Aggregate Consideration, unless otherwise required by applicable law.
12. TAX MATTERS
12.1 Tax Indemnification
(a) Following the Closing, Borden shall indemnify MergerCo and its
affiliates (including the Decorative Products Companies) and each of their
respective officers, directors, employees, agents and other representatives and
hold them harmless from (i) all liability for income Taxes (other than any
liability for UK national income taxes for 1997 and any portion of 1998 prior to
the Closing) of the Decorative Products Companies, for a Pre-Closing Tax Period
(as defined below), (ii) all liability as a result of Treasury Regulation ss.
1.1502-6(a) for U.S. federal income Taxes of Borden or any of its affiliates or
any other entity which is or has been affiliated with the Decorative Products
Companies and BCL relating to a Pre-Closing Tax Period, (iii) all liability for
Taxes attributable to actions taken after the Closing by Borden or any of its
affiliates (other than the Decorative Products Companies) or attributable to a
breach by Borden of any covenant contained in Section 12.2 and (iv) all
liability for U.K. national income
95
<PAGE>
taxes of the Decorative Products Companies for 1997 and any portion of 1998
prior to the Closing in excess of $7,957,000. Notwithstanding the foregoing,
Borden shall not indemnify and hold harmless any of MergerCo, its affiliates or
their respective officers, directors, employees and agents from any liability
for Taxes attributable to (i) Taxes of the Decorative Products Companies for the
Pre-Closing Tax Period to the extent of the accrual, if any, established
therefor and reflected as Balance Sheet Indebtedness or as a current liability
in the calculation of Closing Working Capital or (ii) any action taken after the
Closing by MergerCo, any of its affiliates (including the Decorative Products
Companies), or any transferee of MergerCo or any of its affiliates (other than
any such action expressly required by applicable law or by this Agreement) (a
"MergerCo Tax Act") or attributable to a breach by MergerCo of any covenant
contained in Section 12.2 of this Agreement. "Pre-Closing Tax Period" shall mean
all or any portion of a taxable period ending on or before the Closing Date.
(b) Following the Closing, MergerCo shall, and shall cause the Decorative
Products Companies to, indemnify Borden and its affiliates and each of their
respective officers, directors, employees, and agents and hold them harmless
from (i) all liability for Taxes of the Decorative Products Companies for any
Post-Closing Tax Period, (ii) all liability for Taxes attributable to a MergerCo
Tax Act or to a breach by MergerCo of any covenant contained in Section 12.2 of
this Agreement, (iii) all liability for up to $7,957,000 of U.K. national income
taxes of the Decorative Products Companies for 1997 and any portion of 1998
prior to the Closing and (iv) all liability for Taxes of the Decorative Products
Companies for the Pre-Closing Tax Period to the extent of the accrual, if any,
established therefor as Balance Sheet Indebtedness or as a current liability in
the calculation of Closing Working Capital.
96
<PAGE>
"Post-Closing Tax Period" shall mean all or any portion of a taxable period
beginning after the Closing Date.
(c) Procedures Relating to Indemnification of Tax Claims. If a claim shall
be made by any taxing authority, which, if successful, might result in an
indemnity payment to a party (the "First Party"), one of its affiliates or any
of their respective officers, directors, employees, agents or representatives
pursuant to this Section 12.1, the First Party shall promptly and in any event
no more than 30 days following the First Party's receipt of written notice of
such claim, give notice to the other party (the "Second Party") in writing of
such claim (a "Tax Claim"); provided, however, the failure of the First Party to
give such notice shall not affect the indemnification provided hereunder except
to the extent the Second Party has been actually prejudiced as a result of such
failure (except the Second Party shall not be liable for any expenses incurred
during the period in which the First Party failed to give such notice).
With respect to any Tax Claim relating to a Pre-Closing Tax Period for
which Borden has indemnified MergerCo, Borden shall control all proceedings and
may make all decisions taken in connection with such Tax Claim (including
selection of counsel) and, without limiting the foregoing, may in its sole
discretion pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with any taxing authority with respect thereto, and
may, in its sole discretion, either pay the Tax claimed and sue for a refund
where applicable law permits such refund suits or contest the Tax Claim in any
permissible manner. With respect to any Tax Claim related to a Post-Closing Tax
Period or with respect to which MergerCo has otherwise indemnified Borden,
MergerCo shall control proceedings and may make all decisions taken in
connection with such Tax Claim (including selection of counsel) and, without
limiting the foregoing, may in its sole discretion pursue or forego any and all
administrative appeals,
97
<PAGE>
proceedings, hearings and conferences with any taxing authority with respect
thereto, and may, in its sole discretion, either pay the Tax claimed or sue for
a refund where applicable law permits such refund suits or contest the Tax Claim
in any permissible manner. To the extent that any Tax Claim relates to both a
Pre-Closing Tax Period and a Post-Closing Tax Period, or to a Tax Claim for
which both parties may be obligated, Borden and MergerCo shall jointly
participate in the resolution of such Tax Claim and shall each proceed in good
faith to achieve a mutually agreeable result.
Borden and MergerCo and each of their respective affiliates shall
reasonably cooperate with each other in contesting any Tax Claim, which
cooperation shall include the retention and, upon the request of the party or
parties controlling proceedings relating to such Tax Claim, the provision to
such party or parties of records and information which are reasonably relevant
to such Tax Claim, and making employees available on a mutually convenient basis
to provide additional information or explanation of any material provided
hereunder or to testify at proceedings relating to such Tax Claim.
In no case shall any of MergerCo or the Decorative Products Companies
settle or otherwise compromise any Tax Claim relating to a Pre-Closing Tax
Period for which Borden has indemnified MergerCo without Borden's prior written
consent. In no case shall Borden or any of its affiliates settle or otherwise
compromise any Tax Claim relating to a Post-Closing Tax Period or for which
MergerCo has otherwise indemnified Borden without MergerCo's prior written
consent. In the event that any party violates the provisions of this paragraph
(relating to the settlement or compromise of Tax Claims), such party shall not
be entitled to any indemnity payments with respect to any indemnifiable claim
(relating to such Tax Claims) pursuant to this Section 12.1.
98
<PAGE>
(d) Indemnification Calculations. The amount payable with respect to any
Tax Claim and the treatment and adjustment thereof shall be governed by the
provisions of Section 11.3 of this Agreement.
12.2 Other Tax Matters
(a) Borden and its subsidiaries and MergerCo shall reasonably cooperate,
and shall cause their respective affiliates, officers, employees, agents,
auditors and other representatives reasonably to cooperate, in preparing and
filing all Tax Returns for Pre-Closing Tax Periods. Neither MergerCo nor any
Decorative Products Company shall file or cause to be filed any amended return
of Borden or any of its affiliates for any Pre-Closing Tax Period without the
prior written consent of Borden, which consent may not be unreasonably withheld
or delayed.
(b) The amount or economic benefit of any refunds, credits or offsets of
Taxes of any Decorative Products Company shall be for the account of Borden or
its affiliates to the extent such refund, credit or offset relates to any Taxes
for which Borden has indemnified MergerCo. The amount or economic benefit of any
refunds, credits or offsets of Taxes of any Decorative Products Company shall be
for the account of MergerCo to the extent such refund, credit or offset relates
to Taxes for which MergerCo has otherwise indemnified Borden. Each party shall
forward, and shall cause its affiliates to forward, to the party entitled
pursuant to this Section 12.2(b) to receive the amount or economic benefit of a
refund, credit or offset to Tax, the amount of such refund, or the economic
benefit of such credit or offset to Tax, within ten days after such refund is
received or after such credit or offset is allowed or applied against other Tax
liability, as the case may be. In the event such refund, credit or offset is
later disallowed by the IRS, the account of such party shall be debited, such
party shall repay the amount of the refund, credit or
99
<PAGE>
offset previously received plus interest computed at the rate of the prevailing
federal rate for tax refunds.
(c) There shall be no withholding pursuant to Section 1445 of the Code,
provided that Borden delivers to MergerCo at the Closing a certificate complying
with the Code and Treasury Regulations, in form and substance reasonably
satisfactory to MergerCo, duly executed and acknowledged, certifying that the
transactions contemplated hereby are exempt from withholding under Section 1445
of the Code.
(d) Except as provided in Schedule 12.2, Borden shall cause all tax
allocation agreements or tax sharing agreements with respect to each of the
Decorative Products Companies to be terminated as of the Closing Date, and shall
ensure that such agreements are of no further force or effect as to any of the
Decorative Products Companies on and after the Closing Date and that there shall
be no further liabilities or obligations imposed on any of the Decorative
Products Companies under any such agreements.
13. TERMINATION
13.1 Termination Events
Without prejudice to other remedies which may be available to the parties
by law or this Agreement, this Agreement may be terminated and the transactions
contemplated herein may be abandoned:
(a) by mutual consent of Borden and MergerCo;
(b) by Borden, in its sole discretion, after February 9, 1998, if either
(i) the applicable waiting periods specified under the Hart-Scott Act with
respect to the transactions contemplated by this Agreement and the C&A
Transaction have not lapsed or been terminated or
100
<PAGE>
(ii) any Enforcement Authority is seeking to prohibit on antitrust or
competition grounds the consummation of the transactions contemplated herein;
(c) by MergerCo, in its sole discretion, on November 4, 1997 (the "Imperial
Termination Date"), but neither before or after such date, if (i) MergerCo has
not entered into a definitive acquisition agreement to acquire Imperial or (ii)
the audited Annual Financial Statements, at and for the year ended December 31,
1996, referred to in Section 6.5(b) reflect an adverse difference from the
unaudited Annual Financial Statements at and for the year ended December 31,
1996 referred to in Section 6.5(a) in any material respect, as determined by
MergerCo, which determination shall be conclusive for all purposes;
(d) by Borden or MergerCo by notice to the other party if the Closing shall
not have been consummated on or before March 15, 1998, unless extended by
written agreement of the parties hereto, so long as the party terminating this
Agreement shall not be in default or breach hereunder; and
(e) by MergerCo after February 1, 1998, if Borden shall have materially
breached any portion of this Agreement and not cured such breach by the later of
(i) February 1, 1998 and (ii) 30 days after written notice thereof.
13.2 Effect of Termination
In the event of any termination of the Agreement as provided in Section
13.1 above, this Agreement shall forthwith become wholly void and of no further
force and effect and there shall be no liability on the part of MergerCo or
Borden and the Subsidiaries, except (i) that the obligations of MergerCo and
Borden and the Subsidiaries under Sections 8.2, 8.11 and 15.6 of this Agreement
shall remain in full force and effect and (ii) as a result of any prior breach
hereof.
101
<PAGE>
14. ALTERNATIVE DISPUTE RESOLUTION
The parties shall attempt in good faith to resolve any dispute arising out
of or relating to this Agreement promptly by negotiations between executives who
have authority to settle the controversy. Any party may give the other
party(ies) written notice of any dispute not resolved in the normal course of
business. Within 20 days after delivery of said notice, executives of both
parties shall meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, to exchange relevant information and to
attempt to resolve the dispute. If the matter has not been resolved within 60
days of the disputing party's original notice, or if the parties fail to meet
within 20 days, either party may initiate legal proceedings to resolve the
controversy or claim. If a party's negotiator intends to be accompanied at a
meeting by an attorney, the other party's negotiator shall be given at least
three working days' notice of such intention and may also be accompanied by an
attorney. All negotiations pursuant to this clause are confidential and shall be
treated as compromise and settlement negotiations for purposes of the Federal
Rules of Evidence and state rules of evidence.
15. MISCELLANEOUS AGREEMENTS OF THE PARTIES
15.1 Notices
All communications provided for hereunder shall be in writing and shall be
deemed to be given when delivered in person or by private courier with receipt,
when telefaxed and received (receipt electronically confirmed by Sender's
telecopy machine), or five days after being deposited in the United States mail,
first-class, registered or certified, return receipt requested, with postage
paid and,
102
<PAGE>
If to MergerCo: c/o The Blackstone Group
345 Park Avenue
New York, New York 10054
Attention: Mr. David A. Stockman
Senior Managing Director
Telephone: (212) 836-9818
Fax: (212) 754-8720
With a Copy to: Jones, Day, Reavis & Pogue
599 Lexington Avenue
32nd Floor
New York, New York 10022
Attention: Robert A. Profusek, Esq.
Telephone: (212) 326-3800
Fax: (212) 755-7306
If to Borden: Itzhak Reichman
Vice President,
Strategic Planning
Borden, Inc.
180 East Broad Street
Columbus, Ohio 43215-3799
Fax: 614-225-4108
With a Copy to: William F. Stoll
Senior Vice President and
General Counsel
Borden, Inc.
180 East Broad Street
Columbus, Ohio 43215-3799
Fax: 614-627-8374
or to such other address as any such party shall designate by written notice to
the other parties hereto.
15.2 Bulk Transfers
MergerCo and BDPH waive compliance with the provisions of all applicable
laws relating to bulk transfers in connection with the Assets Transfer.
103
<PAGE>
15.3 Transaction Taxes
MergerCo and Borden shall each pay one-half of all sales and transfer
taxes, if any, which may be payable with respect to the consummation of the
transactions contemplated by this Agreement and to the extent any exemptions
from such taxes are available MergerCo and Borden shall cooperate to prepare any
certificates or other documents necessary to claim such exemptions.
15.4 Further Assurances; Asset Returns
Upon request from time to time, Borden shall execute or cause its
subsidiaries, including without limitation, BDH Two, Inc. to the extent any
intangible property or other assets constituting Assets hereunder are held of
record by BDH Two, Inc., to execute and deliver all documents, take all rightful
oaths, and do all other acts that may be reasonably necessary or desirable, in
the reasonable opinion of counsel for MergerCo, to perfect or record the title
of MergerCo, or any successor of MergerCo, to the Assets transferred or to be
transferred under this Agreement, or to aid in the prosecution, defense or other
litigation of any rights arising from said transfer (provided that MergerCo
shall reimburse the Borden for all incremental out of pocket costs and expenses
resulting from any such request). In the event that MergerCo receives any assets
of the Asset Seller that are not intended to be transferred pursuant to the
terms of this Agreement, whether or not related to the Business, MergerCo agrees
to promptly return such assets to the Asset Seller at Borden's expense.
15.5 Other Covenants
Without limiting the generality or effect of Articles 9 or 11, to the
extent that any consents needed to assign to MergerCo any of the Acquired Assets
have not been obtained on or prior to the Closing Date this Agreement shall not
constitute an assignment or attempted
104
<PAGE>
assignment thereof if such assignment or attempted assignment would constitute a
breach thereof. If any such consent or any other consent of a third party
required by the terms of any contract, lease or license included in the Assets
shall not be obtained on or prior to the Closing Date, then (i) Borden and
MergerCo, if required under applicable law, shall use their reasonable efforts
in good faith to obtain such consent as promptly as practicable thereafter and
(ii) if in the reasonable judgment of MergerCo such consent may not be obtained,
the parties shall use reasonable efforts in good faith to cooperate, and to
cause each of their respective affiliates to cooperate, in any lawful
arrangement designed to provide for MergerCo the benefits under any such
Acquired Assets.
15.6 Expenses
Subject to Section 5.1(a) and Section 15.3, Borden and MergerCo shall each
pay their respective expenses (such as legal, investment banker and accounting
fees) incurred in connection with the origination, negotiation, execution and
performance of this Agreement. The Decorative Products Companies shall not be
obligated to incur any fees or expenses in connection with the Financing, except
for fees, expenses or indemnification obligations which are conditioned upon the
occurrence of the Closing.
15.7 Non-Assignability
This Agreement shall inure to the benefit of and be binding on the parties
hereto and their respective successors and permitted assigns. This Agreement
shall not be assigned by any party hereto without the express prior written
consent of the other parties, and any attempted assignment, without such
consents, shall be null and void; provided, however, that (i) at or following
the Closing, MergerCo may assign its rights or delegate its duties to any
affiliate of MergerCo or BDPH, provided that no such delegation will relieve
MergerCo of its obligations
105
<PAGE>
hereunder, (ii) MergerCo or BDPH (or any such assignee) may assign its rights
hereunder (or any portion thereof) to any lender or other person or entity in
connection with any financing, provided that no such delegation will relieve
MergerCo of its obligations hereunder and (iii) in connection with any sale of
the Vernon plastics division of the Business in a single transaction, MergerCo,
upon notice to Borden, may assign its rights to indemnity under this Agreement
in respect of any Excluded Liability (but not with respect to any other aspect
of the indemnity obligations of Borden hereunder) to any other party to any such
transaction, whereupon Borden will be directly liable in respect thereof to such
other party as well as to MergerCo and its other permitted assigns hereunder.
15.8 Amendment; Waiver
This Agreement may be amended, supplemented or otherwise modified only by a
written instrument executed by the parties hereto. No waiver by any party of any
of the provisions hereof shall be effective unless explicitly set forth in
writing and executed by the party so waiving; provided that MergerCo shall not
waive the condition in Section 9.3(b) without the prior written consent of
Borden. Except as provided in the preceding sentence, no action taken pursuant
to this Agreement, including without limitation, any investigation by or on
behalf of any party, shall be deemed to constitute a waiver by the party taking
such action of compliance with any representations, warranties, covenants, or
agreements contained herein, and in any other Transaction Document or document
to be delivered in connection with the Closing hereunder. The waiver by any
party hereto of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any subsequent breach.
106
<PAGE>
15.9 Schedules and Exhibits
All exhibits and schedules hereto are hereby incorporated by reference and
made a part of this Agreement. All statements contained in schedules, exhibits,
certificates and other instruments attached hereto or delivered or furnished on
behalf of the Borden or the Subsidiaries pursuant hereto or in connection with
the transactions contemplated hereby, shall be deemed representations and
warranties by Borden. Any fact or item which is clearly disclosed on any
Schedule or Exhibit to this Agreement or in the Financial Statements in such a
way as to make its relevance to a representation or representations made
elsewhere in this Agreement or to the information called for by another Schedule
or other Schedules (or Exhibit or other Exhibits) to this Agreement readily
apparent shall be deemed to be an exception to such representation or
representations or to be disclosed on such other Schedule or Schedules (or
Exhibit or Exhibits), as the case may be. Any fact or item disclosed on any
Schedule or Exhibit hereto shall not by reason only of such inclusion be deemed
to be material and shall not be employed as a point of reference in determining
any standard of materiality under this Agreement.
15.10 Third Parties
Except as provided in Section 15.7 or Article 11 (to the extent
contemplated thereby) hereof and except for BDPH's successorship rights by
virtue of the Merger or as otherwise contemplated herein, this Agreement does
not create any rights, claims or benefits inuring to any person that is not a
party hereto nor create or establish any third party beneficiary hereto.
107
<PAGE>
15.11 Governing Law
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York, except for matters relating to the Real Property,
which shall be governed by the laws of the jurisdictions where such properties
are located.
15.12 Consent to Jurisdiction
Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the United States District Court for the Southern District of
New York located in the borough of Manhattan in the City of New York, or if such
court does not have jurisdiction, the Supreme Court of the State of New York,
New York County, for the purposes of any suit, action or other proceeding
arising out of this Agreement or any transaction contemplated hereby. Each of
the parties hereto further agrees that service of any process, summons, notice
or document by U.S. registered mail to such party's respective address set forth
in Section 15.1 shall be effective service of process for any action, suit or
proceeding in New York with respect to any matters to which it has submitted to
jurisdiction as set forth above in the immediately preceding sentence. Each of
the parties hereto, irrevocably and unconditionally waives any objection to the
laying of venue of any action, suit or proceeding arising out of this Agreement
or the transactions contemplated hereby in (a) the United States District Court
for the Southern District of New York or (b) the Supreme Court of the State of
New York, New York County, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum.
15.13 Certain Definitions
For purposes of this Agreement, the term:
108
<PAGE>
(i) "affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned person;
(ii) "person" means an individual, corporation, partnership,
association, trust, incorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act);
(iii) "subsidiary" or "subsidiaries" of MergerCo, Borden or any other
person means any corporation, partnership, joint venture or other legal
entity of which MergerCo, Borden or such other person, as the case may be
(either alone or through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the stock or other equity interests
the holder of which is generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity; and
(iv) "the knowledge of" or "the best knowledge of" a party hereto when
modifying any representation and warranty shall mean (v) that such party
has no knowledge that such representation and warranty is not true and
correct to the same extent as provided in the applicable representation and
warranty, and that:
(A) such party has made appropriate investigations and inquiries
of its officers and responsible employees; and
(B) nothing has come to its attention in the course of such
investigation and inquiries or otherwise which would cause such party,
in the exercise of due diligence, to believe that such representation
and warranty is not true and correct.
109
<PAGE>
Borden shall be deemed to have satisfied the requirements of Subsection
15.13 above by making appropriate investigations and inquiries of the officers
and employees of Borden and the Subsidiaries listed on Schedule 15.13, and no
knowledge of any other officer or employee of Borden or the Subsidiaries shall
be imputed to the persons listed on Schedule 15.13 or to Borden.
15.14 Construction
The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rule of strict
construction will be applied against any party. Any references to any federal,
state, local or foreign statute or law will also refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
Unless the context otherwise requires: (a) a term has the meaning assigned to it
by this Agreement; (b) an accounting term not otherwise defined has the meaning
assigned to it by GAAP; (c) "or" is disjunctive but not exclusive; (d) words in
the singular include the plural, and in the plural include the singular; (e)
provisions apply to successive events and transactions; and (f) "$" means the
currency of the United States of America.
15.15 Specific Performance
Without limiting or waiving in any respect any rights or remedies of
MergerCo under this Agreement now or hereinafter existing at law or in equity or
by statute, each of the parties hereto shall be entitled to seek specific
performance of the obligations to be performed by the other in accordance with
the provisions of this Agreement.
15.16 Conveyance and Transfer Agreement
MergerCo agrees that the terms and provisions of this Agreement, including
the Exhibits and Schedules attached hereto, supersede any inconsistent terms and
provisions contained in the Conveyance and Transfer Agreement by and between
Borden, Inc., and
110
<PAGE>
Decorative Products MergerCo, Inc., dated April 3, 1996, and MergerCo hereby
waives any rights against Borden under any indemnification or other provisions
of such Conveyance and Transfer Agreement as to which MergerCo would not be
entitled under the terms and provisions of this Agreement.
15.17 Entire Agreement
This Agreement, and the Schedules and Exhibits hereto set forth the entire
understanding of the parties hereto and no modifications or amendments to this
Agreement shall be binding on the parties unless in writing and signed by the
party or parties to be bound by such modification or amendment.
15.18 Section Headings; Table of Contents
The section headings contained in this Agreement and the Table of Contents
to this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
15.19 Severability
If any provision of this Agreement shall be declared by any court of
competent jurisdiction to be illegal, void or unenforceable, all other
provisions of this Agreement shall not be affected and shall remain in full
force and effect.
15.20 Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall be deemed to
be one and the same instrument.
111
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Recapitalization Agreement
to be duly executed as of the date first above written.
BORDEN, INC.
By: __________________________
Name:
Title:
BDPI HOLDINGS CORPORATION
By: ___________________________
Name:
Title:
BORDEN DECORATIVE PRODUCTS
HOLDINGS, INC.
By: ___________________________
Name:
Title:
112
<PAGE>
EXHIBIT 2.2
FIRST AMENDMENT
FIRST AMENDMENT, dated as of March 13, 1998 (the "First Amendment"), to the
Recapitalization Agreement, dated as of October 14, 1997 (the "Recapitalization
Agreement"), by and among Borden, Inc., a New Jersey corporation ("Borden"),
Borden Decorative Products Holdings, Inc., a Delaware corporation and an
indirect wholly owned subsidiary of Borden ("BDPH"), and BDPI Holdings
Corporation, a Delaware corporation ("MergerCo"). Capitalized terms used and not
otherwise defined herein shall have the meaning ascribed to them in the
Recapitalization Agreement.
1. Amendments. Borden, BDPH and MergerCo hereby agree to amend the
Recapitalization Agreement as follows:
(a) By deleting Section 2.2(c)(ii) in its entirety and inserting in lieu
thereof the following Section 2.2(c)(ii):
(ii) Trademark Rights. All right, title and interest including, without
limitation, any causes of action in respect thereof in the Trademark
Rights (as defined in Section 6.10(b)) described or required by the
terms hereof to be described on Part I of Schedule 6.10(b) hereto and,
with the exception of those trademarks identified on Appendix A to the
Borden Home License Agreement (as defined in Section 8.6(c)), all
trademarks owned, used or held for use by BCL in each case principally
in connection with the Business.
(b) By deleting Section 2.2(c)(iii) in its entirety and inserting in lieu
thereof the following Section 2.2(c)(iii):
(iii) Copyrights. All right, title and interest including, without
limitation, any causes of action in respect thereof, in the Copyright
Rights (as defined in Section 6.10(c)) described or required by the
terms hereof to be described on Part I of Schedule 6.10(c) hereto and
all copyrights owned, used or held for use by BCL principally in
connection with the Business.
(c) By deleting Section 3.1 in its entirety and inserting in lieu thereof
the following Section 3.1:
Subject to the satisfaction or waiver of the conditions set forth in
this Agreement, at the Closing and as of the Closing Date and
immediately after the consummation of the Asset Transfer, MergerCo
shall be merged with and into BDPH in accordance with the DGCL. Upon
the Effective Time of the Merger (as defined below), the separate
existence of MergerCo shall cease, and BDPH shall continue as the
surviving corporation (the "Surviving Corporation"). After the
Closing, all
1
<PAGE>
references in this Agreement to "MergerCo" shall mean "BDPH", as
successor by merger.
(d) By deleting Section 3.4(a) in its entirety and inserting in lieu
thereof the following Section 3.4(a)
(a) At the Effective Time of the Merger, and without any further
action on the part of BDPH or MergerCo, the Certificate of
Incorporation of BDPH, as in effect immediately prior to the Effective
Time of the Merger, shall be the certificate of incorporation of the
Surviving Corporation following the Merger until thereafter further
amended as provided therein and under the DGCL.
(e) By deleting Section 8.6(a) in its entirety and inserting in lieu
thereof the following Section 8.6(a):
(a) Except as otherwise provided in the Borden Home License Agreement
(defined below), for a period of six (6) months after the Closing
Date, Borden hereby grants to BDPH a non-exclusive non-assignable,
royalty- free license to use the Borden(R)trademark (hereinafter in
this Section 8.6 the "Trademark") on notepaper, invoices, stationary,
labels and other Business documents in connection with such Business
on which the Trademark appears as of the Closing Date and shall
thereafter cease to use the same except as permitted by this Section
8.6. Notwithstanding the provisions of the immediately preceding
sentence, BDPH may for a period of thirty-three (33) months from the
Closing Date use the Trademark in the form and style in which the same
are used in the Business as of the Closing Date (whether alone or in
combination with other trademarks) on stocks of wallcoverings, pattern
books and promotional materials produced by such Business at any time
prior to the expiration of the aforesaid six (6) month period after
the Closing Date; provided that any such products manufactured by BDPH
are manufactured, in all material respects, at the quality standards
of Borden and consistent, in all material respects, with the quality
standards used prior to Closing. Any such Business materials bearing
the Trademark not used within the aforesaid six (6) or thirty-three
(33) month periods, as applicable, after the Closing Date may not
thereafter be used by BDPH and shall be destroyed at MergerCo's sole
expense unless otherwise agreed to by Borden in writing. Within the
later of (i) one (1) month after any extension granted by Borden
pursuant to the previous sentence or (ii) one (1) month following the
expiration of the aforesaid six (6) or thirty-
2
<PAGE>
three (33) month periods, as applicable, BDPH shall provide to Borden
evidence reasonably satisfactory to Borden that all such Business
materials have been used or destroyed. BDPH shall defend, indemnify
and hold Borden harmless from any product liability or similar claims
arising from Products manufactured and sold by BDPH using such
Trademark. On and after the Closing, BDPH shall not be authorized to
execute any purchase order bearing the Trademark and BDPH agrees
immediately after Closing to destroy any and all such purchase order
forms.
(f) By deleting the words "one year" where they appear in Section 8.6(c)
and inserting in lieu thereof the words "thirty-three (33) months."
(g) By replacing Schedule 6.10(a) to the Recapitalization Agreement with
the attached revised Schedule 6.10(a).
(h) By replacing Schedule 6.10(c) to the Recapitalization Agreement with
the attached revised Schedule 6.10(c).
2. General.
(a) Except as expressly amended hereby, the provisions of the
Recapitalization Agreement are and shall remain in full force and effect.
(b) This First Amendment may be executed in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Amendment to be duly
executed as of the date first above written.
BORDEN, INC.
By: _________________________
Name:
Title:
BDPI HOLDINGS CORPORATION
By: _________________________
Name:
Title:
BORDEN DECORATIVE PRODUCTS
HOLDINGS, INC.
By: _________________________
Name:
Title:
<PAGE>
Exhibit 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 11/06/1995
950256512 - 2558980
CERTIFICATE OF INCORPORATION
OF
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
The undersigned, in order to form a corporation for the purpose hereinafter
stated, under and pursuant to the provisions of the Delaware General Corporation
Law, hereby certifies that:
FIRST: The name of the Corporation is Borden Decorative Products Holdings,
Inc.
SECOND: The registered office and registered agent of the Corporation is
The Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Suite L-100,
Dover, Kent County, Delaware 19904.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of stock that the Corporation is
authorized to issue is 100 shares of Common Stock, par value $0.01 per share.
FIFTH: The name and address of the incorporator is Patricia A. Heslep, 180
East Broad Street, Columbus, Ohio 43215.
SIXTH: The Board of Directors of the Corporation, acting by majority vote,
may alter, amend or repeal the By-Laws of the Corporation.
SEVENTH: Except as otherwise provided by the Delaware General Corporation
Law as the same exists or may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director. Any repeal or
modification of this Article SEVENTH by the stockholders of the Corporation
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Incorporation on November 3, 1995.
___________________________
Patricia A. Heslep
Sole Incorporator
<PAGE>
Exhibit 3.2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/15/1996
960075485 - 2558980
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
BORDEN DECORATIVE PRODUCT HOLDINGS, INC., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: The Corporation has not received any payment for any of its stock.
SECOND: The amendment to the Corporation's Certificate of Incorporation set
forth in the following resolutions approved by the Corporation's sole
incorporator was duly adopted in accordance with the provisions of Section 241
of the General Corporation Law of State of Delaware:
"RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by deleting Article FOURTH in its entirety and inserting in
lieu thereof:
'FOURTH. The Corporation is authorized to issue two classes of capital
stock, designated Common Stock and Preferred Stock. The amount of
total authorized capital stock of the corporation is 55 million
shares, divided into 40 million shares of Common Stock, par value $.01
per share, and 15 million shares of Preferred Stock, par value $.01
per share.
The Preferred Stock may be issued in one or more series. The Board of
Directors is hereby authorized to issue the shares of Preferred Stock in
such series and to fix from time to time before issuance the number of
shares to be included in any series and the designation, relative voting
and other powers, preferences, rights and qualifications. limitations or
restrictions of all shares of such series. The authority of the Board of
Directors with respect to each series shall include, without limiting the
generality of the foregoing, the determination of any or all of the
following:
(a) the number of shares of any series and the designation to distinguish
the shares of such series from the shares of all other series;
5
<PAGE>
(b) the voting power, if any, and whether such voting powers are full or
limited, in such series;
(c) the redemption provisions, if any, applicable to such series,
including the redemption price or prices to be paid;
(d) whether dividends, if any, shall be cumulative or noncumulative, the
dividend rate (or method of calculating dividends) of such series, and
the dates and preferences of dividends on such series;
(e) the rights of such series upon the voluntary, or involuntary
dissolution of, or upon any distribution of the assets of, the
Corporation;
(f) the provisions, if any, pursuant to which the shares of such series
are convertible into, or exchangeable or exercisable for, shares of
any other class or classes or of any other series of the same or any
other class or classes of stock, or any other security, of the
Corporation or any other corporation, and price or prices or the taxes
of exchange applicable thereto;
(g) the right, if any, to subscribe for or to purchase any securities of
the Corporation or any other corporation;
(h) the provisions, if any, of a sinking fund applicable to such series;
and
(i) any other relative, participating, optional or other special powers,
preference, rights, qualifications limitations or restrictions
thereof:,
all as shall be determined from time to time by the Board of Directors and
shall be stated in said resolution or resolutions providing for the
issuance of such Preferred Stock (a "Preferred Stock Designation).'"
"RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by adding the following immediately after Article SEVENTH:
'EIGHTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation,
including a Preferred Stock Designation, in the manner now or hereafter
prescribed by applicable law and this Certificate of Incorporation.
including any applicable Preferred Stock Designation, and all rights
conferred upon stockholders herein axe created subject to this
reservation.'"
IN WITNESS WHEREOF, BORDEN DECORATIVE PRODUCTS HOLDINGS, INC. has caused
this Certificate to be signed and attested by its sole incorporator this 14th
day of March, 1996.
BORDEN DECORATIVE PRODUCTS
HOLDINGS, INC.
6
<PAGE>
_____________________________________
Patricia A. Heslep, Sole Incorporator
7
<PAGE>
EXHIBIT 3.3
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 11:00 AM 06/07/1996
960166577 - 2558980
[PAY-IN-KIND PREFERRED STOCK]
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC. (the "Corporation"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware, hereby certifies that pursuant to the provisions of Section
151 of the General Corporation Law of the State of Delaware, its Board of
Directors, on May 30, 1996, adopted the following resolution, which resolution
remains in full force and effect as of the date hereof:
WHEREAS, the Board of Directors of the Corporation (the "Board of
Directors") is authorized, within the limitations and restrictions stated in the
Certificate of Incorporation, as amended, to fix by resolution or resolutions
the designation of each series of preferred stock and the powers, designations,
preferences and relative participating, optional and other rights, if any, and
the qualifications, limitations and restrictions thereof, including, without
limiting the generality of the foregoing, such provisions as may be desired
concerning voting, redemption, dividends, dissolution and the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution or resolutions of the Board of Directors under the General
Corporation Law of the State of Delaware; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to authorize and fix the terms of a series of preferred
stock and the number of shares constituting such series:
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such series
of preferred stock on the terms and with the provisions herein set forth:
I. Designation
The designation of a series of preferred stock shall be "Junior Perpetual
Cumulative Pay-In-Kind Preferred Stock (the "Junior Perpetual Preferred Stock")
consisting of 1,041,000 shares. The par value of the Junior Perpetual Preferred.
Stock shall be $0.01 per share. The original liquidation preference of the
Junior Perpetual Preferred Stock shall be $25 per share
9
<PAGE>
("Original Liquidation Preference"), which value does not represent a
determination by the Board of Directors for the purposes of the Corporation's
capital accounts.
II. Rank.
The Junior Perpetual Preferred Stock shall, with respect to dividend
rights and rights on liquidation, winding up and dissolution, rank senior
to the Common Stock, par value $0.01 per share (the "Common Stock"), of the
Corporation. (All equity securities of the Corporation to which the Junior
Perpetual Preferred Stock ranks senior, including the Common Stock, are
collectively referred to herein as the "Junior Securities", all equity
securities of the Corporation with which the Junior Perpetual Preferred
Stock ranks on a parity are collectively referred to herein as the "Parity
Securities" and all equity securities of the Corporation (other than
convertible debt securities) to which the Junior Perpetual Preferred Stock
ranks junior, whether with respect to dividends or upon liquidation,
dissolution, winding up or otherwise, including the Senior Perpetual
Cumulative Preferred Stock of the Company, are collectively referred to
herein as the "Senior Securities".) The Junior Perpetual Preferred Stock
shall be subject to the creation of Junior Securities, Parity Securities
and Senior Securities.
III. Dividends.
(A) The holders of the shares of Junior Perpetual Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available for the payment of dividends,
cumulative dividends at the rate of $0.625 per share per calendar quarter,
and no more, provided that the dividend rate for the period from the date
of initial issuance of the shares of Junior Perpetual Preferred Stock until
June 30, 1996 shall be $1.25 per share. Such dividends shall be payable in
quarterly payments on March 31, June 30, September 30 and December 31 of
each year commencing with June 30, 1996 (each of such dates being a
"Dividend Payment Date"), in preference to dividends on the Junior
Securities. Such dividends shall be paid to the holders of record at the
close of business on the March 15, June 15, September 15 or December 15, as
the case may be, immediately preceding the relevant dividend payment date
(each of such dates being a "Dividend Payment Record Date"). Each dividend
shall be fully cumulative and shall accrue (whether or not declared),
without interest, from the previous dividend payment date (or, with respect
to the first dividend, from the date of initial issuance of the Junior
Perpetual Preferred Stock). Dividends payable for any partial dividend
period shall be pro rated on the basis of a 360-day year consisting of
twelve 30-day months (four 90-day quarters) and the actual number of days
elapsed in the period for which payable.
Until the Corporation receives the notice from the holders of the
Junior Perpetual Preferred Stock pursuant to paragraph IV hereof, dividend
payments made with respect to the Junior Perpetual Preferred Stock may be
made (i) by issuing fully paid and nonassessable shares (or fractional
shares as hereinafter described) of Junior Perpetual Preferred Stock with
an aggregate Original Liquidation Preference equal to the aggregate amount
of dividends being made, (ii) in cash or (iii) in any combination thereof.
Unless otherwise specified in the notice received pursuant to paragraph IV
with respect to the Junior Perpetual Preferred Stock, all dividend payments
payable subsequent to such
10
<PAGE>
notice shall be made in cash to the extent the Corporation has funds
legally available therefor. If such notice states that it shall apply only
to dividends payable on the immediately succeeding Dividend Payment Date,
then until a subsequent notice pursuant to paragraph IV is received, all
dividends payments payable with respect to the Junior Perpetual Preferred
Stock after such immediately succeeding Dividend Payment Date may be made
(i) by issuing fully paid and nonassessable shares (or fractional shares as
hereinafter described) of Junior Perpetual Preferred Stock with an
aggregate Original Liquidation Preference equal to the aggregate amount of
dividends being made, (ii) in cash or (iii) in any combination thereof.
"Liquidation Preference" means the Original Liquidation Preference,
plus an amount in cash equal to all accrued and unpaid dividends, whether
or not declared (including an amount equal to a prorated dividend from the
last Dividend Payment Date or the date of initial issuance, whichever is
later, to the date such Liquidation Preference is being determined). The
Liquidation Preference of a share of Junior Perpetual Preferred Stock will
increase on a daily basis as dividends accrue on such share, whether or not
declared, and will decrease only to the extent such dividends are actually
paid in cash or additional shares of Junior Perpetual Preferred Stock are
actually issued, all as provided in this paragraph III. The issuance of
such shares of Junior Perpetual Preferred Stock (plus the amount of cash
dividends, if any, paid together therewith) shall constitute full payment
of such dividend. Unless otherwise provided in the notice pursuant to
paragraph IV hereof, in no event shall an election by the Board of
Directors to pay dividends, in full or in part, in cash on any Dividend
Payment Date preclude the Board of Directors from electing either such
alternative in respect of all or any portion of any subsequent dividend.
(B) All dividends and distributions paid with respect to shares of the
Junior Perpetual Preferred Stock pursuant to paragraph III(A) shall be paid
pro rata to the holders entitled thereto. If the Board of Directors elects
on any Dividend Payment Date to pay any dividend partially in shares of
Junior Perpetual Preferred Stock, the proportion of such cash and shares of
Junior Perpetual Preferred Stock shall be the same for each outstanding
share of Junior Perpetual Preferred Stock. No interest shall be payable in
respect of any dividend payment or payments on the Junior Perpetual
Preferred Stock which may be in arrears.
(C) Each fractional share of Junior Perpetual Preferred Stock
outstanding shall be entitled to a ratably proportionate amount of
dividends accruing with respect to each outstanding share of Junior
Perpetual Preferred Stock pursuant to paragraph III(A) hereof, and all such
dividends with respect to such outstanding fractional shares shall be fully
cumulative and shall accrue (whether or not declared), and shall be payable
in the same manner and at such times as provided for in paragraph III(A)
hereof, with respect to dividends on each outstanding share of Junior
Perpetual Preferred Stock.
(D) No full dividends shall be declared by the Board of Directors or
paid or set apart for payment by the Corporation on any Parity Securities,
nor shall the Corporation make any distribution in respect of any Parity
Securities, either directly or indirectly, and whether in cash, obligations
or shares of the Corporation or other property, for any period unless full
cumulative dividends have been or contemporaneously are declared and paid
11
<PAGE>
or declared and a sum set apart sufficient for such payment on the Junior
Perpetual Preferred Stock for all dividend payment periods terminating on
or prior to the date of payment, or setting apart for payment, of such full
dividends on such Parity Securities. If any dividends are not paid in full,
as aforesaid, upon the shares of the Junior Perpetual Preferred Stock and
any other Parity Securities, all dividends or distributions declared upon
shares of the Junior Perpetual Preferred Stock and any other Parity
Securities shall be declared Pro rata so that the amount of dividends or
distributions declared per share of the Junior Perpetual Preferred Stock
and such Parity Securities shall in all cases bear to each other the same
ratio that accrued dividends per share on the Junior Perpetual Preferred
Stock and such Parity Securities bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Junior Perpetual Preferred Stock or any other
Parity Securities which may be in arrears. Any dividend not paid pursuant
to paragraph III(A) hereof or this paragraph III(D) shall be fully
cumulative and shall accrue (whether or not declared), without interest, as
set forth in paragraph III(A) hereof.
(E) (1) Holders of shares of the Junior Perpetual Preferred Stock
shall be entitled to receive the dividends provided for in paragraph III(A)
hereof in preference to and in priority over any dividends upon any of the
Junior Securities.
(2) So long as any shares of the Junior Perpetual Preferred Stock are
outstanding, the Board of Directors shall not declare, and the Corporation
shall not pay or set apart for payment any dividend on any of the Junior
securities or make any payment on account of, or set apart for payment
money for a sinking or other similar fund for, the repurchase, redemption
or other retirement of, any of the Junior Securities or Parity Securities
or any warrants, rights or options exercisable for or convertible into any
of the Junior Securities or Parity Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that
are convertible or exchangeable into any of the Junior Securities or Parity
Securities), or make any distribution in respect of the Junior Securities,
either directly or indirectly, and whether in cash, obligations or shares
of the Corporation or other property (other than distributions or dividends
in Junior Securities to the holders of Junior Securities), and shall not
permit any corporation or other entity directly or indirectly controlled by
the Corporation to purchase or redeem any of he Junior Securities or Parity
Securities or any warrants, rights, calls or options exercisable for or
convertible into any of the Junior Securities or Parity Securities (other
than the repurchase, redemption or other retirement of debentures or other
debt securities that are convertible or exchangeable into any of the Junior
Securities or Parity Securities) unless prior to or concurrently with such
declaration, payment, setting apart for payment, repurchase, redemption or
other retirement or distribution, as the case may be, all accrued and
unpaid dividends on shares of the Junior Perpetual Preferred Stock not paid
on the dates provided for in paragraph III(A) hereof (including accrued
dividends not paid by reason of the terms and conditions of paragraph
III(A) or paragraph III(D) hereof) shall have been or are paid in full and
fully in cash.
(3) Subject to the foregoing provisions of this paragraph III, the
Board of Directors may declare and the Corporation may pay or set apart for
payment dividends and other distributions on any of the Junior Securities
or Parity Securities, and may
12
<PAGE>
repurchase, redeem or otherwise retire any of the Junior Securities or
Parity Securities or any warrants, rights or options exercisable for or
convertible into any of the Junior Securities or Parity Securities, and the
holders of the shares of the Junior Perpetual Preferred Stock shall not be
entitled to share therein.
(F) The Corporation shall not enter into any agreement that prohibits,
conflicts with or would be breached by the Corporation's performance of its
obligations hereunder.
IV. Conversion to Cash Pay.
The holder or holders of a majority of the outstanding shares of the
Junior Perpetual Preferred Stock may, from time to time after December 31,
2000, deliver to the Corporation a notice (each such notice, a "Cash
Conversion Notice") specifying that on the next succeeding Dividend Payment
Date and, unless otherwise specified in the Cash Conversion Notice, all
subsequent Dividend Payment Dates, dividends (including accrued but unpaid
dividends) on the shares of Junior Perpetual Preferred Stock shall be paid
solely in cash, except as otherwise provided in this paragraph IV. In order
to be effective, a Cash Conversion Notice must be received by the
Corporation no more than 60 days and no fewer than 15 days prior to the
Dividend Payment Record Date with respect to the Dividend Payment Date when
cash payments of dividends are to commence. Unless the Cash Conversion
Notice specifies that it shall apply only to dividends payable on the
immediately succeeding Dividend Payment Date, all subsequent dividends on
the shares of Junior Perpetual Preferred Stock shall be made in cash to the
extent permitted by applicable law. Notwithstanding the delivery of a Cash
Conversion Notice, in the event the Corporation is not permitted to pay any
dividend or portion thereof in cash as aforesaid, then such dividend or
portion thereof shall be paid in cash to the extent permitted by applicable
law and the remainder of such dividend shall be paid by issuing additional
shares of Junior Perpetual Preferred Stock in accordance with paragraph
III(A) hereof.
V. Payment on Liquidation.
(A) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
shares of Junior Perpetual Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders an amount in cash equal to the Liquidation
Preference for each share outstanding, before any payment shall be made or
any assets distributed to the holders of any of the Junior Securities. If
the assets of the Corporation are not sufficient to pay in full the
liquidation payments payable to the holders of outstanding shares of the
Junior Perpetual Preferred Stock and any Parity Securities, then the
holders of all such shares shall share ratably in such distribution of
assets in accordance with the amount which would be payable on such
distribution if the amounts to which the holders of outstanding shares of
Junior Perpetual Preferred Stock and the holders of outstanding shares of
such Parity Securities are entitled were paid in full. Except as provided
in this paragraph V(A), holders of Junior Perpetual Preferred Stock shall
not be entitled to any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Corporation.
13
<PAGE>
(B) For the purposes of this paragraph V, neither the voluntary sale,
conveyance, lease, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the
property or assets of the Corporation nor the consolidation or merger of
the Corporation with or into one or more other corporations nor the
consolidation or merger of one or more corporations with or into the
Corporation shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding up.
VI. Voting Rights.
(A) The holders of record of shares of Junior Perpetual Preferred
Stock shall not be entitled to any voting rights except as hereinafter
provided in this paragraph VI or as otherwise provided by law.
(B) (1) If at any time or times dividends payable on Junior Perpetual
Preferred Stock or any Parity Securities shall be in arrears and unpaid for
the six (6) preceding quarters, then the number of directors constituting
the Board of Directors, without further action, shall be increased by two
(2) and the holders of Junior Perpetual Preferred Stock, together with any
holders of Parity Securities entitled to vote thereon, shall have the
exclusive right, voting separately as a class, to elect the directors of
the Corporation to fill such newly created directorships, the remaining
directors to be elected by the other class or classes of stock entitled to
vote therefor, at each meeting of stockholders held for the purpose of
electing directors; provided that in no event shall the holders of Junior
Perpetual Preferred Stock, together with any holders of such Parity
Securities, have the right to elect more than twenty-five percent (25%) of
the total number of directors of the Corporation, provided, further, that,
notwithstanding the foregoing proviso, holders of Junior Perpetual
Preferred Stock, together with any holders of such Parity Securities, shall
have the right to elect not less than one director pursuant to this
paragraph VI(B)(1].
(2) Whenever such voting right shall have vested, such right may be
exercised initially either at a special meeting of the holders of Junior
Perpetual Preferred Stock, called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing directors, or by
written consent of such holders pursuant to ss. 228 of Delaware corporate
law, and thereafter at such meetings or by the written consent of such
holders pursuant toss. 228 of Delaware corporate law. Such voting right
shall continue until such time as all cumulative dividends accrued on all
outstanding Junior Perpetual Preferred Stock, and any other Parity
Securities as to which full dividends have not previously been paid, shall
have been paid in full or declared and set aside for payment in full, at
which time such voting right of the holders of Junior Perpetual Preferred
Stock shall terminate, subject to retesting in the event of each and every
subsequent failure of the Corporation to pay dividends for the requisite
number of quarters as described above.
(3) At any time when such voting right shall have vested in the
holders of Junior Perpetual Preferred Stock and if such right shall not
already have been initially exercised, a proper officer of the Corporation
shall, upon the written request of the holders of record of 10% of the
shares of Junior Perpetual Preferred Stock then
14
<PAGE>
outstanding, addressed to the Secretary of the Corporation, call a special
meeting of holders of Junior Perpetual Preferred Stock. Such meeting shall
be held at the earliest practicable date upon the notice required for
annual meetings of stockholders at the place for holding annual meetings of
stockholders of the Corporation or, if none, at a place designated by the
Secretary of the Corporation. If such meeting shall not be called by the
proper officers of the Corporation within 30 days after the personal
service of such written request upon the Secretary of the Corporation, or
within 30 days after mailing the same within the United States, by
registered mail, addressed to the Secretary of the Corporation at its
principal office (such mailing to be evidenced by the registry receipt
issued by the postal authorities), then the holders of record of 10% of the
shares of Junior Perpetual Preferred Stock then outstanding may designate
in writing a holder of Junior Perpetual Preferred Stock to call such
meeting at the expense of the Corporation, and such meeting may be called
by such person so designated upon the notice required for annual meetings
of stockholders and shall be held at the same place as is elsewhere
provided in this paragraph VI(B)(3). Any holder of Junior Perpetual
Preferred Stock that would be entitled to vote at such meeting shall have
access to the stock books of the Corporation for the purpose of causing a
meeting of stockholders to be called pursuant to the provisions of this
paragraph. Notwithstanding the provisions of this paragraph, however, no
such special meeting shall be called during a period within 90 days
immediately preceding the date fixed for the next annual meeting of
stockholders.
(4) At any meeting held for the purpose of electing directors at which
the holders of Junior Perpetual Preferred Stock shall have the right to
elect directors as provided herein, the presence in person or by proxy of
the holders of at least a majority of the then outstanding shares of Junior
Perpetual Preferred Stock shall be required and be sufficient to constitute
a quorum of such class for the election of directors by such class. At any
such meeting or adjournment thereof (x) the absence of a quorum of the
holders of Junior Perpetual Preferred Stock shall not prevent the election
of directors other than those to be elected by the holders of stock of such
class and the absence of a quorum or quorums of the holders of capital
stock entitled to elect such other directors shall not prevent the election
of directors to be elected by the holders of Junior Perpetual Preferred
Stock and (y) in the absence of a quorum of the holders of shares of Junior
Perpetual Preferred Stock, a majority of such holders present in person or
by proxy shall have the power to adjourn the meeting for the election of
directors which the holders of shares of Junior Perpetual Preferred Stock
may be entitled to elect, from time to time, without notice (except as
required by law) other than announcement at the meeting, until a quorum
shall be present.
(5) The term of office of all directors elected by the holders of
Junior Perpetual Preferred Stock pursuant to paragraph VI(B)(1) in office
at any time when the aforesaid voting rights are vested in the holders of
Junior Perpetual Preferred Stock shall terminate upon the election of their
successors at any meeting of stockholders for the purpose of electing
directors. Upon any termination of the aforesaid voting rights in
accordance with paragraph VI(B)(2), the term of office of all directors
elected by the holders of Junior Perpetual Preferred Stock pursuant to
paragraph VI(B)(1) then in office shall thereupon terminate and upon such
termination the number of directors constituting the Board of Directors
shall, without further action, be reduced by two (2) (or such other
15
<PAGE>
lesser number by which the number of directors constituting the Board of
Directors shall have been increased pursuant to paragraph VI(B)(1) hereof),
subject always to the increase of the number of directors pursuant to
paragraph VI(B)(1) in case of the future right of the holders of Junior
Perpetual Preferred Stock to elect directors as provided herein.
(6) In case of any vacancy occurring among the directors so elected,
the remaining director who shall have been so elected may appoint a
successor to hold office for the unexpired term of the director whose place
shall be vacant. If all directors so elected by the holders of Junior
Perpetual Preferred Stock shall cease to serve as directors before their
terms shall expire, the holders of Junior Perpetual Preferred Stock then
outstanding may, at a special meeting of the holders called as provided
above, elect successors to hold office for the unexpired terms of the
directors whose places shall be vacant.
(C) The creation, authorization or issuance of any shares of any
Junior Securities, Parity Securities or Senior Securities, the creation of
any indebtedness of any kind of the Corporation, or the increase or
decrease in the amount of authorized capital stock of any class, including
preferred stock, shall not require the consent of the holders of Junior
Perpetual Preferred Stock and shall not be deemed to affect materially and
adversely the rights, preferences, privileges or voting rights of shares of
Junior Perpetual Preferred Stock.
(D) So long as any shares of the Junior Perpetual Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or
consent of the holders of at least 66-2/3% of the shares of Junior
Perpetual Preferred Stock at the time outstanding, given in person or by
proxy, either in writing or by resolution adopted at an annual or special
meeting called for the purpose, at which the holders of Junior Perpetual
Preferred Stock shall vote separately as a class, amend the Certificate of
Incorporation so as to affect materially and adversely the specified
rights, preferences, privileges or voting rights of shares of Junior
Perpetual Preferred Stock, provided that any increase in the number of
shares comprising the Junior Perpetual Preferred Stock that the Board of
Directors of the Corporation, in its sole discretion, determines to be
necessary or advisable to permit the Corporation to pay dividends in
additional shares of Junior Perpetual Preferred Stock as provided in
paragraph III hereof shall not be deemed to affect materially and adversely
the rights, preferences, privileges or voting rights of shares of Junior
Perpetual Preferred Stock.
VII. Mutilated or Missing Certificates.
If any of the Junior Perpetual Preferred Stock certificates shall be
mutilated, lost, stolen or destroyed, the Corporation shall issue, in exchange
and substitution for and upon cancellation of the mutilated certificate, or in
lieu of and substitution for the certificate lost, stolen or destroyed, a new
certificate of like tenor and representing an equivalent amount of shares of
Junior Perpetual Preferred Stock, but only upon receipt of evidence of such
loss, theft or destruction of such certificate and indemnity, if requested.
16
<PAGE>
VIII. Severability of Provisions.
If any right, preference or limitation of the Junior Perpetual Preferred
Stock set forth in these resolutions and the Certificate of Designations filed
pursuant hereto (as such Certificate of Designations may be amended from time to
time) is invalid, unlawful or incapable of being enforced by reason of any rule
or law or public policy, all other rights, preferences and limitations set forth
in such Certificate of Designations, as amended, which can be given effect
without the invalid, unlawful or unenforceable right, preference or limitation
shall, nevertheless remain in full force and effect, and no right, preference or
limitation herein set forth shall be deemed dependent upon any other such right,
preference or limitation unless so expressed herein.
IX. Notice to the Corporation.
All notices and other communications required or permitted to be given to
the Corporation hereunder shall be made by courier to the Corporation at its
principal executive offices (currently located on the date of the adoption of
these resolutions at the following address):
Borden Decorative Products Holdings, Inc.
Belgrave Mills
Belgrave Road
Darwen, Lancashire, BB3 2RR
United Kingdom
Attention: Secretary
Minor imperfections in any such notice shall not affect the validity thereof.
X. Limitations.
Except as may otherwise be required by law,' the shares of Junior Perpetual
Preferred Stock shall not have any powers, preferences or relative,
participating, optional or other special rights other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) or otherwise in the Certificate of Incorporation of the Corporation.
The Certificate of Incorporation of the Corporation is amended so that the
designation and number of shares of the Junior Perpetual Preferred Stock, and
the relative rights, preferences and limitations of the Junior Perpetual
Preferred Stock, are as stated in the foregoing resolution.
17
<PAGE>
IN WITNESS WHEREOF, Borden Decorative Products Holdings, Inc. has caused
this certificate to be executed by Ian G. Collins, its President, and attested
by Benjamin H. Jones, its Secretary, as of May 30, 1996.
Name:
Title:
ATTEST:
Name: Benjamin H. Jones
Title: Secretary
18
<PAGE>
Exhibit 3.4
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 11:01 AM 06/07/1996
960178462 - 2558980
[CASH PAY PREFERRED STOCK]
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC. (the "Corporation"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware, hereby certifies that pursuant to the provisions of Section
151 of the General Corporation Law of the State of Delaware, its Board of
Directors, on May 30, 1996, adopted the following resolution, which resolution
remains in full force and effect as of the date hereof:
WHEREAS, the Board of Directors of the Corporation (the "Board of
Directors") is authorized, within the limitations and restrictions stated in the
Certificate of Incorporation, as amended, to fix by resolution or resolutions
the designation of each series of preferred stock and the powers, designations,
preferences and relative participating, optional and other rights, if any, and
the qualifications, limitations and restrictions thereof, including, without
limiting the generality of the foregoing, such provisions as may be desired
concerning voting, redemption, dividends, dissolution and the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution or resolutions of the Board of Directors under the General
Corporation Law of the State of Delaware; and
WHEREAS, it is the desire of the Board of Directors, pursuant to .its
authority as aforesaid, to authorize and fix the terms of a series of preferred
stock and the number of shares constituting such series:
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such series
of preferred stock on the terms and with the provisions herein set forth:
I. Designation.
The designation of a series of preferred stock shall be "Senior Perpetual
Cumulative Preferred Stock" (the "Senior Perpetual Preferred Stock") consisting
of 6,609,600 shares. The par value of the Senior Perpetual Preferred Stock shall
be $0.01 per share. The liquidation preference of the Senior Perpetual Preferred
Stock shall be $25 per share
20
<PAGE>
("Liquidation Preference") which value does not represent a determination by the
Board of Directors for the purposes of the Corporation's capital accounts.
II. Rank.
The Senior Perpetual Preferred Stock shall, with respect to dividend rights
and rights on liquidation, winding up and dissolution, rank senior to the Common
Stock, par value $0.01 per share (the "Common Stock"), and the Junior Perpetual
Cumulative Pay-In-Kind Preferred Stock (the "Junior Perpetual Preferred Stock")
of the Corporation. (All equity securities of the Corporation to which the
Senior Perpetual Preferred Stock ranks senior, including the Common Stock and
the Junior Perpetual Preferred Stock, are collectively referred to herein as the
"Junior Securities", all equity securities of the Corporation with which the
Senior Perpetual Preferred Stock ranks on a parity are collectively referred to
herein as the "Parity Securities" and all equity securities of the Corporation
(other than convertible debt securities) to which the Senior Perpetual Preferred
Stock ranks junior, whether with respect to dividends or upon liquidation,
dissolution, winding up or otherwise, are collectively referred to herein as the
"Senior Securities".) The Senior Perpetual Preferred Stock shall be subject to
the creation of Junior Securities, Parity Securities and Senior Securities.
III. Dividends
(A) The holders of the shares of Senior Perpetual Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available for the payment of dividends,
cumulative cash dividends at the rate of $0.4375 per share per calendar
quarter, and no more, provided that the dividend rate for the period from
the date of initial issuance of the shares of Senior Perpetual Preferred
Stock until June 30, 1996 shall be $0.4375 per share. Such dividends shall
be payable in quarterly payments on March 31, June 30, September 30 and
December 31 of each year commencing with June 30, 1996 (each of such dates
being a "Dividend Payment Date"), in preference to dividends on the Junior
Securities. Such dividends shall be paid to the holders of record at the
close of business on the March 15, June 15, September 15 or December 15, as
the case may be, immediately preceding the relevant dividend payment date
(each of such dates being a "Dividend Payment Record Date"). Each dividend
shall be fully cumulative and shall accrue (whether or not declared),
without interest, from the previous dividend payment date (or, with respect
to the first dividend, from the date of initial issuance of the Senior
Perpetual Preferred Stock). Dividends payable for any partial dividend
period shall be pro rated on the basis of a 360-day year consisting of
twelve 30- day months (four 90-day quarters) and the actual number of days
elapsed in the period for which payable.
(B) All dividends paid with respect to shares of the senior Perpetual
Preferred Stock pursuant to paragraph III(A) shall be paid pro rata to the
holders entitled thereto.
(C) No full dividends shall be declared by the Board of Directors or
paid or set apart for payment by the Corporation on any Parity Securities,
nor shall the Corporation make any distribution in respect of any Parity
Securities, either directly or indirectly, and whether in cash, obligations
or shares of the Corporation or other property, for any period
21
<PAGE>
unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum set apart sufficient for such
payment on the Senior Perpetual Preferred Stock for all dividend payment
periods terminating on or prior to the date of payment, or setting apart
for payment, of such full dividends on such Parity Securities. If any
dividends are not paid in full, as aforesaid, upon the shares of the Senior
Perpetual Preferred Stock and any other Parity Securities, all dividends or
distributions declared upon shares of the senior Perpetual Preferred Stock
and any other Parity Securities shall be declared pro rata so that the
amount of dividends or distributions declared per share of the Senior
Perpetual Preferred Stock and such Parity Securities shall in all cases
bear to each other the same ratio that accrued dividends per share on the
Senior Perpetual Preferred Stock and such Parity Securities bear to each
other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on the Senior Perpetual
Preferred Stock or any other Parity Securities which may be in arrears. Any
dividend not paid pursuant to paragraph III(A) hereof or this paragraph
III(C) shall be fully cumulative and shall accrue (whether or not
declared), without interest, as set forth in paragraph III(A) hereof.
(D) (1) Holders of shares of the Senior Perpetual Preferred Stock
shall be entitled to receive the dividends provided for in paragraph III(A)
hereof in preference to and in priority over any dividends upon any of the
Junior Securities.
(2) So long as any shares of the Senior Perpetual Preferred Stock are
outstanding, the Board of Directors shall not declare, and the Corporation
shall not pay or set apart for payment any dividend on any of the Junior
Securities or make any payment on account of, or set apart for payment
money for a sinking or other similar fund for, the repurchase, redemption
or other retirement of, any of the Junior Securities or Parity Securities
or any warrants, rights or options exercisable for or convertible into any
of the Junior Securities or Parity Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that
are convertible or exchangeable into any of the Junior Securities or Parity
Securities), or make any distribution in respect of the Junior Securities,
either directly or indirectly, and whether in cash, obligations or shares
of the Corporation or other property (other than distributions or dividends
in Junior Securities to the holders of Junior Securities), and shall not
permit any corporation or other entity directly or indirectly controlled by
the Corporation to purchase or redeem any of the Junior Securities or
Parity Securities or any warrants, rights, calls or options exercisable for
or convertible into any of the Junior Securities or Parity Securities
(other than the repurchase, redemption or other retirement of debentures or
other debt securities that are convertible or exchangeable into any of the
Junior Securities or Parity Securities) unless prior to or concurrently
with such declaration, payment, setting apart for payment, repurchase,
redemption or other retirement or distribution, as the case may be, all
accrued and unpaid dividends on shares of the Senior Perpetual Preferred
Stock not paid on the dates provided for in paragraph III(A) hereof
(including accrued dividends not paid by reason of the terms and conditions
of paragraph III(A) or paragraph III(C) hereof) shall have been or be paid.
(3) Subject to the foregoing provisions of this paragraph III, the
Board of Directors may declare and the Corporation may pay or set apart for
payment dividends
22
<PAGE>
and other distributions on any of the Junior Securities or Parity
Securities, and may repurchase, redeem or otherwise retire any of the
Junior Securities or Parity Securities or any warrants, rights or options
exercisable for or convertible into any of the Junior Securities or Parity
Securities, and the holders of the shares of the Senior Perpetual Preferred
Stock shall not be entitled to share therein.
(E) The Corporation shall not enter into any agreement that prohibits,
conflicts with or would be breached by the Corporation's performance of its
obligations hereunder.
(F) The Board of Directors of the Corporation may declare and cause
the Corporation to pay special dividends on the Senior Perpetual Preferred
Stock from time to time, out of funds legally available therefor. Any such
dividends will be payable on such date as the Board of Directors may
determine to holders of record on a record date determined by the Board of
Directors in accordance with Delaware law.
IV. Payment on Liquidation.
(A) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
shares of Senior Perpetual Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders an amount in cash equal to the Liquidation
Preference for each share outstanding, plus an amount in cash equal to all
accrued But unpaid dividends thereon to the date of liquidation,
dissolution or winding up before any payment shall be made or any assets
distributed to the holders of any of the Junior Securities. If the assets
of the Corporation are not sufficient to pay in full the liquidation
payments payable to the holders of outstanding shares of the Senior
Perpetual Preferred Stock and any Parity Securities, then the holders of
all such shares shall share ratably in such distribution of assets in
accordance with the amount which would be payable on such distribution if
the amounts to which the holders of outstanding shares of Senior Perpetual
Preferred Stock and the holders of outstanding shares of such Parity
Securities are entitled were paid in full. Except as provided in this
paragraph IV(A), holders of Senior Perpetual Preferred Stock shall not be
entitled to any distribution in the event of liquidation, dissolution or
winding up of the affairs of the Corporation.
(B) For the purposes of this paragraph IV, neither the voluntary sale,
conveyance, lease, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the
property or assets of the Corporation nor the consolidation or merger of
the Corporation with or into one or more other corporations nor the
consolidation or merger of one or more corporations with or into the
Corporation shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding up.
V. Voting Rights.
(A) The holders of record of shares of Senior Perpetual Preferred
Stock shall not be entitled to any voting rights except as hereinafter
provided in this paragraph V or as otherwise provided by law.
23
<PAGE>
(B) (1) If at any time or times dividends payable on Senior Perpetual
Preferred Stock or any Parity Securities shall be in arrears and unpaid for
the six (6) preceding quarters, then the number of directors constituting
the Board of Directors, without further action, shall be increased by two
and the holders of Senior Perpetual Preferred Stock, together with any
holders of Parity Securities entitled to vote thereon, shall have the
exclusive right, voting separately as a class, to elect the directors of
the Corporation to fill such newly created directorships, the remaining
directors to be elected by the other class or classes of stock entitled to
vote therefor, at each meeting of stockholders held for the purpose of
electing directors; provided that in no event shall the holders of Senior
Perpetual Preferred Stock, together with any holders of such Parity
Securities, have the right to elect more than twenty-five percent (25%) of
the total number of directors of the Corporation, provided, further, that,
notwithstanding the foregoing proviso, holders of Senior Perpetual
Preferred Stock, together with any holders of such Parity Securities, shall
have the right to elect not less than one director pursuant to this
paragraph V(B)(1).
(2) Whenever such voting right shall have vested, such right may be
exercised initially either at a special meeting of the holders of Senior
Perpetual Preferred Stock, called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing directors, or by
written consent of such holders pursuant to ss. 228 of Delaware corporate
law, and thereafter at such meetings or by the written consent of such
holders pursuant to ss. 228 of Delaware corporate law. Such voting right
shall continue until such time as all cumulative dividends accrued on all
outstanding Senior Perpetual Preferred Stock, and any other Parity
Securities as to which full dividends have not previously been paid, shall
have been paid in full or declared and set aside for payment in full, at
which time such voting right of the holders of Senior Perpetual Preferred
Stock shall terminate, subject to revesting in the event of each and every
subsequent failure of the Corporation to pay dividends for the requisite
number of quarters as described above.
(3) At any time when such voting right shall have vested in the
holders of Senior Perpetual Preferred Stock and if such right shall not
already have been initially exercised, a proper officer of the Corporation
shall, upon the written request of the holders of record of 10% of the
shares of Senior Perpetual Preferred Stock then outstanding, addressed to
the Secretary of the Corporation, call a special meeting of holders of
Senior Perpetual Preferred Stock. Such meeting shall be held at the
earliest practicable date upon the notice required for annual meetings of
stockholders at the place for holding annual meetings of stockholders of
the Corporation or, if none, at a place designated by the Secretary of the
Corporation. If such meeting shall not be called by the proper officers of
the Corporation within 30 days after the personal service of such written
request upon the Secretary of the Corporation, or within 30 days after
nailing the same within the United States, by registered mail, addressed to
the Secretary of the Corporation a= its principal office (such mailing to
be evidenced by the registry receipt issued by the postal authorities),
then the holders of record of 10% of the shares of Senior Perpetual
Preferred Stock then outstanding may designate in writing a holder of
Senior Perpetual Preferred Stock to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so designated
upon the notice required for annual meetings of stockholders and shall be
held at the same place as is elsewhere
24
<PAGE>
provided in this paragraph V(B)(3). Any holder of Senior Perpetual
Preferred Stock that would be entitled to vote at such meeting shall have
access to the stock books of the Corporation for the purpose of causing a
meeting of stockholders to be called pursuant to the provisions of this
paragraph. Notwithstanding the provisions of this paragraph, however, no
such special meeting shall be called during a period within 90 days
immediately preceding the date fixed for the next annual meeting of
stockholders.
(4) At any meeting held for the purpose of electing directors at which
the holders of Senior Perpetual Preferred Stock shall have the right to
elect directors as provided herein, the presence in person or by proxy of
the holders of at least a majority of the then outstanding shares of Senior
Perpetual Preferred Stock shall be required and be sufficient to constitute
a quorum of such class for the election of directors by such class. At any
such meeting or adjournment thereof (x) the absence of a quorum of the
holders of Senior Perpetual Preferred Stock shall not prevent the election
of directors other than those to be elected by the holders of stock of such
class and the absence of a quorum or quorums of the holders of capital
stock entitled to elect such other directors shall not prevent the election
of directors to be elected by the holders of Senior Perpetual Preferred
Stock and (y) in the absence of a quorum of the holders of shares of Senior
Perpetual Preferred Stock, a majority of such holders present in person or
by proxy shall have the power to adjourn the meeting for he election of
directors which the holders of shares of Senior Perpetual Preferred Stock
may be entitled to elect, from time to time, without notice (except as
required by law) other than announcement at the meeting, until a quorum
shall be present.
(5) The term of office of all directors elected by the holders of
Senior Perpetual Preferred Stock pursuant to paragraph V(B)(1) in office at
any time when the aforesaid voting rights are vested in the holders of
Senior Perpetual Preferred Stock shall terminate upon the election of their
successors at any meeting of stockholders for the purpose of electing
directors. Upon any termination of the aforesaid voting rights in
accordance with paragraph V(B)(2), the term of office of all directors
elected by the holders of Senior Perpetual Preferred Stock pursuant to
paragraph V(B)(1) then in office shall thereupon terminate and upon such
termination the number of directors constituting the Board of Directors
shall, without further action, be reduced by two (2) (or such other lesser
number by which the number of directors constituting the Board of Directors
shall have been increased pursuant to paragraph V(B)(1) hereof), subject
always to the increase of the number of directors pursuant to paragraph
V(B)(1) in case of the future right of the holders of Senior Perpetual
Preferred Stock to elect directors as provided herein.
(6) In case of any vacancy occurring among the directors so elected,
the remaining director who shall have been so elected may appoint a
successor to hold office for the unexpired term of the director whose place
shall be vacant. If all directors so elected by the holders of Senior
Perpetual Preferred Stock shall cease to serve as directors before their
terms shall expire, the holders of Senior Perpetual Preferred Stock then
outstanding may, at a special meeting of the holders called as provided
above, elect successors to hold office for the unexpired terms of the
directors whose places shall be vacant.
25
<PAGE>
(C) So long as any shares of the Senior Perpetual Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or
consent of the holders of at least a majority of the shares of Senior
Perpetual Preferred Stock at the time outstanding, given in person or by
proxy, either in writing or by resolution adopted at an annual or special
meeting called for the purpose, at which the holders of Senior Perpetual
Preferred Stock shall vote separately as a class, authorize any new class
of Parity Securities.
(D) So long as any shares of the Senior Perpetual Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or
consent of the holders of at least 66-2/3% of the shares of Senior
Perpetual Preferred Stock at the time outstanding, given in person or by
proxy, either in writing or by resolution adopted at an annual or special
meeting called for the purpose, at which the holders of Senior Perpetual
Preferred Stock shall vote separately as a class, authorize any new class
of Senior Securities.
(E) Except as set forth in paragraph V(C) and paragraph V(D) above,
the creation, authorization or issuance of any shares of any Junior
Securities, Parity Securities or Senior Securities, the creation of any
indebtedness of any kind of the Corporation, or the increase or decrease in
the amount of authorized capital stock of any class, including preferred
stock, shall not require the consent of the holders of Senior Perpetual
Preferred Stock and shall not be deemed to affect materially and adversely
the rights, preferences, privileges or voting rights of shares of Senior
Perpetual Preferred Stock.
(F) So long as any shares of the Senior Perpetual Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or
consent of the holders of at least 66-2/3% of the shares of Senior
Perpetual Preferred Stock at the time outstanding, given in person or by
proxy, either in writing or by resolution adopted at an annual or special
meeting called for the purpose, at which the holders of Senior Perpetual
Preferred Stock shall vote separately as a class, amend the Certificate of
Incorporation so as to affect materially and adversely the specified
rights, preferences, privileges or voting rights of shares of Senior
Perpetual Preferred Stock.
VI. Mutilated or Missing Certificates.
If any of the Senior Perpetual Preferred Stock certificates shall be
mutilated, lost, stolen or destroyed, the Corporation shall issue, in exchange
and substitution for and upon cancellation of the mutilated certificate, or in
lieu of and substitution for the certificate lost, stolen or destroyed, a new
certificate of like tenor and representing an equivalent amount of shares of
Senior Perpetual Preferred Stock, but only upon receipt of evidence of such
loss, theft or destruction of such certificate and indemnity, if requested.
VII. Severability of Provisions.
If any right, preference or limitation of the Senior Perpetual Preferred
Stock set forth in these resolutions and the Certificate of Designations filed
pursuant hereto (as such Certificate of Designations may be amended from time to
time) is invalid, unlawful or incapable of being enforced by reason of any rule
or law or public policy, all other rights, preferences and limitations set forth
in such Certificate of Designations, as amended, which can be given effect
26
<PAGE>
without the invalid, unlawful or unenforceable right, preference or limitation
shall, nevertheless remain in full force and effect, and no right, preference or
limitation herein set forth shall be desired dependent upon any other such
right, preference or limitation unless so expressed herein.
VIII. Notice to the Corporation.
All notices and other communications required or permitted to be given to
the Corporation hereunder shall be made by courier to the Corporation at its
principal executive offices (currently located on the date of the adoption of
these resolutions at the following address):
Borden Decorative Products Holdings, Inc.
Belgrave Mills
Belgrave Road
Darwen, Lancashire, BB3 2RR
United Kingdom
Attention: Secretary
Minor imperfections in any such notice shall not affect the validity thereof.
IX. Limitations.
Except as may otherwise be required by law, the shares of Senior Perpetual
Preferred Stock shall not have any powers, preferences or relative,
participating, optional or other special rights other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) or otherwise in the Certificate of Incorporation of the Corporation.
The Certificate of Incorporation of the Corporation is amended so that the
designation and number of shares of the Senior Perpetual Preferred Stock, and
the relative rights, preferences and limitations of the Senior Perpetual
Preferred Stock, are as stated in the foregoing resolution.
27
<PAGE>
IN WITNESS WHEREOF, Borden Decorative Products Holdings, Inc. has caused
this certificate to be executed by Ian G. Collins, its President, and attested
by Benjamin H. Jones, its Secretary, as of May 30, 1996.
Name:
Title:
ATTEST:
Name: B.H. Jones
Title: Secretary
28
<PAGE>
EXHIBIT 3.5
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
CORPORATIONS
FILED 11:40 AM 03/21/1997
971095223 - 2558980
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
-----------------------------------------
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
-----------------------------------------
Borden Decorative Products Holdings, Inc. (the "Company"), a corporation
organized and existing under the General Corporation Law of the state of
Delaware, hereby certifies that pursuant to the provisions of Section 242 of the
General Corporation Law of the State of Delaware, its Board of Directors, by
unanimous written consent dated March 3, 1997, adopted the following
resolutions, which resolutions remain in full force and effect as of the date
hereof.
RESOLVED, that the first paragraph of Section III(A) to the Certificate of
Designation relating to the Company's Junior Perpetual Preferred Stock be and it
hereby is deleted in its entirety and replaced with the following:
"III. Dividends.
(A) The holders of the shares of Junior Perpetual Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available for the payment of dividends,
cumulative dividends at the rate of $1.25 per share for the period from
initial issuance until June 30, 1996, $0.625 per share per calendar quarter
for the quarters ending September 30 and December 31, 1996 and $0.47813 per
share per calendar quarter for each quarter beginning with the quarter
ending March 31, 1997 and thereafter. Such dividends shall be payable in
quarterly payments on March 31, June 30, September 30 and December 31 of
each year commencing with June 30, 1996 (each of such dates being a
"Dividend Payment Date"), in preference to dividends on the Junior
Securities. Such dividends shall be paid to the holders of record at the
close of business on the March 15, June 15, September 1:5 or December 15,
as the case may be, immediately preceding the relevant dividend payment
date (each of such dates being a "Dividend Payment Record Date"). Each
dividend shall be fully cumulative and shall accrue (whether or not
declared), without interest, from the previous dividend payment date (or,
with respect to the first dividend, from the date of initial issuance of
the Junior Perpetual Preferred Stock). Dividends payable for any partial
dividend period shall be pro rated on the basis of a 360-day year
consisting of twelve 30-
1
<PAGE>
day months (four 90-day quarters) and the actual number of days elapsed in
the period for which payable."
FURTHER RESOLVED, that the first paragraph of Section III(A) to the
Certificate of Designation relating to the Company's Senior Perpetual Preferred
Stock be and it hereby is deleted in its entirety and replaced with the
following:
"III. Dividends.
(A) The holders of the shares of Senior Perpetual Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available for the payment of dividends,
cumulative dividends at the rate of $0.4375 per share for the period from
initial issuance until June 30, 1996, $0.4375 per share per calendar
quarter for the quarters ending September 30 and December 31, 1996 and
$0.42188 per share per calendar quarter for each quarter beginning with the
quarter ending March 31, 1997 and thereafter. Such dividends shall be
payable in quarterly payments on March 31, June 30, September 30 and
December 31 of each year commencing with June 30, 1996 (each of such dates
being a "Dividend Payment Date"), in preference to dividends on the Junior
Securities. Such dividends shall be paid to the holders of record at the
close of business on the March 15, June 15, September 15 or December 15, as
the case may be, immediately preceding the, relevant dividend payment date
(each of such dates being a "Dividend Payment Record Date"). Each dividend
shall be fully cumulative and shall accrue (whether or not declared),
without interest, from the previous dividend payment date (or, with respect
to the first dividend, from the date of initial issuance of the Senior
Perpetual Preferred Stock). Dividends payable for any partial dividend
period shall be pro rated on the basis of a 360-day year consisting of
twelve 30-day months (four 90-day quarters) and the actual number of days
elapsed in the period for which payable."
The foregoing amendment was adopted by the holder of 100% of the Company's
Junior and Senior Perpetual Preferred Stock and of the majority of the shares of
the Company's common stock by an Action by Written Consent dated March 10, 1997.
In accordance with Section 228 of the General Corporation Law of the State of
Delaware, written notice of the action has given to those common stockholders
who have not consented in writing.
2
<PAGE>
Page 3
IN WITNESS WHEREOF, Borden Decorative Products Holdings, Inc., has caused
this Certificate to be executed and acknowledged on behalf of the Company by
Benjamin H Jones, its Secretary this 12th day of March, 1997.
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
By: ______________________________________
3
<PAGE>
EXHIBIT 3.12
BORDEN DECORATIVE PRODUCTS, HOLDINGS, INC.
BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meeting and Notice. Meetings of the stockholders of the
Corporation shall be held at such place either within or without the State of
Delaware as the Board of Directors may determine.
Section 2. Annual and Special Meetings. Annual meetings of stockholders
shall be held, at a date, time and place fixed by the Board of Directors and
stated in the notice of meeting, to elect a Board of Directors and to transact
such other business as may properly come before the meeting. Special meetings of
the stockholders may be called by the President for any purpose and shall be
called by the President or Secretary if directed by the Board of Directors or
requested in writing by the holders of not less than 25% of the capital stock of
the Corporation. Each such stockholder request shall state the purpose of the
proposed meeting.
Section 3. Notice. Except as otherwise provided by law, at least 10 and not
more than 60 days before each meeting of stockholders, written notice of the
time, date and place of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given to each
stockholder.
Section 4. Quorum. At any meeting of stockholders, the holders of record,
present in person or by proxy, of a majority of the Corporation's issued and
outstanding capital stock shall constitute a quorum for the transaction of
business, except as otherwise provided by law. In the absence of a quorum, any
officer entitled to preside at or to act as secretary of the meeting shall have
power to adjourn the meeting from time to time until a quorum is present.
Section 5. Voting. Except as otherwise provided by law, all matters
submitted to a meeting of stockholders shall be decided by vote of the holders
of record, present in person or by proxy, of a majority of the Corporation's
issued and outstanding capital stock entitled to vote thereon.
<PAGE>
ARTICLE II
DIRECTORS
2
<PAGE>
Section 1. Number, Election and Removal of Directors. The number of
Directors that shall constitute the Board of Directors shall be not less than
one nor more than fifteen. The Directors shall be elected by stockholders at
their annual meeting. Vacancies and newly created directorships resulting from
any increase in the number of Directors may be filled by a majority of the
Directors then in office, although less than a quorum, or by the sole remaining
Director or by the stockholders. A Director may be removed with or without cause
by the stockholders.
Section 2. Meetings. Regular meetings of the Board of Directors shall be
held at such times and places as may from time to time be fixed by the Board of
Directors or as may be specified in a notice of meeting. Special meetings of the
Board of Directors may be held at any time upon the call of the President and
shall be called by the President or Secretary if directed by the Board of
Directors.
Section 3. Notice. At least one business day before each regular or special
meeting of the Board of Directors, written or telephonic notice of the time,
date and place of the meeting and the purpose or purposes for which the meeting
is called, shall be given to each Director. Written notice shall be deemed to
have been given to a Director in accordance with the preceding sentence when
such notice is sent by facsimile transmission or otherwise delivered to the
principal place of business of each such Director within the time restrictions
as set forth in this Section herein.
Section 4. Quorum. A majority of the total number of Directors shall
constitute a quorum for the transaction of business. If a quorum is not present
at any meeting of the Board of Directors, the Directors present may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until such a quorum is present. Except as otherwise provided by law,
the Certificate of Incorporation of the Corporation, these By-Laws or any
contract or agreement to which the Corporation is a party, the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors.
Section 5. Committees of Directors. The Board of Directors may, by
resolution adopted by a majority of the whole Board, designate one or more
committees, including, without limitation, an Executive Committee, to have and
exercise such power and authority as the Board of Directors shall specify. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or she or they constitute a quorum, may unanimously appoint another
Director to act at the meeting in place of any such absent or disqualified
member.
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a President, a Secretary,
a Treasurer, and may consist of Vice Presidents, Assistant Secretaries,
Assistant Treasurers and such other additional officers with such titles as the
Board of Directors shall determine, all of whom shall be chosen by and shall
serve at the pleasure of the Board of Directors. All officers shall be subject
to the supervision and direction of the Board of Directors. The authority,
duties or responsibilities of
3
<PAGE>
any officer of the Corporation may be suspended by the President with or without
cause. Any officer elected or appointed by the Board of Directors may be removed
by the Board of Directors with or without cause. In addition to the powers and
duties set forth below, such officers shall have the usual powers and shall
perform all the usual duties incident to their respective offices.
(a) President. The President shall be the chief executive officer of the
Corporation; he shall preside at all meetings of the stockholders and of
the Board of Directors; he shall have the management of the business of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
(b) Vice Presidents. During the absence or disability of the President, the
Vice President, or if there are more than one, the Executive Vice
President, shall have all the powers and function of the President. Each
Vice President shall perform such other duties as the Board of Directors
shall prescribe.
(c) Secretary. The Secretary shall: attend all meetings of the Board of
Directors and all meetings of the stockholders; record all votes and
minutes of all proceedings in a book to be kept for that purpose; give or
cause to be given notice of all meetings of stockholders and of the special
meetings of the Board of Directors; keep in safe custody the seal of the
Corporation and affix it to any instrument when authorized by the Board of
Directors; when required, prepare a list of stockholders or cause to be
prepared and available at each meeting of stockholders entitled to vote
thereat, indicating the number of shares of each respective class held by
each; keep all the documents and records of the Corporation as required by
law or otherwise in a proper and safe manner; and perform such other duties
as may be prescribed by the Board of Directors.
(d) Assistant Secretaries. During the absence of disability of the
Secretary, the Assistant Secretary, or if there are more than one, the one
so designated by the Secretary or by the Board of Directors, shall have all
the powers and functions of the Secretary.
(e) Treasurer. The Treasurer shall: have the custody of the corporate funds
and securities; keep full and accurate accounts of receipts and
disbursements in the corporate books; deposit all money and other valuables
in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors; disburse the funds of the
Corporation as may be ordered or authorized by the Board of Directors and
preserve proper vouchers for such disbursements; render to the President
and Board of Directors at the regular meetings of the Board of Directors,
or whenever they require it, an account of all his transactions as
Treasurer and of the financial condition of the Corporation; render a full
financial report at the annual meetings of the stockholders if so
requested; be furnished by all corporate officers and agents at his
request, with such reports and statements as he may require as to all
financial transactions of the Corporation; and perform such other duties as
are given to him by the By-Laws or as from time to time are assigned to him
by the Board of Directors or the President.
4
<PAGE>
(f) Assistant Treasurers. During the absence or disability of the
Treasurer, the Assistant Treasurer, or if there are more than one, the one
so designated by the Secretary or by the Board of Directors, shall have all
the powers and functions of the Treasurer.
ARTICLE IV
INDEMNIFICATION
To the fullest extent permitted by the Delaware General Corporation Law,
the Corporation shall indemnify any current or former Director or officer of the
Corporation and may, at the discretion of the Board of Directors, indemnify any
current or former employee or agent of the Corporation against all expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her in connection with any threatened, pending or completed action,
suit or proceeding brought by or in the right of the Corporation or otherwise,
to which he or she was or is a party by reason of his or her current or former
position with the Corporation or by reason of the fact that he or she is or was
serving, at the request of the Corporation, as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
ARTICLE V
GENERAL PROVISIONS
Section 1. Notices. Whenever any statute, the Certificate of Incorporation
or these By-Laws require notice to be given to any Director or stockholder, such
notice may be given in writing by mail, addressed to such Director or
stockholder at his or her address as it appears in the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram or by facsimile transmission.
Section 2. Fiscal Year. The fiscal year of the Corporation shall be fixed
by the Board of Directors.
5
<PAGE>
EXHIBIT 4.1
THE IMPERIAL HOME DECOR GROUP INC.
$125,000,000
11% Senior Subordinated Notes due 2008
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
March 13, 1998
CHASE SECURITIES INC.
BEAR, STEARNS & CO. INC.
c/o Chase Securities Inc.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
The Imperial Home Decor Group Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to Chase Securities Inc. ("CSI") and Bear, Stearns &
Co. Inc. (together with CSI, the "Initial Purchasers"), upon the terms and
subject to the conditions set forth in a purchase agreement dated March 11, 1998
(the "Purchase Agreement"), $125,000,000 aggregate principal amount of its 11%
Senior Subordinated Notes due 2008 (the "Securities") to be jointly and
severally guaranteed on a senior subordinated basis by certain of the Company's
subsidiaries signatory hereto and certain future subsidiaries (collectively, the
"Subsidiary Guarantors"). Capitalized terms used but not defined herein shall
have the meanings given to such terms in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the Purchase
Agreement and in satisfaction of a condition to the obligations of the Initial
Purchasers thereunder, the Company and the Subsidiary Guarantors agree with the
Initial Purchasers, for the benefit of the holders (including the Initial
Purchasers) of the Securities, the Exchange Securities (as defined herein) and
the Private Exchange Securities (as defined herein) (collectively, the
"Holders"), as follows:
1. Registered Exchange Offer. The Company and the Subsidiary Guarantors
shall (i) prepare and, not later than 120 days following the date of original
issuance of the Securities (the "Issue Date"), file with the Commission a
registration statement (the "Exchange Offer Registration Statement") on an
appropriate form under the Securities Act with respect to a proposed offer to
the Holders of the Securities (the "Registered Exchange Offer") to issue and
deliver to such Holders, in exchange for the Securities, a like aggregate
principal amount of debt securities of the Company (the "Exchange Securities")
that are identical in all material respects to the Securities, except for the
transfer restrictions relating to the Securities, (ii) use their reasonable best
efforts to cause the Exchange Offer Registration Statement to become effective
under the Securities Act no later than 180 days after the Issue Date and the
Registered Exchange Offer to be consummated no
<PAGE>
later than 210 days after the Issue Date and (iii) keep the Exchange Offer
Registration Statement effective for not less than 30 days (or longer, if
required by applicable law) after the date on which notice of the Registered
Exchange Offer is mailed to the Holders (such period being called the "Exchange
Offer Registration Period"). The Exchange Securities will be issued under the
Indenture or an indenture (the "Exchange Securities Indenture") among the
Company, the Subsidiary Guarantors and the Trustee or such other bank or trust
company that is reasonably satisfactory to the Initial Purchasers, as trustee
(the "Exchange Securities Trustee"), such indenture to be identical in all
material respects to the Indenture, except for the transfer restrictions
relating to the Securities (as described above).
Upon the effectiveness of the Exchange Offer Registration Statement, the
Company shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Company or an Exchanging Dealer (as defined herein) not
complying with the requirements of the next sentence, (b) is not an Initial
Purchaser holding Securities that have, or that are reasonably likely to have,
the status of an unsold allotment in an initial distribution, (c) acquires the
Exchange Securities in the ordinary course of such Holder's business and (d) has
no arrangements or understandings with any person to participate in the
distribution of the Exchange Securities) and to trade such Exchange Securities
from and after their receipt without any limitations or restrictions under the
Securities Act and without material restrictions under the securities laws of
the several states of the United States. The Company, the Subsidiary Guarantors,
the Initial Purchasers and each Exchanging Dealer acknowledge that, pursuant to
current interpretations by the Commission's staff of Section 5 of the Securities
Act, each Holder that is a broker-dealer electing to exchange Securities,
acquired for its own account as a result of market-making activities or other
trading activities, for Exchange Securities (an "Exchanging Dealer"), is
required to deliver a prospectus containing substantially the information set
forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in Annex
C hereto in the "Plan of Distribution" section of such prospectus in connection
with a sale of any such Exchange Securities received by such Exchanging Dealer
pursuant to the Registered Exchange Offer.
If, prior to the consummation of the Registered Exchange Offer, any Holder
holds any Securities acquired by it that have, or that are reasonably likely to
be determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Registered
Exchange Offer, the Company shall, upon the request of any such Holder,
simultaneously with the delivery of the Exchange Securities in the Registered
Exchange Offer, issue and deliver to any such Holder, in exchange for the
Securities held by such Holder (the "Private Exchange"), a like aggregate
principal amount of debt securities of the Company (the "Private Exchange
Securities") that are identical in all material respects to the Exchange
Securities, except for the transfer restrictions relating to such Private
Exchange Securities. The Private Exchange Securities will be issued under the
same indenture as the Exchange Securities, and the Company shall use its
reasonable best efforts to cause the Private Exchange Securities to bear the
same CUSIP number as the Exchange Securities.
In connection with the Registered Exchange Offer, the Company shall:
(a) mail or cause to be mailed to each Holder a copy of the prospectus
forming part of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
<PAGE>
3
(b) keep the Registered Exchange Offer open for not less than 30 days
(or longer, if required by applicable law) after the date on which notice
of the Registered Exchange Offer is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
(d) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York City time, on the last business day on
which the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all laws that are applicable
to the Registered Exchange Offer.
As soon as practicable after the close of the Registered Exchange Offer and
any Private Exchange, as the case may be, the Company shall:
(a) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer and the Private
Exchange;
(b) deliver to the Trustee for cancelation all Securities so accepted
for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as the case
may be, promptly to authenticate and deliver to each Holder, Exchange
Securities or Private Exchange Securities, as the case may be, equal in
principal amount to the Securities of such Holder so accepted for exchange.
The Company shall use its reasonable best efforts to keep the Exchange
Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be used by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; provided that (i) in the case where
such prospectus and any amendment or supplement thereto must be delivered by an
Exchanging Dealer, such period shall be the lesser of 180 days and the date on
which all Exchanging Dealers have sold all Exchange Securities held by them and
(ii) the Company shall make such prospectus and any amendment or supplement
thereto available to any broker-dealer for use in connection with any resale of
any Exchange Securities for a period of not less than 180 days after the
consummation of the Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the case may be,
shall provide that the Securities, the Exchange Securities and the Private
Exchange Securities shall vote and consent together on all matters as one class
and that none of the Securities, the Exchange Securities or the Private Exchange
Securities will have the right to vote or consent as a separate class on any
matter.
<PAGE>
4
Interest on each Exchange Security and Private Exchange Security issued
pursuant to the Registered Exchange Offer and in the Private Exchange will
accrue from the last interest payment date on which interest was paid on the
Securities surrendered in exchange therefor or, if no interest has been paid on
the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities to be received by such
Holder will be acquired in the ordinary course of business, (ii) such Holder
will have no arrangements or understanding with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act, (iii) such Holder is not an affiliate of the Company or, if
it is such an affiliate, such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable,
(iv) if such Holder is not a broker-dealer, that it is not engaged in, and does
not intend to engage in, the distribution of Exchange Securities and (v) if such
Holder is a broker-dealer that will receive Exchange Securities for its own
account in exchange for Notes that were acquired as a result of market-making or
other trading activities, that it will deliver a prospectus in connection with
any resale of such Exchange Securities.
Notwithstanding any other provisions hereof, the Company and the Subsidiary
Guarantors will ensure that (i) any Exchange Offer Registration Statement and
any amendment thereto and any prospectus forming part thereof and any supplement
thereto complies in all material respects with the Securities Act and the rules
and regulations of the Commission thereunder, (ii) any Exchange Offer
Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) any prospectus forming part of any Exchange
Offer Registration Statement, and any supplement to such prospectus, does not,
as of the consummation of the Registered Exchange Offer, include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
2. Shelf Registration. If (i) because of any change in law or applicable
interpretations thereof by the Commission's staff the Company is not permitted
to effect the Registered Exchange Offer as contemplated by Section 1 hereof, or
(ii) any Securities validly tendered pursuant to the Registered Exchange Offer
are not exchanged for Exchange Securities within 210 days after the Issue Date,
or (iii) any Initial Purchaser so requests with respect to Securities or Private
Exchange Securities not eligible to be exchanged for Exchange Securities in the
Registered Exchange Offer and held by it following the consummation of the
Registered Exchange Offer, or (iv) any applicable law or interpretations do not
permit any Holder to participate in the Registered Exchange Offer, or (v) any
Holder that participates in the Registered Exchange Offer does not receive
freely transferable Exchange Securities in exchange for tendered Securities, or
(vi) the Company so elects, then the following provisions shall apply:
(a) The Company and the Subsidiary Guarantors shall use their
reasonable best efforts to file as promptly as practicable (but in no event
more than 120 days after the Issue Date) with the Commission, and
thereafter shall use their reasonable best efforts to
<PAGE>
5
cause to be declared effective (but in no event more than 180 days after
the Issue Date), a shelf registration statement on an appropriate form
under the Securities Act relating to the offer and sale of the Transfer
Restricted Securities (as defined below) by the Holders thereof from time
to time in accordance with the methods of distribution set forth in such
registration statement (hereafter, a "Shelf Registration Statement" and,
together with any Exchange Offer Registration Statement, a "Registration
Statement").
(b) The Company and the Subsidiary Guarantors shall use their
reasonable best efforts to keep the Shelf Registration Statement
continuously effective in order to permit the prospectus forming part
thereof to be used by Holders of Transfer Restricted Securities for a
period ending on the earlier of (i) two years from the Issue Date or such
shorter period that will terminate when all the Transfer Restricted
Securities covered by the Shelf Registration Statement have been sold
pursuant thereto and (ii) the date on which the Securities become eligible
for resale without volume restrictions pursuant to Rule 144 under the
Securities Act (in any such case, such period being called the "Shelf
Registration Period"). The Company and the Subsidiary Guarantors shall be
deemed not to have used their reasonable best efforts to keep the Shelf
Registration Statement effective during the requisite period if any of them
voluntarily take any action that would result in Holders of Transfer
Restricted Securities covered thereby not being able to offer and sell such
Transfer Restricted Securities during that period, unless such action is
required by applicable law, provided, however, that the foregoing shall not
apply to actions taken by the Company and the Subsidiary Guarantors in good
faith and for valid business reasons (not including avoidance of their
obligations hereunder), including, without limitation, the acquisition or
divestiture of assets, so long as the Company within 60 days thereafter
complies with the requirements of Section 4(j) hereof. Any such period
during which the Company fails to keep the registration statement effective
and usable for offers and sales of Securities and Exchange Securities or
any period during the pendency of any stop order, injunction or other order
prohibiting the sale of Securities or Exchange Securities under the
registration statement is referred to as a "Suspension Period." A
Suspension Period shall commence on and include the date that the Company
gives notice that the Shelf Registration Statement is no longer effective
or the prospectus included therein is no longer usable for offers and sales
of Securities and Exchange Securities and shall end on the date when each
Holder of Securities and Exchange Securities covered by such registration
statement either receives the copies of the supplemented or amended
prospectus contemplated by Section 4(j) hereof or is advised in writing by
the Company that use of the prospectus may be resumed. If one or more
Suspension Periods occur, the two-year time period referenced above shall
be extended by the number of days in each such Suspension Period.
(c) Notwithstanding any other provisions hereof, the Company and the
Subsidiary Guarantors will ensure that (i) any Shelf Registration Statement
and any amendment thereto and any prospectus forming part thereof and any
supplement thereto complies in all material respects with the Securities
Act and the rules and regulations of the Commission thereunder, (ii) any
Shelf Registration Statement and any amendment thereto (in either case,
other than with respect to information included therein in reliance upon or
in conformity with written information furnished to the Company by or on
behalf
<PAGE>
6
of any Holder specifically for use therein (the "Holders' Information"))
does not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) any prospectus forming part of
any Shelf Registration Statement, and any supplement to such prospectus (in
either case, other than with respect to Holders' Information), does not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3. Liquidated Damages. (a) The parties hereto agree that the Holders of
Transfer Restricted Securities will suffer damages if the Company and the
Subsidiary Guarantors fail to fulfill their obligations under Section 1 or
Section 2, as applicable, and that it would not be feasible to ascertain the
extent of such damages. Accordingly, if (i) the applicable Registration
Statement is not filed with the Commission on or prior to 120 days after the
Issue Date, (ii) the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, is not declared effective within 180
days after the Issue Date, (iii) the Registered Exchange Offer is not
consummated on or prior to 210 days after the Issue Date, or (iv) the Shelf
Registration Statement is filed and declared effective within 180 days after the
Issue Date but shall thereafter cease to be effective (at any time that the
Company is obligated to maintain the effectiveness thereof) without being
succeeded within 60 days by an additional Registration Statement filed and
declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), the Company and the Subsidiary Guarantors will be
jointly and severally obligated to pay liquidated damages to each Holder of
Transfer Restricted Securities, during the period of one or more such
Registration Defaults, in an amount equal to $ 0.192 per week per $1,000
principal amount of Transfer Restricted Securities held by such Holder until (i)
the applicable Registration Statement is filed, (ii) the Exchange Offer
Registration Statement is declared effective and the Registered Exchange Offer
is consummated, (iii) the Shelf Registration Statement is declared effective or
(iv) the Shelf Registration Statement again becomes effective, as the case may
be. Following the cure of all Registration Defaults, the accrual of liquidated
damages will cease. As used herein, the term "Transfer Restricted Securities"
means (i) each Security until the date on which such Security has been exchanged
for a freely transferable Exchange Security in the Registered Exchange Offer,
(ii) each Security or Private Exchange Security until the date on which it has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) each Security or
Private Exchange Security until the date on which it is distributed to the
public pursuant to Rule 144 under the Securities Act or is saleable pursuant to
Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary
in this Section 3(a), the Company shall not be required to pay liquidated
damages to a Holder of Transfer Restricted Securities if such Holder failed to
comply with its obligations to make the representations set forth in the second
to last paragraph of Section 1 or failed to provide the information required to
be provided by it, if any, pursuant to Section 4(n).
(b) The Company shall notify the Trustee and the Paying Agent under the
Indenture promptly upon the happening of each and every Registration Default.
The Company and the Subsidiary Guarantors shall pay the liquidated damages due
on the Transfer Restricted Securities by depositing with the Paying Agent (which
may not be the Company for these purposes), in trust, for the benefit of the
Holders thereof, prior to 10:00 a.m., New York City time,
<PAGE>
7
on the next interest payment date specified by the Indenture and the Securities,
sums sufficient to pay the liquidated damages then due. The liquidated damages
due shall be payable on each interest payment date specified by the Indenture
and the Securities to the record holder entitled to receive the interest payment
to be made on such date. Each obligation to pay liquidated damages shall be
deemed to accrue from and including the date of the applicable Registration
Default.
(c) The parties hereto agree that the liquidated damages provided for in
this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement to be filed, (ii) the
Shelf Registration Statement to remain effective or (iii) the Exchange Offer
Registration Statement to be declared effective and the Registered Exchange
Offer to be consummated, in each case to the extent required by this Agreement.
4. Registration Procedures. In connection with any Registration Statement,
the following provisions shall apply:
(a) The Company shall (i) furnish to each Initial Purchaser, prior to
the filing thereof with the Commission, a copy of the Registration
Statement and each amendment thereof and each supplement, if any, to the
prospectus included therein and shall use its reasonable best efforts to
reflect in each such document, when so filed with the Commission, such
comments as any Initial Purchaser may reasonably propose; (ii) include the
information set forth in Annex A hereto on the cover, in Annex B hereto in
the "Exchange Offer Procedures" section and the "Purpose of the Exchange
Offer" section and in Annex C hereto in the "Plan of Distribution" section
of the prospectus forming a part of the Exchange Offer Registration
Statement, and include the information set forth in Annex D hereto in the
Letter of Transmittal delivered pursuant to the Registered Exchange Offer;
and (iii) if requested by any Initial Purchaser, include the information
required by Items 507 or 508 of Regulation S-K, as applicable, in the
prospectus forming a part of the Exchange Offer Registration Statement.
(b) The Company shall advise each Initial Purchaser, each Exchanging
Dealer and the Holders (if applicable) and, if requested by any such
person, confirm such advice in writing (which advice pursuant to clauses
(ii)-(v) hereof shall be accompanied by an instruction to suspend the use
of the prospectus until the requisite changes have been made):
(i) when any Registration Statement and any amendment thereto has
been filed with the Commission and when such Registration Statement or
any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to any Registration Statement or the prospectus included
therein or for additional information;
<PAGE>
8
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Securities, the
Exchange Securities or the Private Exchange Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose; and
(v) of the happening of any event that requires the making of any
changes in any Registration Statement or the prospectus included
therein in order that the statements therein are not misleading and do
not omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(c) The Company and the Subsidiary Guarantors will use reasonable best
efforts to obtain the withdrawal at the earliest possible time of any order
suspending the effectiveness of any Registration Statement.
(d) The Company will furnish to each Holder of Transfer Restricted
Securities included within the coverage of any Shelf Registration
Statement, without charge, at least one conformed copy of such Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules and, if any such Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).
(e) The Company will, during the Shelf Registration Period, promptly
deliver to each Holder of Transfer Restricted Securities included within
the coverage of any Shelf Registration Statement, without charge, as many
copies of the prospectus (including each preliminary prospectus) included
in such Shelf Registration Statement and any amendment or supplement
thereto as such Holder may reasonably request; and the Company consents to
the use of such prospectus or any amendment or supplement thereto by each
of the selling Holders of Transfer Restricted Securities in connection with
the offer and sale of the Transfer Restricted Securities covered by such
prospectus or any amendment or supplement thereto.
(f) The Company will furnish to each Initial Purchaser and each
Exchanging Dealer, and to any other Holder who so requests, without charge,
at least one conformed copy of the Exchange Offer Registration Statement
and any post-effective amendment thereto, including financial statements
and schedules and, if any Initial Purchaser or Exchanging Dealer or any
such Holder so requests in writing, all exhibits thereto (including those,
if any, incorporated by reference).
(g) The Company will, during the Exchange Offer Registration Period or
the Shelf Registration Period, as applicable, promptly deliver to each
Initial Purchaser, each Exchanging Dealer and such other persons that are
required to deliver a prospectus
<PAGE>
9
following the Registered Exchange Offer, without charge, as many copies of
the final prospectus included in the Exchange Offer Registration Statement
or the Shelf Registration Statement and any amendment or supplement thereto
as such Initial Purchaser, Exchanging Dealer or other persons may
reasonably request; and the Company and the Subsidiary Guarantors consent
to the use of such prospectus or any amendment or supplement thereto by any
such Initial Purchaser, Exchanging Dealer or other persons, as applicable,
as aforesaid.
(h) Prior to the effective date of any Registration Statement, the
Company and the Subsidiary Guarantors will use their reasonable best
efforts to register or qualify, or cooperate with the Holders of
Securities, Exchange Securities or Private Exchange Securities included
therein and their respective counsel in connection with the registration or
qualification of, such Securities, Exchange Securities or Private Exchange
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any such Holder reasonably requests in writing and do any
and all other acts or things reasonably necessary to enable the offer and
sale in such jurisdictions of the Securities, Exchange Securities or
Private Exchange Securities covered by such Registration Statement;
provided that the Company and the Subsidiary Guarantors will not be
required to qualify generally to do business in any jurisdiction where they
are not then so qualified or to take any action which would subject them to
general service of process or to taxation in any such jurisdiction where
they are not then so subject.
(i) The Company and the Subsidiary Guarantors will cooperate with the
Holders of Securities, Exchange Securities or Private Exchange Securities
to facilitate the timely preparation and delivery of certificates
representing Securities, Exchange Securities or Private Exchange Securities
to be sold pursuant to any Registration Statement free of any restrictive
legends and in such denominations and registered in such names as the
Holders thereof may request in writing prior to sales of Securities,
Exchange Securities or Private Exchange Securities pursuant to such
Registration Statement.
(j) If (i) any event contemplated by Section 4(b)(ii) through (v)
occurs during the period for which the Company and the Subsidiary
Guarantors are required to maintain an effective Registration Statement or
(ii) any Suspension Period remains in effect for more than 60 days after
the occurrence thereof, the Company and the Subsidiary Guarantors will
promptly prepare and file with the Commission a post-effective amendment to
the Registration Statement or a supplement to the related prospectus or
file any other required document so that, as thereafter delivered to
purchasers of the Securities, Exchange Securities or Private Exchange
Securities from a Holder, the prospectus will not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(k) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Securities, the
Exchange Securities and the Private Exchange Securities, as the case may
be, and provide the applicable trustee with printed certificates for the
Securities, the Exchange Securities or the Private
<PAGE>
10
Exchange Securities, as the case may be, in a form eligible for deposit
with The Depository Trust Company.
(l) The Company and the Subsidiary Guarantors will comply in all
material respects with all applicable rules and regulations of the
Commission and the Company will make generally available to its security
holders as soon as practicable after the effective date of the applicable
Registration Statement an earning statement satisfying the provisions of
Section 11(a) of the Securities Act; provided that in no event shall such
earning statement be delivered later than 45 days after the end of a
12-month period (or 90 days, if such period is a fiscal year) beginning
with the first month of the Company's first fiscal quarter commencing after
the effective date of the applicable Registration Statement, which
statement shall cover such 12-month period.
(m) The Company and the Subsidiary Guarantors will cause the Indenture
or the Exchange Securities Indenture, as the case may be, to be qualified
under the Trust Indenture Act as required by applicable law in a timely
manner.
(n) The Company may require each Holder of Transfer Restricted
Securities to be registered pursuant to any Shelf Registration Statement to
furnish to the Company such information concerning the Holder and the
distribution of such Transfer Restricted Securities as the Company may from
time to time reasonably request for inclusion in such Shelf Registration
Statement, and the Company may exclude from such registration the Transfer
Restricted Securities of any Holder that fails to furnish such information
within a reasonable time after receiving such request.
(o) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of
any notice from the Company pursuant to Section 2(b) or 4(b)(ii) through
(v), such Holder will discontinue disposition of such Transfer Restricted
Securities until such Holder's receipt of copies of the supplemental or
amended prospectus contemplated by Section 4(j) or until advised in writing
(the "Advice") by the Company that the use of the applicable prospectus may
be resumed. If the Company shall give any notice under Section 2(b) or
4(b)(ii) through (v) during the period that the Company is required to
maintain an effective Registration Statement (the "Effectiveness Period"),
such Effectiveness Period shall be extended by the number of days during
such period from and including the date of the giving of such notice to and
including the date when each seller of Transfer Restricted Securities
covered by such Registration Statement shall have received (x) the copies
of the supplemental or amended prospectus contemplated by Section 4(j) (if
an amended or supplemental prospectus is required) or (y) the Advice (if no
amended or supplemental prospectus is required).
(p) In the case of a Shelf Registration Statement, the Company and the
Subsidiary Guarantors shall enter into such customary agreements
(including, if requested, an underwriting agreement in customary form) and
take all such other action, if any, as Holders of a majority in aggregate
principal amount of the Securities, Exchange Securities
<PAGE>
11
and Private Exchange Securities being sold or the managing underwriters (if
any) shall reasonably request in order to facilitate any disposition of
Securities, Exchange Securities or Private Exchange Securities pursuant to
such Shelf Registration Statement.
(q) In the case of a Shelf Registration Statement, the Company shall
(i) make reasonably available for inspection at the location where they are
normally kept and during normal business hours by a representative of, and
Special Counsel (as defined below) acting for, Holders of a majority in
aggregate principal amount of the Securities, Exchange Securities and
Private Exchange Securities being sold and any underwriter participating in
any disposition of Securities, Exchange Securities or Private Exchange
Securities pursuant to such Shelf Registration Statement, all relevant
financial and other records, pertinent corporate documents and properties
of the Company and its subsidiaries and (ii) use its reasonable best
efforts to have its officers, directors, employees, accountants and counsel
supply all relevant information reasonably requested by such
representative, Special Counsel or any such underwriter (an "Inspector") in
connection with such Shelf Registration Statement. Each Inspector shall
agree in writing to keep confidential all information received pursuant to
this Section 4(q) (the "Information"), except that each Inspector and
Holder shall be permitted to disclose Information (i) that has generally
been made available to the public, (ii) that has become available to such
Inspector or Holder on a nonconfidential basis from a source other than the
Company, its affiliates or its accountants or counsel, (iii) if such
Inspector or Holder reasonably believes upon the advice of counsel that
disclosure of such Information is necessary or advisable to insure
compliance by such Inspector or Holder with the Securities Act or any other
securities laws, (iv) to the extent otherwise required by applicable laws
and regulations or by subpoena or similar legal process, (v) in connection
with any suit, action or proceeding to which it is a party relating to the
Securities or any securities laws, (vi) to any regulatory authority having
jurisdiction over such Inspector or Holder upon the request of such
regulatory authority or (vii) to its officers, directors, employees, agents
or representatives on a confidential and need-to-know basis.
(r) In the case of a Shelf Registration Statement, the Company shall,
if requested by Holders of a majority in aggregate principal amount of the
Securities, Exchange Securities and Private Exchange Securities being sold,
their Special Counsel or the managing underwriters (if any) in connection
with such Shelf Registration Statement, use its reasonable best efforts to
cause (i) its counsel to deliver an opinion relating to the Shelf
Registration Statement and the Securities, Exchange Securities or Private
Exchange Securities, as applicable, in customary form and substance, (ii)
its officers to execute and deliver all customary documents and
certificates requested by Holders of a majority in aggregate principal
amount of the Securities, Exchange Securities and Private Exchange
Securities being sold, their Special Counsel or the managing underwriters
(if any) and (iii) its independent public accountants to provide a comfort
letter or letters in customary form and substance, subject to receipt of
appropriate documentation as contemplated, and only if permitted, by
Statement of Auditing Standards No. 72.
5. Registration Expenses. The Company and the Subsidiary Guarantors will
jointly and severally bear all expenses incurred in connection with the
performance of its
<PAGE>
12
obligations under Sections 1, 2, 3 and 4 and the Company will reimburse the
Initial Purchasers and the Holders for the reasonable fees and disbursements of
one firm of attorneys (in addition to any local counsel) chosen by the Holders
of a majority in aggregate principal amount of the Securities, the Exchange
Securities and the Private Exchange Securities to be sold pursuant to each
Registration Statement (the "Special Counsel") acting for the Initial Purchasers
or Holders in connection therewith.
6. Indemnification. (a) In the event of a Shelf Registration Statement or
in connection with any prospectus delivery pursuant to an Exchange Offer
Registration Statement by an Initial Purchaser or Exchanging Dealer, as
applicable, the Company and the Subsidiary Guarantors shall jointly and
severally indemnify and hold harmless each Holder (including, without
limitation, any such Initial Purchaser or Exchanging Dealer), its affiliates,
their respective officers, directors, employees, representatives and agents, and
each person, if any, who controls such Holder within the meaning of the
Securities Act or the Exchange Act (collectively referred to for purposes of
this Section 6 and Section 7 as a Holder) from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, without limitation, any loss, claim, damage, liability or action
relating to purchases and sales of Securities, Exchange Securities or Private
Exchange Securities), to which that Holder may become subject, whether commenced
or threatened, under the Securities Act, the Exchange Act, any other federal or
state statutory law or regulation, at common law or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a material fact contained in
any such Registration Statement or any prospectus forming part thereof or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and shall reimburse each Holder promptly
upon demand for any legal or other expenses reasonably incurred by that Holder
in connection with investigating or defending or preparing to defend against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company and the Subsidiary Guarantors shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or action arises
out of, or is based upon, an untrue statement or alleged untrue statement in or
omission or alleged omission from any of such documents in reliance upon and in
conformity with any Holders' Information; and provided, further, that with
respect to any such untrue statement in or omission from any related preliminary
prospectus, the indemnity agreement contained in this Section 6(a) shall not
inure to the benefit of any Holder from whom the person asserting any such loss,
claim, damage, liability or action received Securities, Exchange Securities or
Private Exchange Securities to the extent that such loss, claim, damage,
liability or action of or with respect to such Holder results from the fact that
both (A) a copy of the final prospectus was not sent or given to such person at
or prior to the written confirmation of the sale of such Securities, Exchange
Securities or Private Exchange Securities to such person and (B) the untrue
statement in or omission from the related preliminary prospectus was corrected
in the final prospectus unless such failure to deliver the final prospectus was
a result of non-compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement, each Holder shall
indemnify and hold harmless the Company, the Subsidiary Guarantors and their
respective affiliates, officers,
<PAGE>
13
directors, employees, representatives and agents, and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act (collectively referred to for purposes of this Section 6(b) and Section 7 as
the Company), from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company may become
subject, whether commenced or threatened, under the Securities Act, the Exchange
Act, any other federal or state statutory law or regulation, at common law or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in any such Registration Statement or any prospectus
forming part thereof or in any amendment or supplement thereto or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, but in
each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with any Holders' Information furnished to the Company by such
Holder, and shall reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
or preparing to defend against or appearing as a third party witness in
connection with any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that no such Holder shall be liable
for any indemnity claims hereunder in excess of the amount of net proceeds
received by such Holder from the sale of Securities, Exchange Securities or
Private Exchange Securities pursuant to such Shelf Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section 6 of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party pursuant to Section 6(a) or 6(b), notify the indemnifying party in writing
of the claim or the commencement of that action; provided, however, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have under this Section 6 except to the extent that it has been
materially prejudiced (through the forfeiture of substantive rights or defenses)
by such failure; and provided, further, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party otherwise than under this Section 6. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than the reasonable costs of investigation; provided, however,
that an indemnified party shall have the right to employ its own counsel in any
such action, but the fees, expenses and other charges of such counsel for the
indemnified party will be at the expense of such indemnified party unless (1)
the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based upon advice of counsel to the indemnified party) that there may
be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party, (3)
a conflict or potential conflict exists (based upon advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying
<PAGE>
14
party will not have the right to direct the defense of such action on behalf of
the indemnified party) or (4) the indemnifying party has not in fact employed
counsel reasonably satisfactory to the indemnified party to assume the defense
of such action within a reasonable time after receiving notice of the
commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm of attorneys (in addition to any
local counsel) at any one time for all such indemnified party or parties. Each
indemnified party, as a condition of the indemnity agreements contained in
Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the
indemnifying party in the defense of any such action or claim. No indemnifying
party shall be liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld), but if
settled with its written consent or if there be a final judgment for the
plaintiff in any such action, the indemnifying party agrees to indemnify and
hold harmless any indemnified party from and against any loss or liability by
reason of such settlement or judgment. No indemnifying party shall, without the
prior written consent of the indemnified party (which consent shall not be
unreasonably withheld), effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or reasonably could be
expected to be a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
7. Contribution. If the indemnification provided for in Section 6 is
unavailable or insufficient to hold harmless an indemnified party under Section
6(a) or 6(b) otherwise than as a result of the limitations therein contained,
then each indemnifying party shall, in lieu of indemnifying such indemnified
party, contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability, or action in respect thereof,
(i) in such proportion as shall be appropriate to reflect the relative benefits
received by the Company from the offering and sale of the Securities, on the one
hand, and a Holder with respect to the sale by such Holder of Securities,
Exchange Securities or Private Exchange Securities, on the other, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Subsidiary Guarantors, on the one hand, and such Holder, on the other, with
respect to the statements or omissions that resulted in such loss, claim, damage
or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Subsidiary Guarantors, on the one hand, and a Holder, on the other, with respect
to such offering and such sale shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Securities (before deducting
expenses) received by or on behalf of the Company as set forth in the table on
the cover of the Offering Memorandum, on the one hand, bear to the total
proceeds received by such Holder with respect to its sale of Securities,
Exchange Securities or Private Exchange Securities, on the other. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to the Company and the Subsidiary
Guarantors or information supplied by the Company and the Subsidiary Guarantors,
on the one hand, or to any
<PAGE>
15
Holders' Information supplied by such Holder, on the other, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 7 were to be determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable considerations referred
to herein. The amount paid or payable by an indemnified party as a result of the
loss, claim, damage or liability, or action in respect thereof, referred to
above in this Section 7 shall be deemed to include, for purposes of this Section
7, any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending or preparing to defend any such
action or claim. Notwithstanding the provisions of this Section 7, an
indemnifying party that is a Holder of Securities, Exchange Securities or
Private Exchange Securities shall not be required to contribute any amount in
excess of the amount by which the total price at which the Securities, Exchange
Securities or Private Exchange Securities sold by such indemnifying party to any
purchaser exceeds the amount of any damages which such indemnifying party has
otherwise paid or become liable to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
8. Rules 144 and 144A. The Company shall use its reasonable best efforts to
file the reports required to be filed by it under the Securities Act and the
Exchange Act in a timely manner and, if at any time the Company is not required
to file such reports, it will, upon the written request of any Holder of
Transfer Restricted Securities, make publicly available other information
required to be made available by Rules 144 or 144A so long as necessary to
permit sales of such Holder's securities pursuant to Rules 144 and 144A. The
Company and the Subsidiary Guarantors covenant that they will take such further
action as any Holder of Transfer Restricted Securities may reasonably request,
all to the extent required from time to time to enable such Holder to sell
Transfer Restricted Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rules 144 and 144A
(including, without limitation, the requirements of Rule 144A(d)(4)). Upon the
written request of any Holder of Transfer Restricted Securities, the Company and
the Subsidiary Guarantors shall deliver to such Holder a written statement as to
whether they have complied with such requirements. Notwithstanding the
foregoing, nothing in this Section 8 shall be deemed to require the Company to
register any of its securities pursuant to the Exchange Act.
9. Underwritten Registrations. If any of the Transfer Restricted Securities
covered by any Shelf Registration Statement are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering will be selected by the Holders of a majority
in aggregate principal amount of such Transfer Restricted Securities included in
such offering, subject to the consent of the Company (which shall not be
unreasonably withheld or delayed), and such Holders shall be responsible for all
underwriting commissions and discounts in connection therewith.
No person may participate in any underwritten registration hereunder unless
such person (i) agrees to sell such person's Transfer Restricted Securities on
the basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve
<PAGE>
16
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
10. Miscellaneous. (a) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, unless the Company so
agrees and has obtained the written consent of Holders of a majority in
aggregate principal amount of the Securities, the Exchange Securities and the
Private Exchange Securities, taken as a single class. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders whose Securities,
Exchange Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities being sold by such Holders pursuant to such Registration
Statement.
(b) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 10(b),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Registrar under the Indenture, with a copy in
like manner to Chase Securities Inc. and Bear, Stearns & Co. Inc.;
(2) if to an Initial Purchaser, initially at its address set forth in
the Purchase Agreement; and
(3) if to the Company, initially at the address of the Company set
forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day after
being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.
(c) Successors And Assigns. This Agreement shall be binding upon the
Company, the Subsidiary Guarantors and their respective successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
counterparts (which may be delivered in original form or by telecopier) and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
<PAGE>
17
(e) Definition of Terms. For purposes of this Agreement, (a) the term
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405
under the Securities Act and (c) except where otherwise expressly provided, the
term "affiliate" has the meaning set forth in Rule 405 under the Securities Act.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(h) Remedies. In the event of a breach by the Company, any Subsidiary
Guarantor or by any Holder of any of their obligations under this Agreement,
each Holder, the Company or any Subsidiary Guarantor, as the case may be, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages (other than the recovery of damages for a breach by the
Company or any Subsidiary Guarantor of its obligations under Sections 1 or 2
hereof for which liquidated damages have been paid pursuant to Section 3
hereof), will be entitled to specific performance of its rights under this
Agreement. The Company, the Subsidiary Guarantors and each Holder agree that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by each such person of any of the provisions of this
Agreement and hereby further agree that, in the event of any action for specific
performance in respect of such breach, each such person shall waive the defense
that a remedy at law would be adequate.
(i) No Inconsistent Agreements. The Company and each Subsidiary Guarantor
represents, warrants and agrees that, except as described in the Offering
Memorandum, (i) it has not entered into, shall not, on or after the date of this
Agreement, enter into any agreement that is inconsistent with the rights granted
to the Holders in this Agreement or otherwise conflicts with the provisions
hereof, (ii) it has not previously entered into any agreement which remains in
effect granting any registration rights with respect to any of its debt
securities to any person and (iii) (with respect to the Company) without
limiting the generality of the foregoing, without the written consent of the
Holders of a majority in aggregate principal amount of the then outstanding
Transfer Restricted Securities, it shall not grant to any person the right to
request the Company to register any debt securities of the Company under the
Securities Act unless the rights so granted are not in conflict or inconsistent
with the provisions of this Agreement.
(j) No Piggyback on Registrations. Except as described in the Offering
Memorandum, neither the Company nor any of its security holders (other than the
Holders of Transfer Restricted Securities in such capacity) shall have the right
to include any securities of the Company in any Shelf Registration or Registered
Exchange Offer other than Transfer Restricted Securities.
(k) Severability. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the
<PAGE>
18
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their reasonable best efforts
to find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions, covenants
and restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
<PAGE>
19
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Subsidiary Guarantors and the Initial Purchasers.
Very truly yours,
THE IMPERIAL HOME DECOR GROUP INC.,
By _______________________________________
Name:
Title:
THE IMPERIAL HOME DECOR GROUP (US) LLC,
By _______________________________________
Name:
Title:
MARKETING SERVICE, INC.,
By _______________________________________
Name:
Title:
<PAGE>
20
ANNEX A
VERNON PLASTICS, INC.,
By _______________________________________
Name:
Title:
WDP INVESTMENTS, INC.,
By _______________________________________
Name:
Title:
IMPERIAL HOME DECOR GROUP
HOLDINGS I LIMITED,
By _______________________________________
Name:
Title:
Accepted:
CHASE SECURITIES INC.,
By
________________________________
Authorized Signatory
BEAR, STEARNS & CO. INC.,
by
________________________________
Authorized Signatory
Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Securities. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Securities where such Securities were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date (as defined
<PAGE>
herein), it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution".
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its own account in
exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution".
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until [_____] 199[_], all
dealers effecting transactions in the Exchange Securities may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to the Registered Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to the
Registered Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Securities and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Registered Exchange Offer (including the expenses of one counsel
for the Holders of the Securities) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
<PAGE>
ANNEX D
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE
10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
EXHIBIT 4.2
================================================================================
THE IMPERIAL HOME DECOR GROUP INC.
11% Senior Subordinated Notes due 2008
----------
INDENTURE
Dated as of March 13, 1998
----------
THE BANK OF NEW YORK,
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.....................................................1
SECTION 1.02. Other Definitions..............................................20
SECTION 1.03. Incorporation by Reference of Trust Indenture Act..............21
SECTION 1.04. Rules of Construction..........................................21
ARTICLE 2
The Securities
SECTION 2.01. Amount of Securities; Issuable in Series.......................22
SECTION 2.02. Form and Dating................................................23
SECTION 2.03. Execution and Authentication...................................23
SECTION 2.04. Registrar and Paying Agent.....................................24
SECTION 2.05. Paying Agent To Hold Money in Trust............................24
SECTION 2.06. Securityholder Lists...........................................25
SECTION 2.07. Transfer and Exchange..........................................25
SECTION 2.08. Replacement Securities.........................................25
SECTION 2.09. Outstanding Securities.........................................26
SECTION 2.10. Temporary Securities...........................................26
SECTION 2.11. Cancelation....................................................27
SECTION 2.12. Defaulted Interest.............................................27
SECTION 2.13. CUSIP Numbers..................................................27
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee.............................................27
SECTION 3.02. Selection of Securities To Be Redeemed.........................27
SECTION 3.03. Notice of Redemption...........................................28
SECTION 3.04. Effect of Notice of Redemption.................................28
SECTION 3.05. Deposit of Redemption Price....................................29
SECTION 3.06. Securities Redeemed in Part....................................29
<PAGE>
Page
----
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities..........................................29
SECTION 4.02. Reports and Other Information..................................29
SECTION 4.03. Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock.............................30
SECTION 4.04. Limitation on Restricted Payments..............................33
SECTION 4.05. Dividend and Other Payment Restrictions
Affecting Subsidiaries.....................................37
SECTION 4.06. Asset Sales....................................................38
SECTION 4.07. Transactions with Affiliates...................................40
SECTION 4.08. Change of Control..............................................41
SECTION 4.09. Compliance Certificate.........................................42
SECTION 4.10. Further Instruments and Acts...................................42
SECTION 4.11. Future Subsidiary Guarantors...................................42
SECTION 4.12. Liens..........................................................42
ARTICLE 5
Successor Company
SECTION 5.01. (a) Merger, Consolidation, or Sale of All or Substantially
All Assets.................................................43
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default..............................................45
SECTION 6.02. Acceleration...................................................47
SECTION 6.03. Other Remedies.................................................47
SECTION 6.04. Waiver of Past Defaults........................................47
SECTION 6.05. Control by Majority............................................47
SECTION 6.06. Limitation on Suits............................................48
SECTION 6.07. Rights of Holders to Receive Payment...........................48
SECTION 6.08. Collection Suit by Trustee.....................................48
SECTION 6.09. Trustee May File Proofs of Claim...............................48
SECTION 6.10. Priorities.....................................................49
SECTION 6.11. Undertaking for Costs..........................................49
SECTION 6.12. Waiver of Stay or Extension Laws...............................49
<PAGE>
Page
----
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee..............................................50
SECTION 7.02. Rights of Trustee..............................................51
SECTION 7.03. Individual Rights of Trustee...................................51
SECTION 7.04. Trustee's Disclaimer...........................................51
SECTION 7.05. Notice of Defaults.............................................52
SECTION 7.06. Reports by Trustee to Holders..................................52
SECTION 7.07. Compensation and Indemnity.....................................52
SECTION 7.08. Replacement of Trustee.........................................53
SECTION 7.09. Successor Trustee by Merger....................................54
SECTION 7.10. Eligibility; Disqualification..................................54
SECTION 7.11. Preferential Collection of Claims Against Company..............54
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance...............54
SECTION 8.02. Conditions to Defeasance.......................................55
SECTION 8.03. Application of Trust Money.....................................56
SECTION 8.04. Repayment to Company...........................................56
SECTION 8.05. Indemnity for Government Obligations...........................57
SECTION 8.06. Reinstatement..................................................57
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders.....................................57
SECTION 9.02. With Consent of Holders........................................58
SECTION 9.03. Compliance with Trust Indenture Act............................59
SECTION 9.04. Revocation and Effect of Consents and Waivers..................59
SECTION 9.05. Notation on or Exchange of Securities..........................59
SECTION 9.06. Trustee To Sign Amendments.....................................60
SECTION 9.07. Payment for Consent............................................60
ARTICLE 10
Subordination
<PAGE>
Page
----
SECTION 10.01. Agreement To Subordinate......................................60
SECTION 10.02. Liquidation, Dissolution, Bankruptcy..........................60
SECTION 10.03. Default on Senior Indebtedness................................61
SECTION 10.04. Acceleration of Payment of Securities.........................62
SECTION 10.05. When Distribution Must Be Paid Over...........................62
SECTION 10.06. Subrogation...................................................62
SECTION 10.07. Relative Rights...............................................62
SECTION 10.08. Subordination May Not Be Impaired by Company..................62
SECTION 10.09. Rights of Trustee and Paying Agent............................63
SECTION 10.10. Distribution or Notice to Representative......................63
SECTION 10.11. Article 10 Not To Prevent Events of Default or
Limit Right To Accelerate .................................63
SECTION 10.12. Trust Moneys Not Subordinated.................................63
SECTION 10.13. Trustee Entitled To Rely......................................63
SECTION 10.14. Trustee To Effectuate Subordination...........................64
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior
Indebtedness...............................................64
SECTION 10.16. Reliance by Holders of Senior Indebtedness on
Subordination Provisions...................................64
SECTION 10.17. Trustee's Compensation Not Prejudiced.........................64
<PAGE>
Page
----
ARTICLE 11
Subsidiary Guarantees
SECTION 11.01. Subsidiary Guarantees.........................................64
SECTION 11.02. Limitation on Liability.......................................67
SECTION 11.03. Successors and Assigns........................................67
SECTION 11.04. No Waiver.....................................................67
SECTION 11.05. Modification..................................................67
SECTION 11.06. Execution of Supplemental Indenture for Future
Subsidiary Guarantors......................................68
ARTICLE 12
Subordination of the Subsidiary Guarantees
SECTION 12.01. Agreement To Subordinate......................................68
SECTION 12.02. Liquidation, Dissolution, Bankruptcy..........................68
SECTION 12.03. Default on Designated Senior Indebtedness of a
Subsidiary Guarantor.......................................68
SECTION 12.04. Demand for Payment............................................69
SECTION 12.05. When Distribution Must Be Paid Over...........................69
SECTION 12.06. Subrogation...................................................70
SECTION 12.07. Relative Rights...............................................70
SECTION 12.08. Subordination May Not Be Impaired by a Subsidiary
Guarantor..................................................70
SECTION 12.09. Rights of Trustee and Paying Agent............................71
SECTION 12.10. Distribution or Notice to Representative......................71
SECTION 12.11. Article 12 Not To Prevent Events of Default or Limit
Right To Accelerate........................................71
SECTION 12.12. Trustee Entitled To Rely......................................71
SECTION 12.13. Trustee To Effectuate Subordination...........................71
SECTION 12.14. Trustee Not Fiduciary for Holders of Senior
Indebtedness of a Subsidiary Guarantor.....................71
SECTION 12.15. Reliance by Holders of Senior Indebtedness of a
Subsidiary Guarantor on Subordination Provisions...........72
SECTION 12.16. Defeasance....................................................72
ARTICLE 13
Miscellaneous
SECTION 13.01. Trust Indenture Act Controls..................................72
<PAGE>
Page
----
SECTION 13.02. Notices.......................................................72
SECTION 13.03. Communication by Holders with Other Holders...................73
SECTION 13.04. Certificate and Opinion as to Conditions Precedent............73
SECTION 13.05. Statements Required in Certificate or Opinion.................73
SECTION 13.06. When Securities Disregarded...................................73
SECTION 13.07. Rules by Trustee, Paying Agent and Registrar..................74
SECTION 13.08. Legal Holidays................................................74
SECTION 13.09. GOVERNING LAW.................................................74
SECTION 13.10. No Recourse Against Others....................................74
SECTION 13.11. Successors....................................................74
SECTION 13.12. Multiple Originals............................................74
SECTION 13.13. Table of Contents; Headings...................................74
Appendix A - Provisions Relating to Original Securities, Additional
Securities, Private Exchange Securities and Exchange
Securities
Exhibit A - Form of Initial Security
Exhibit B - Form of Exchange Security
Exhibit C - Form of Supplemental Indenture
Exhibit D - Form of Letter of Representation
<PAGE>
INDENTURE dated as of March 13, 1998, among THE IMPERIAL HOME
DECOR GROUP INC., a Delaware corporation (the "Company"), each
Subsidiary of the Company listed on the signature pages hereto
(collectively, the "Subsidiary Guarantors") and THE BANK OF NEW YORK,
a New York banking corporation as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties and for
the equal and ratable benefit of the Holders of (i) the Company's 11% Senior
Subordinated Notes due 2008 issued on the date hereof (the "Original
Securities"), (ii) any Additional Securities (as defined herein) that may be
issued on any Issue Date (all such Securities in clauses (i) and (ii) being
referred to collectively as the "Initial Securities"), (iii) if and when issued
as provided in a Registration Agreement (as defined in Appendix A hereto (the
"Appendix"), the Company's 11% Senior Subordinated Notes due 2008 issued in a
Registered Exchange Offer (as defined in the Appendix) in exchange for any
Initial Securities (the "Exchange Securities") and (iv) if and when issued as
provided in a Registration Agreement, the Private Exchange Securities (as
defined in the Appendix) issued in a Private Exchange (as defined in the
Appendix, and together with the Initial Securities and any Exchange Securities
issued hereunder, the "Securities"). Except as otherwise provided herein, the
Securities shall be limited to $275,000,000 in aggregate principal amount
outstanding, of which $125,000,000 in aggregate principal amount shall be
initially issued on the date hereof. Subject to the conditions set forth herein,
the Company may issue up to $150,000,000 aggregate principal amount of
Additional Securities.
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person
and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Additional Securities" means up to $150,000,000 aggregate principal amount
of 11% Senior Subordinated Notes due 2008 issued under the terms of this
Indenture subsequent to the Closing Date.
<PAGE>
2
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Applicable Premium" means with respect to a Security at any redemption
date, the greater of (i) 1.0% of the principal amount of such Security or (ii)
the excess of (A) the present value of (1) the redemption price of such Security
at March 15, 2003 (such redemption price being set forth in paragraph 5 of the
Security) plus (2) all required interest payments due on such Security through
March 15, 2003, computed using a discount rate equal to the Treasury Rate plus
50 basis points, over (B) the then-outstanding principal amount of such
Security.
"Asset Sale" means (i) the sale, conveyance, transfer or other disposition
(whether in a single transaction or a series of related transactions) of
property or assets (including by way of a sale and leaseback) of the Company or
any Restricted Subsidiary (each referred to in this definition as a
"disposition") or (ii) the issuance or sale of Equity Interests of any
Restricted Subsidiary (whether in a single transaction or a series of related
transactions), in each case other than: (a) a disposition of Cash Equivalents or
obsolete or worn out equipment in the ordinary course of business; (b) the
disposition of all or substantially all of the assets of the Company in a manner
permitted pursuant to Section 5.01 or any disposition that constitutes a Change
of Control; (c) any Restricted Payment that is permitted to be made, and is
made, under Section 4.04; (d) any disposition of assets with an aggregate Fair
Market Value of less than $1,000,000; (e) any disposition of property or assets
by a Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary; (f) any exchange of like property
pursuant to Section 1031 of the Code, as amended, for use in a Similar Business;
(g) any financing transaction with respect to property built or acquired by the
Company or any Restricted Subsidiary after the Closing Date, including
sale-leasebacks and asset securitizations; (h) sales of assets received by the
Company upon the foreclosure on a Lien; and (i) any sale of Equity Interests in,
or Indebtedness or other securities of, an Unrestricted Subsidiary.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement, the other Senior Credit Documents and any Refinancing
Indebtedness with respect thereto, as amended from time to time, including
principal, premium (if any), interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not a claim for post-filing interest is allowed in such
proceedings), fees, charges, expenses,
<PAGE>
3
reimbursement obligations, guarantees and all other amounts payable thereunder
or in respect thereof.
"Blackstone" means Blackstone Capital Partners III Merchant Banking Fund
L.P. and its Affiliates.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
"Capitalized Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized and reflected as a liability on
a balance sheet (excluding the footnotes thereto) in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited), and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Contribution Amount" means the aggregate amount of cash contributions
made to the capital of the Company described in the definition of "Contribution
Indebtedness".
"Cash Equivalents" means (i) U.S. dollars, (ii) securities issued or
directly and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof, (iii) certificates of deposit, time deposits
and eurodollar time deposits with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any commercial bank having capital
and surplus in excess of $500,000,000 and whose long-term debt is rated "A" or
the equivalent thereof by Moody's or S&P, (iv) repurchase obligations with a
term of not more than 30 days for underlying securities of the types described
in clauses (ii) and (iii) above entered into with any financial institution
meeting the qualifications specified in clause (iii) above, (v) commercial paper
issued by a corporation (other than an Affiliate of the Company) rated A-1 or
the equivalent thereof of Moody's or S&P and in each case maturing within 90
days after the date of acquisition, (vi) investment funds investing at least 95%
of their assets in securities of the types described in clauses (i) through (v)
above, (vii) readily marketable
<PAGE>
4
direct obligations issued by any state of the United States of America or any
political subdivision thereof having one of the two highest rating categories
obtainable from either Moody's or S&P, and (viii) Indebtedness or preferred
stock that is registered under the Exchange Act and is issued by Persons with a
rating of "A" or higher from S&P or "A2" or higher from Moody's.
"Change of Control" means the occurrence of any of the following events:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all the assets of the Company and its
Subsidiaries, taken as a whole, to a Person other than the Permitted
Holders; or
(ii) (A) the Company becomes aware (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) of the acquisition by any Person or group (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than the Permitted Holders, in a
single transaction or in a related series of transactions, by way of
merger, consolidation or other business combination or purchase of
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act, or any successor provision), of 35% or more of the total voting power
of the Voting Stock of the Company and (B) the Permitted Holders
beneficially own (as defined above), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting Stock
of the Company than such other Person or group and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors.
"Closing Date" means the date of this Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
indenture securities.
"Consolidated Depreciation and Amortization Expense" means with respect to
any Person for any period, the total amount of depreciation and amortization
expense (excluding amortization of sample book and design and engraving costs,
and including amortization of cylinder bases) of such Person and its Restricted
Subsidiaries
<PAGE>
5
for such period on a consolidated basis and otherwise determined in accordance
with GAAP.
"Consolidated Interest Expense" means, with respect to any period, the sum,
without duplication, of: (i) consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, to the extent such expense was
deducted in computing Consolidated Net Income (including amortization of
original issue discount, the interest component of Capitalized Lease Obligations
(or any financing lease which has substantially the same economic effect as a
Capitalized Lease Obligation), net payments and receipts (if any) pursuant to
Hedging Obligations and amortization of deferred financing fees Incurred after
the Closing Date and excluding amortization of deferred financing fees Incurred
on or prior to the Closing Date), (ii) consolidated capitalized interest of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued,
and (iii) the earned discount or yield with respect to the sale of receivables.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis; provided, however, that (i) any net
after-tax extraordinary gains or losses shall be excluded, (ii) the Net Income
for such period shall not include the cumulative effect of a change in
accounting principles during such period, (iii) any net after-tax income or loss
from discontinued operations and any net after-tax gains or losses on disposal
of discontinued operations shall be excluded, (iv) any net after-tax gains or
losses attributable to asset dispositions other than in the ordinary course of
business (as determined in good faith by the Board of Directors) shall be
excluded, (v) the Net Income for such period of any Person that is not a
Subsidiary of such Person, or is an Unrestricted Subsidiary, or that is
accounted for by the equity method of accounting, shall be included only to the
extent of the amount of dividends or distributions or other payments paid in
cash (or to the extent converted into cash) to the referent Person or a
Restricted Subsidiary thereof in respect of such period but the referent
Person's equity in a net loss of such Person shall be included to the extent of
the aggregate Investment of the referent Person in such Person, (vi) the Net
Income of any Person acquired in a pooling of interests transaction shall not be
included for any period prior to the date of such acquisition, and (vii) the Net
Income for such period of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions by
such Restricted Subsidiary of its Net Income is not at the date of determination
permitted without any prior governmental approval (which has not been obtained)
or, directly or indirectly, by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, unless
such restrictions with respect to the payment of dividends or in similar
distributions has been legally waived; provided that the net loss of any such
Restricted Subsidiary shall be included. Notwithstanding the foregoing, for the
purposes of Section 4.04 only, there
<PAGE>
6
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries to
the Company or a Restricted Subsidiary to the extent such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under Section
4.04 pursuant to clauses (a)(3)(D) and (a)(3)(E) thereof.
"Contingent Obligations" means, with respect to any Person, any obligation
of such Person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation against loss in respect thereof.
"Contribution Indebtedness" means Subordinated Indebtedness of the Company
in an aggregate principal amount not greater than twice the aggregate amount of
cash contributions made to the capital of the Company, provided that such
Contribution Indebtedness (i) has a Stated Maturity later than the Stated
Maturity of the Securities, (ii) is Incurred substantially concurrently with
such cash contributions, and (iii) is so designated as Contribution
Indebtedness, pursuant to an Officers' Certificate, on the Incurrence date
thereof.
"Credit Agreement" means the credit agreement to be dated as of March 13,
1998, as amended, restated, supplemented, waived, replaced, refunded, refinanced
or otherwise modified from time to time, including any agreement extending the
maturity thereof or otherwise restructuring all or any portion of the
Indebtedness under such agreement (except to the extent that any such amendment,
restatement, supplement, waiver, replacement, refunding, refinancing or other
modification thereto would be prohibited by the terms of this Indenture, unless
otherwise agreed to by the Holders of at least a majority in aggregate principal
amount of Securities at the time outstanding), among the Company, certain of its
subsidiaries and The Chase Manhattan Bank, as Administrative Agent.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Noncash Consideration" means the Fair Market Value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
<PAGE>
7
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, less the amount of Cash Equivalents received in connection with
a subsequent sale of such Designated Noncash Consideration.
"Designated Preferred Stock" means Preferred Stock of the Company (other
than Disqualified Stock) that is issued for cash (other than to a Subsidiary of
the Company or an employee stock ownership plan or trust established by the
Company or any of its Subsidiaries to the extent such issuance was financed by
loans from or guarantees by the Company or any of its Subsidiaries) and is so
designated as Designated Preferred Stock, pursuant to an Officers' Certificate,
on the issuance date thereof, the cash proceeds of which are excluded from the
calculation set forth Section 4.04(a)(3).
"Designated Senior Indebtedness" means with respect to the Company or any
Subsidiary Guarantor (i) the Bank Indebtedness and (ii) any other Senior
Indebtedness of the Company or such Subsidiary Guarantor which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof, are committed to lend up to,
at least $25,000,000 and is specifically designated by the Company or such
Subsidiary Guarantor in the instrument evidencing or governing such Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of this Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which, by its terms (or by the terms of any security into which
it is convertible or for which it is redeemable or exchangeable), or upon the
happening of any event, (i) matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Stock, or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case prior to the first anniversary
of the maturity date of the Securities; provided, however, 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 first anniversary shall be deemed to be Disqualified
Stock; provided further, however, that if such Capital Stock is issued to any
employee or to any plan for the benefit of employees of the Company or its
Subsidiaries or by any such plan to such employees, such Capital Stock shall not
constitute Disqualified Stock solely because it may be required to be
repurchased by the Company in order to satisfy applicable statutory or
regulatory obligations.
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period plus, without duplication,
<PAGE>
8
(i) provision for taxes based on income or profits of such Person for such
period deducted in computing Consolidated Net Income, plus (ii) Consolidated
Interest Expense of such Person for such period to the extent the same was
deducted in calculating such Consolidated Net Income, plus (iii) Consolidated
Depreciation and Amortization Expense of such Person for such period to the
extent such Consolidated Depreciation and Amortization Expense was deducted in
computing Consolidated Net Income, plus (iv) any non-recurring fees, expenses or
charges related to any Equity Offering or acquisition (whether or not
successful) and fees, expenses or charges related to the transactions
consummated pursuant to the Recapitalization Agreement (including fees to
Blackstone), plus (v) any other noncash charges reducing Consolidated Net Income
for such period (excluding any such charge which requires an accrual of, or cash
reserve for, anticipated cash charges for any future period), plus (vi) the
amount of monitoring fees paid during such period not to exceed $2,000,000
during any four-quarter period, plus (vii) for any period ending on or prior to
December 31, 1999, severance, relocation and other non-recurring fees, expenses
or charges related to the Integration Plan (the "Integration Plan Charges") in
an aggregate amount not to exceed during 1998 and 1999 the excess of (a)
$25,000,000 over (b) the amount of such Integration Plan Charges that do not
reduce Consolidated Net Income in 1998 or 1999, less, without duplication,
(viii) noncash items increasing Consolidated Net Income of such Person for such
period (excluding any items which represent the reversal of any accrual of, or
cash reserve for, anticipated cash charges in any prior period). Notwithstanding
the foregoing, the provision for taxes based on the income or profits of, and
the depreciation and amortization of, a Subsidiary of the Company shall be added
to Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the Net Income of such Subsidiary was included in calculating
Consolidated Net Income.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any public or private sale of common stock or
Preferred Stock of the Company (other than Disqualified Stock), other than (i)
public offerings with respect to the Company's Common Stock registered on Form
S-8, (ii) any such public or private sale that constitutes an Excluded
Contribution, and (iii) any sale to a Permitted Holder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Excluded Contributions" means the net cash proceeds received by the
Company after the Closing Date from (i) contributions to its common equity
capital and (ii) the sale (other than to a Subsidiary or to any Company or
Subsidiary management equity plan or stock option plan or any other management
or employee benefit plan or
<PAGE>
9
agreement) of Capital Stock (other than Disqualified Stock and Designated
Preferred Stock) of the Company, in each case designated as Excluded
Contributions pursuant to an Officers' Certificate executed by an Officer of the
Company, the cash proceeds of which are excluded from the calculation set forth
in Section 4.04(a)(3).
"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.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of EBITDA of such Person for such period to the Fixed Charges
of such Person for such period. In the event that the Company or any of its
Restricted Subsidiaries Incurs or redeems any Indebtedness (other than in the
case of revolving credit borrowings, in which case interest expense shall be
computed based upon the average daily balance of such Indebtedness during the
applicable period) or issues or redeems Preferred Stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such Incurrence or
redemption of Indebtedness, or such issuance or redemption of Preferred Stock,
as if the same had occurred at the beginning of the applicable four-quarter
period. For purposes of making the computation referred to above, Investments,
acquisitions, dispositions, mergers, consolidations and discontinued operations
(as determined in accordance with GAAP), in each case with respect to an
operating unit of a business, that have been made by the Company or any of its
Restricted Subsidiaries during the four-quarter reference period or subsequent
to such reference period and on or prior to or simultaneously with the
Calculation Date shall be calculated on a pro forma basis assuming that all such
Investments, acquisitions, dispositions, discontinued operations, mergers and
consolidations (and the reduction of any associated fixed charge obligations and
the change in EBITDA resulting therefrom) had occurred on the first day of the
four-quarter reference period. If since the beginning of such period any Person
(that subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Investment, acquisition, disposition, discontinued operation,
merger or consolidation, in each case with respect to an operating unit of a
business, that would have required adjustment pursuant to this definition, then
the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
thereto for such period as if such Investment, acquisition, disposition,
discontinued operation, merger or consolidation had occurred at the beginning of
the applicable four-quarter period. For purposes of this definition, whenever
pro forma effect is to be given to a transaction, including without limitation
the Transactions (as defined in the Offering Memorandum), the pro forma
calculations shall be made in good faith by a responsible financial or
accounting officer of the Company. If
<PAGE>
10
any Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate in
effect on the Calculation Date had been the applicable rate for the entire
period (taking into account any Hedging Obligations applicable to such
Indebtedness if such Hedging Obligation has a remaining term in excess of 12
months). Interest on a Capitalized Lease Obligation shall be deemed to accrue at
an interest rate reasonably determined by a responsible financial or accounting
officer of the Company to be the rate of interest implicit in such Capitalized
Lease Obligation in accordance with GAAP. For purposes of making the computation
referred to above, interest on any Indebtedness under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the applicable period. Interest on
Indebtedness that may optionally be determined at an interest rate based upon a
factor of a prime or similar rate, a eurocurrency interbank offered rate, or
other rate, shall be deemed to have been based upon the rate actually chosen,
or, if none, then based upon such optional rate chosen as the Company may
designate. Any such pro forma calculation may include adjustments appropriate,
in the reasonable determination of the Company as set forth in an Officers'
Certificate, to reflect operating expense reductions reasonably expected to
result from any acquisition, disposition, merger, consolidation or discontinued
operation, including without limitation the Recapitalization and the Imperial
Acquisition (each as defined in the Offering Memorandum).
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) Consolidated Interest Expense of such Person for such period and (ii) all
cash dividend payments (excluding items eliminated in consolidation) on any
series of Preferred Stock of such Person and its Subsidiaries.
"Foreign Subsidiary" means a Restricted Subsidiary not organized or
existing under the laws of the United States, any State thereof, the District of
Columbia or any territory thereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date. For the purposes of this
Indenture, the term "consolidated" with respect to any Person shall mean such
Person consolidated with its Restricted Subsidiaries, and shall not include any
Unrestricted Subsidiary, but the interest of such Person in an Unrestricted
Subsidiary shall be accounted for as an Investment.
"Government Securities" means securities that are (i) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency
<PAGE>
11
or instrumentality of the United States of America the timely payment of which
is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in each case, are not callable or redeemable at
the option of the issuer thereof, and shall also include a depository receipt
issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as
custodian with respect to any such Government Securities or a specific payment
of principal of or interest on any such Government Securities held by such
custodian for the account of the holder of such depository receipt; provided
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the Government Securities or
the specific payment of principal of or interest on the Government Securities
evidenced by such depository receipt.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange,
interest rates or commodity prices.
"Holder" or "Securityholder" means the Person in whose name a Security is
registered on the Registrar's books.
"Incur" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
person at the time it becomes a Subsidiary.
"Indebtedness" means, with respect to any Person, (i) the principal and
premium (if any) of any indebtedness of such person, whether or not contingent,
(a) in respect of borrowed money, (b) evidenced by bonds, notes, debentures or
similar instruments or letters of credit or bankers' acceptances (or, without
duplication, reimbursement agreements in respect thereof), (c) representing the
deferred and unpaid purchase price of any property, except any such balance that
constitutes a trade payable or similar obligation to a trade creditor due within
six months from the date on which it is Incurred, in each case Incurred in the
ordinary course of business, which purchase price is due more than six months
after the date of placing the property in service or taking delivery and title
thereto, (d) in respect of Capitalized Lease Obligations, or
<PAGE>
12
(e) representing any Hedging Obligations, if and to the extent of any of the
foregoing Indebtedness (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet (excluding the footnotes
thereto) of such Person prepared in accordance with GAAP, (ii) to the extent not
otherwise included, any obligation of such Person to be liable for, or to pay,
as obligor, guarantor or otherwise, on the Indebtedness of another Person (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), and (iii) to the extent not otherwise included,
Indebtedness of another Person secured by a Lien on any asset owned by such
Person (whether or not such Indebtedness is assumed by such Person); provided,
however, that Contingent Obligations Incurred in the ordinary course of business
shall be deemed not to constitute Indebtedness.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Integration Plan" has the meaning ascribed to it in the Offering
Memorandum.
"Investment Grade Securities" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding accounts receivable,
trade credit and advances to customers and commission, travel and similar
advances to officers, employees and consultants made in the ordinary course of
business), purchases or other acquisition for consideration (including
agreements providing for the adjustment of purchase price) of Indebtedness,
Equity Interests or other securities issued by any other Person and investments
that are required by GAAP to be classified on the balance sheet of the Company
in the same manner as the other investments included in this definition to the
extent such transactions involve the transfer of cash or other property. For
purposes of the definition of "Unrestricted Subsidiary" and Section 4.04, (i)
"Investments" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of a
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a
<PAGE>
13
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the Fair Market Value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its Fair Market Value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Securities are originally issued.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code or equivalent statutes of any jurisdiction);
provided that in no event shall an operating lease be deemed to constitute a
Lien.
"Management Group" means the group consisting of the directors and
executive officers of the Company.
"Moody's" means Moody's Investors Service, Inc.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received in respect of or upon the sale or other
disposition of any Designated Noncash Consideration received in any Asset Sale
and any cash payments received by way of deferred payment of principal pursuant
to a note or installment receivable or otherwise, but only as and when received,
but excluding the assumption by the acquiring person of Indebtedness relating to
the disposed assets or other considerations received in any other noncash form),
net of the direct costs relating to such Asset Sale and the sale or disposition
of such Designated Noncash Consideration (including, without limitation, legal,
accounting and investment banking fees, and brokerage and sales commissions),
and any relocation expenses Incurred as a result thereof, taxes paid or payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements related thereto), and any deduction
of appropriate amounts to be provided by the Company as a reserve in
<PAGE>
14
accordance with GAAP against any liabilities associated with the asset disposed
of in such transaction and retained by the Company after such sale or other
disposition thereof, including, without limitation, pension and other
post-employment benefit liabilities and liabilities related to environmental
matters or against any indemnification obligations associated with such
transaction. Notwithstanding the foregoing, for purposes of Section 4.06, the
Net Proceeds received by the Company or any of its Restricted Subsidiaries from
the sale of Vernon Plastics shall be reduced by an amount equal to 50% of the
amount by which such Net Proceeds exceed $30,000,000, provided that for the most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date of such sale and the payment of any
dividend permitted under Section 4.04(b)(x), the Company has a Fixed Charge
Coverage Ratio (after giving effect to such sale) of at least 2.50 to 1.00.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and bankers' acceptances), damages
and other liabilities payable under the documentation governing any
Indebtedness.
"Offering Memorandum" means the Offering Memorandum dated March 11, 1998
for the Company's 11% Senior Subordinated Notes due 2008.
"Officer" means the Chairman of the Board, the President, any Executive
Vice President, Senior Vice President or Vice President, the Treasurer or the
Secretary of the Company.
"Officers' Certificate" means a certificate signed on behalf of the Company
by two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company that meets the requirements set forth in this
Indenture.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Pari Passu Indebtedness" means (i) with respect to the Company, the
Securities and any Indebtedness which ranks pari passu in right of payment to
the Securities and (ii) with respect to any Subsidiary Guarantor, its Subsidiary
Guarantee and any Indebtedness which ranks pari passu in right of payment to
such Subsidiary Guarantor's Subsidiary Guarantee.
"Permitted Holders" means Blackstone and the Management Group.
<PAGE>
15
"Permitted Investments" means (i) any Investment in the Company or any
Restricted Subsidiary; (ii) any Investment in Cash Equivalents or Investment
Grade Securities; (iii) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person that is primarily engaged in a Similar
Business if as a result of such Investment (a) such Person becomes a Restricted
Subsidiary or (b) such Person, in one transaction or a series of related
transactions, is merged, consolidated or amalgamated with or into, or transfers
or conveys substantially all of its assets to, or is liquidated into, the
Company or a Restricted Subsidiary; (iv) any Investment in securities or other
assets not constituting Cash Equivalents and received in connection with an
Asset Sale made pursuant to Section 4.06 or any other disposition of assets not
constituting an Asset Sale; (v) any Investment existing on the Closing Date;
(vi) advances to employees (other than those described in clause (ix) below) not
in excess of $5,000,000 outstanding at any one time in the aggregate; (vii) any
Investment acquired by the Company or any of its Restricted Subsidiaries (a) in
exchange for any other Investment or accounts receivable held by the Company or
any such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable or (b) as a result of a foreclosure by
the Company or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured Investment in
default; (viii) Hedging Obligations permitted under Section 4.03(b)(x); (ix)
loans and advances to officers, directors and employees for business-related
travel expenses, moving expenses and other similar expenses, in each case
Incurred in the ordinary course of business; (x) any Investment in a Similar
Business (other than an Investment in an Unrestricted Subsidiary) having an
aggregate Fair Market Value, taken together with all other Investments made
pursuant to this clause (x) that are at that time outstanding, not to exceed the
greater of 2.5% of Total Tangible Assets or $10,000,000 at the time of such
Investment (with the Fair Market Value of each Investment being measured at the
time made and without giving effect to subsequent changes in value); (xi)
Investments the payment for which consists of Equity Interests of the Company
(other than Disqualified Stock); provided, however, that such Equity Interests
shall not increase the amount available for Restricted Payments under Section
4.04(a)(3); (xii) additional Investments having an aggregate Fair Market Value,
taken together with all other Investments made pursuant to this clause (xii)
that are at that time outstanding, not to exceed the greater of 2.5% of Total
Tangible Assets or $10,000,000 at the time of such Investment (with the Fair
Market Value of each Investment being measured at the time made and without
giving effect to subsequent changes in value); (xiii) any transaction to the
extent it constitutes an Investment that is permitted by and made in accordance
with the provisions of Section 4.07(b) (except transactions described in Section
4.07(b)(ii)); (xiv) any Investment by Restricted Subsidiaries in other
Restricted Subsidiaries and Investments by Subsidiaries that are not Restricted
Subsidiaries in other Subsidiaries that are not Restricted Subsidiaries; and
(xv) Investments consisting of purchases and acquisitions of inventory,
supplies, materials and equipment or licenses or leases of intellectual
property, in each case in the ordinary course of business.
<PAGE>
16
"Permitted Junior Securities" shall mean debt or equity securities of the
Company or any successor corporation issued pursuant to a plan of reorganization
or readjustment of the Company that are subordinated to the payment of all
then-outstanding Senior Indebtedness of the Company at least to the same extent
that the Securities are subordinated to the payment of all Senior Indebtedness
of the Company on the Closing Date, so long as to the extent that any Senior
Indebtedness of the Company outstanding on the date of consummation of any such
plan of reorganization or readjustment is not paid in full in Cash Equivalents
on such date, the holders of any such Senior Indebtedness not so paid in full
have consented to the terms of such plan of reorganization or readjustment.
"Permitted Liens" means, with respect to any Person, (i) pledges or
deposits by such Person under workmen's compensation laws, unemployment
insurance laws, social security or similar legislation, or good faith deposits
in connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits of cash or United
States government bonds to secure surety or appeal bonds to which such Person is
a party, or deposits as security for contested taxes or import duties or for the
payment of rent, in each case Incurred in the ordinary course of business or
deposits securing liability to insurance carriers under insurance or
self-insurance arrangements in respect of such obligations; (ii) Liens imposed
by law, such as carriers', warehousemen's and mechanics' Liens, in each case for
sums not yet due or being contested in good faith by appropriate proceedings or
other Liens arising out of judgments or awards not in excess of $1,000,000
(except to the extent not covered by insurance) against such Person; (iii) Liens
for taxes, assessments or other governmental charges or levies not yet
delinquent, or which are for less than $1,000,000 in the aggregate, or are being
contested in good faith by appropriate proceedings or for property taxes on
property that the Company or one of its subsidiaries has determined to abandon
if the sole recourse for such tax assessment, charge, levy or claim is to such
property; (iv) Liens in favor of issuers of surety bonds and appeal bonds,
performance bonds and other obligations of a like nature Incurred in the
ordinary course of business or letters of credit issued pursuant to the request
of and for the account of such Person in the ordinary course of its business;
(v) survey exceptions, encumbrances, easements or reservations of, or rights of
others for, licenses, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real properties or Liens incidental to the conduct of the business
of such Person or to the ownership of its properties which were not Incurred in
connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in
the operation of the business of such Person; (vi) Liens securing Purchase Money
Indebtedness; (vii) Liens to secure Indebtedness permitted pursuant to Section
4.03(b)(i); (viii) Liens existing on the Closing Date; (ix) Liens on property or
shares of stock of a Person at the time such Person becomes a Subsidiary;
provided, however, such Liens are not created or Incurred in connection with, or
in contemplation of, such other
<PAGE>
17
Person becoming such a Subsidiary; provided further, however, that such Liens
may not extend to any other property owned by the Company or any Restricted
Subsidiary; (x) Liens on property at the time the Company or a Restricted
Subsidiary acquired the property, including any acquisition by means of a merger
or consolidation with or into the Company or any Restricted Subsidiary; provided
further, however, that such Liens are not created or Incurred in connection
with, or in contemplation of, such acquisition; provided further, however, that
the Liens may not extend to any other property owned by the Company or any
Restricted Subsidiary; (xi) Liens securing Indebtedness or other obligations of
a Restricted Subsidiary owing to the Company or a Wholly Owned Restricted
Subsidiary; (xii) Liens securing Hedging Obligations so long as the related
Indebtedness is, and is permitted to be under this Indenture, secured by a Lien
on the same property securing such Hedging Obligations; (xiii) any Lien arising
by operation of law pursuant to Section 107(1) of the Comprehensive
Environmental Response, Compensation and Liability Act, 41 U.S.C. Section
9607(1), or pursuant to analogous state law, for costs or damages which are not
yet due (by virtue of a written demand for payment by a governmental agency) or
which are being contested in good faith by appropriate proceedings, or on
property that the Company or a Subsidiary has determined to abandon if the sole
recourse for such costs or damages is to such property, provided that the
liability of the Company and the Subsidiaries with respect to the matter giving
rise to all such Liens shall not, in the reasonable estimate of the Company (in
light of all attendant circumstances, including the likelihood of contribution
by third parties), exceed $1,000,000; (xiv) construction liens arising in the
ordinary course of business, including liens for work performed for which
payment has not been made, securing obligations that are not due and payable or
are being contested in good faith by appropriate proceedings and in respect of
which, if applicable, the Company or the relevant Subsidiary shall have set
aside on its books reserves in accordance with GAAP; and (xv) Liens to secure
any refinancing, refunding, extension, renewal or replacement (or successive
refinancings, refundings, extensions renewals or replacements) as a whole, or in
part, of any Indebtedness secured by any Lien referred to in the foregoing
clauses (vi), (viii), (ix) and (x); provided, however, that (A) such new Lien
shall be limited to all or part of the same property that secured the original
Lien (plus improvements on such property) and (B) the Indebtedness secured by
such Lien at such time is not increased to any amount greater than the sum of
(x) the outstanding principal amount or, if greater, committed amount of the
Indebtedness described under clauses (vi), (viii), (ix) or (x) at the time the
original Lien became a Permitted Lien under this Indenture and (y) an amount
necessary to pay any fees and expenses, including premiums, related to such
refinancing, refunding, extension, renewal or replacement.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
<PAGE>
18
"Preferred Stock" means any Equity Interest with preferential right of
payment of dividends or with preferential right to the distribution of assets
upon liquidation, dissolution, or winding up.
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Security that is due or overdue or is to become
due at the relevant time.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement and other purchase money obligations, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) Incurred to
finance the acquisition by the Company or one of its Restricted Subsidiaries of
such asset, including additions and improvements; provided, however, that any
Lien arising in connection with any such Indebtedness shall be limited to the
specific asset being financed or, in the case of real property or fixtures,
including additions and improvements, the real property on which such asset is
attached; provided further, however, that such Indebtedness is Incurred within
270 days after such acquisition by the Company or one of its Restricted
Subsidiaries of such asset.
"Recapitalization Agreement" means the Recapitalization Agreement dated
October 14, 1997, among Borden Decorative Products Holdings, Inc., BDPI Holdings
Corporation and Borden, Inc.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"S&P" means Standard and Poor's Ratings Group.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of a Subsidiary Guarantor has a correlative
meaning.
"Securities" means the Securities issued under this Indenture.
<PAGE>
19
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Senior Credit Documents" means the collective reference to the Credit
Agreement, the notes issued pursuant thereto and the guarantees thereof, and the
collateral documents relating thereto.
"Senior Indebtedness" means with respect to the Company or any Subsidiary
Guarantor all Indebtedness of the Company or such Subsidiary Guarantor,
including interest thereon (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to the Company or
any Subsidiary whether or not a claim for post-filing interest is allowed in
such proceeding) and other amounts (including fees, expenses, reimbursement
obligations under letters of credit and indemnities) owing in respect thereof,
whether outstanding on the Closing Date or thereafter Incurred, unless in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding it is provided that such obligations are not superior in right of
payment to the Securities or such Subsidiary Guarantor's Subsidiary Guarantee,
as applicable; provided, however, that Senior Indebtedness shall not include, as
applicable, (i) any obligation of the Company to any Subsidiary of the Company,
or of such Subsidiary Guarantor to the Company or any other Subsidiary of the
Company, (ii) any liability for Federal, state, local or other taxes owed or
owing by the Company or such Subsidiary Guarantor, (iii) any accounts payable or
other liability to trade creditors arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities), (iv)
any Indebtedness or obligation of the Company or such Subsidiary Guarantor which
is subordinate or junior in any respect to any other Indebtedness or obligation
of the Company or such Subsidiary Guarantor, as applicable, including any Pari
Passu Indebtedness and any Subordinated Indebtedness, (v) any obligations with
respect to any Capital Stock, or (vi) any Indebtedness Incurred in violation of
this Indenture. If any Senior Indebtedness is disallowed, avoided or
subordinated pursuant to the provisions of Section 548 of Title 11 of the United
States Code or any applicable state fraudulent conveyance law, such Senior
Indebtedness nevertheless shall constitute Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Similar Business" means a business, the majority of whose revenues are
derived from the decorative products business or any business or activity that
is reasonably similar thereto or a reasonable extension, development or
expansion thereof or ancillary thereto.
<PAGE>
20
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Indebtedness" means (a) with respect to the Company, any
Indebtedness of the Company which is by its terms subordinated in right of
payment to the Securities and (b) with respect to any Subsidiary Guarantor, any
Indebtedness of such Subsidiary Guarantor which is by its terms subordinated in
right of payment to its Subsidiary Guarantee.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity (other than a partnership, joint venture or
limited liability company) of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time of determination owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person or a
combination thereof and (ii) any partnership, joint venture or limited liability
company of which (x) more than 50% of the capital accounts, distribution rights,
total equity and voting interests or general and limited partnership interests,
as applicable, are owned or controlled, directly or indirectly, by such Person
or one or more of the other Subsidiaries of that Person or a combination
thereof, whether in the form of membership, general, special or limited
partnership interests or otherwise and (y) such Person or any Wholly Owned
Restricted Subsidiary of such Person is a controlling general partner or
otherwise controls such entity.
"Subsidiary Guarantee" means any guarantee of the obligations of the
Company under this Indenture and the Securities by any Person in accordance with
the provisions of this Indenture.
"Subsidiary Guarantor" means any Person that Incurs a Subsidiary Guarantee;
provided that upon the release or discharge of such Person from its Subsidiary
Guarantee in accordance with this Indenture, such Person ceases to be a
Subsidiary Guarantor.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-
77bbbb) as in effect on the date of this Indenture.
"Total Tangible Assets" means the total consolidated assets of the Company
and its Restricted Subsidiaries, as shown on the most recent balance sheet of
the Company, except (a) goodwill (whether representing the excess of cost over
book
<PAGE>
21
value of assets acquired or otherwise), patents, trade names, trademarks, trade
secrets, copyrights, licenses, franchises, customer lists, capitalized sample
book costs, research and development expense, organization expense, unamortized
debt discount and expense, deferred charges or assets other than prepaid
insurance, prepaid taxes and deferred taxes, the excess of cost of shares
acquired over book value of related assets and such other assets as are properly
classified as "intangible assets" in accordance with generally accepted
accounting principles, (b) treasury stock of such person, (c) cash set apart and
held in any sinking fund or similar or analogous fund for the purpose of
redeeming or otherwise retiring stock of such person, and (d) any write-up of
the book value of any assets of such person resulting from revaluation thereof
subsequent to the Closing Date.
"Transactions" has the meaning ascribed it in the Offering Memorandum.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H. 15(519)
which has become publicly available at least two Business days prior to the
redemption date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data) most nearly equal to the
period from the redemption date to March 15, 2003 provided, however, that if the
period from the redemption date to March 15, 2003 is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the period from the redemption date to March 15, 2003 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"Trustee" means the party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means (i) any officer within the corporate trust department
of the Trustee, including any vice president, assistant vice president,
assistant secretary, assistant treasurer, trust officer or any other officer of
the Trustee who customarily performs functions similar to those performed by the
Persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred because of such person's knowledge of and
familiarity with the particular subject and (ii) who shall have direct
responsibility for the administration of this Indenture.
"Uniform Commercial Code" means the New York Uniform Commercial Code as in
effect from time to time.
<PAGE>
22
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Equity Interests or Indebtedness 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, however,
that the Subsidiary to be so designated and its Subsidiaries do not at the time
of designation have and do not thereafter Incur any Indebtedness pursuant to
which the lender has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries; provided further, however, that either (a) the
Subsidiary to be so designated has total consolidated assets of $1,000 or less
or (b) if such Subsidiary has consolidated assets greater than $1,000, then such
designation would be permitted under Section 4.04. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation (x) (1) the
Company could Incur $1.00 of additional Indebtedness pursuant to Section 4.03(a)
or (2) the Fixed Charge Coverage Ratio for the Company and its Restricted
Subsidiaries would be greater than such ratio for the Company and its Restricted
Subsidiaries immediately prior to such designation, in each case on a pro forma
basis taking into account such designation and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Vernon Plastics" means Vernon Plastics, Inc., a Delaware corporation and a
wholly owned subsidiary of the Company.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
<PAGE>
23
determination to the date of each successive scheduled principal payment of such
Indebtedness or redemption or similar payment with respect to such Disqualified
Stock multiplied by the amount of such payment, by (ii) the sum of all such
payments.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. Other Definitions.
Defined in
Term Section
---- ------------
"Additional Amounts" ...................................... 10.01
"Affiliate Transaction" ................................... 4.07(a)
"Asset Sale Offer" ........................................ 4.06(b)
"Bankruptcy Law" .......................................... 6.01
"Blockage Notice" ......................................... 10.03
"Change of Control Offer" ................................. 4.08(b)
"covenant defeasance option" .............................. 8.01(b)
"Custodian" ............................................... 6.01
"Event of Default" ........................................ 6.01
"Excess Proceeds" ......................................... 4.06(b)
"Guaranteed Obligations" .................................. 11.01
"legal defeasance option" ................................. 8.01(b)
<PAGE>
24
"Legal Holiday" ........................................... 13.08
"pay the Securities" ...................................... 10.03
"Paying Agent" ............................................ 2.04
"Payment Blockage Period" ................................. 10.03
"protected purchaser" ..................................... 2.08
"Refinancing Indebtedness" ................................ 4.03(b)
"Refunding Capital Stock" ................................. 4.04(b)
"Registrar" ............................................... 2.04
"Restricted Payments" ..................................... 4.04(a)
"Retired Capital Stock" ................................... 4.04(b)
"Successor Company" ....................................... 5.01(a)
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA, which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities and the Subsidiary Guarantees.
"indenture security holder" means a Holder or Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, the Subsidiary
Guarantors and any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
<PAGE>
25
SECTION 1.04. Rules of Construction. Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP;
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater.
ARTICLE 2
The Securities
SECTION 2.01. Amount of Securities; Issuable in Series. The aggregate
principal amount of Securities which may be authenticated and delivered under
this Indenture is $275,000,000. The Securities may be issued in one or more
series. All Securities of any one series shall be substantially identical except
as to denomination.
With respect to any Additional Securities issued after the Closing Date
(except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section
2.07, 2.08, 2.09 or 3.06 or the Appendix), there shall be (i) established in or
pursuant to a resolution of the Board of
<PAGE>
26
Directors and (ii), (A) set forth or determined in the manner provided in an
Officer's Certificate or (B) established in one or more indentures supplemental
hereto, prior to the issuance of such Additional Securities:
(1) whether such Additional Securities shall be issued as part of a
new or existing series of Securities and the title of such Additional
Securities (which shall distinguish the Additional Securities of the series
from Securities of any other series);
(2) the aggregate principal amount of such Additional Securities which
may be authenticated and delivered under this Indenture, which shall be in
an aggregate principal amount not to exceed $150,000,000 (except for
Securities authenticated and delivered upon registration of transfer of, or
in exchange for, or in lieu of, other Securities of the same series
pursuant to Section 2.07, 2.08, 2.09 or 3.06 or the Appendix and except for
Securities which, pursuant to Section 2.03, are deemed never to have been
authenticated and delivered hereunder);
(3) the issue price and issuance date of such Additional Securities,
including the date from which interest on such Additional Securities shall
accrue; provided; however, that no Additional Securities may be issued at a
price that would cause such Additional Securities to have "original issue
discount" within the meaning of Section 1273 of the Code.
(4) if applicable, that such Additional Securities shall be issuable
in whole or in part in the form of one or more Global Securities (as
defined in the Appendix) and, in such case, the respective depositaries for
such Global Securities, the form of any legend or legends which shall be
borne by such Global Securities in addition to or in lieu of those set
forth in Exhibit A hereto and any circumstances in addition to or in lieu
of those set forth in Section 2.3 of the Appendix in which any such Global
Security may be exchanged in whole or in part for Additional Securities
registered, or any transfer of such Global Security in whole or in part may
be registered, in the name or names of Persons other than the depositary
for such Global Security or a nominee thereof; and
(5) if applicable, that such Additional Securities shall not be issued
in the form of Initial Securities as set forth in Exhibit A, but shall be
issued in the form of Exchange Securities as set forth in Exhibit B.
Concurrently with the execution and delivery of any Additional Securities,
the Company shall deliver to the Trustee an Opinion of Counsel and an Officers'
Certificate to the effect that such Additional Securities have been duly
authorized by the Company and, when executed, authenticated, issued and
delivered, will be validly issued and outstanding and will constitute valid and
legally binding obligations of the Company
<PAGE>
27
and the Subsidiary Guarantors, enforceable against the Company and the
Subsidiary Guarantors in accordance with their terms, except to the extent
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws relating
to creditors' rights generally and by general equitable principles (whether
considered in a proceeding at law or in equity). If any of the terms of any
Additional Securities are established by action taken pursuant to a resolution
of the Board of Directors, a copy of an appropriate record of such action shall
be certified by the Secretary or any Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate or the indenture supplemental hereto setting forth the terms of the
Additional Securities.
SECTION 2.02. Form and Dating. Provisions relating to the Original
Securities, the Additional Securities, the Private Exchange Securities and the
Exchange Securities are set forth in the Appendix, which is hereby incorporated
in and expressly made a part of this Indenture. The (i) Initial Securities and
the Trustee's certificate of authentication, (ii) Private Exchange Securities
and the Trustee's certificate of authentication and (iii) any Additional
Securities (if issued as Transfer Restricted Securities (as defined in the
Appendix)) and the Trustee's certificate of authentication shall each be
substantially in the form of Exhibit A hereto, which is hereby incorporated in
and expressly made a part of this Indenture. The Exchange Securities and any
Additional Securities issued other than as Transfer Restricted Securities and
the Trustee's certificate of authentication shall each be substantially in the
form of Exhibit B hereto, which is hereby incorporated in and expressly made a
part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule, agreements to which the
Company or any Subsidiary Guarantor is subject, if any, or usage (provided that
any such notation, legend or endorsement is in a form acceptable to the
Company). Each Security shall be dated the date of its authentication.
SECTION 2.03. Execution and Authentication. One or more Officers shall sign
the Securities for the Company by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds that office
at the time the Trustee authenticates the Security, the Security shall be valid
nevertheless.
A Security shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Security. The signature
shall be conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee shall authenticate and make available for delivery Securities
as set forth in the Appendix.
The Trustee may appoint an authenticating agent reasonably acceptable to
the Company to authenticate the Securities. Any such appointment shall be
evidenced by
<PAGE>
28
an instrument signed by a Trust Officer, a copy of which shall be furnished to
the Company. Unless limited by the terms of such appointment, an authenticating
agent may authenticate Securities whenever the Trustee may do so. Each reference
in this Indenture to authentication by the Trustee includes authentication by
such agent. An authenticating agent has the same rights as any Registrar, Paying
Agent or agent for service of notices and demands.
SECTION 2.04. Registrar and Paying Agent. The Company shall maintain an
office or agency where Securities may be presented for registration of transfer
or for exchange (the "Registrar") and an office or agency where Securities may
be presented for payment (the "Paying Agent"). The Registrar shall keep a
register of the Securities and of their transfer and exchange. The Company may
have one or more co- registrars and one or more additional paying agents. The
term "Paying Agent" includes any additional paying agent, and the term
"Registrar" includes any co-registrars. The Company initially appoints the
Trustee as (i) Registrar and Paying Agent in connection with the Securities and
(ii) the Securities Custodian (as defined in the Appendix) with respect to the
Global Securities.
The Company shall enter into an appropriate agency agreement with any
Registrar or Paying Agent not a party to this Indenture, which shall incorporate
the terms of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such agent. The Company shall notify the Trustee of the
name and address of any such agent. If the Company fails to maintain a Registrar
or Paying Agent, the Trustee shall act as such and shall be entitled to
appropriate compensation therefor pursuant to Section 7.07. The Company or any
of its domestically organized Wholly Owned Subsidiaries may act as Paying Agent
or Registrar.
The Company may remove any Registrar or Paying Agent upon written notice to
such Registrar or Paying Agent and to the Trustee; provided, however, that no
such removal shall become effective until (1) acceptance of an appointment by a
successor as evidenced by an appropriate agreement entered into by the Company
and such successor Registrar or Paying Agent, as the case may be, and delivered
to the Trustee or (2) notification to the Trustee that the Trustee shall serve
as Registrar or Paying Agent until the appointment of a successor in accordance
with clause (1) above. The Registrar or Paying Agent may resign at any time upon
written notice; provided, however, that the Trustee may resign as Paying Agent
or Registrar only if the Trustee also resigns as Trustee in accordance with
Section 7.08.
SECTION 2.05. Paying Agent To Hold Money in Trust. Prior to 10:00 a.m. on
each due date of the principal and interest on any Security, the Company shall
deposit with the Paying Agent (or if the Company or a Subsidiary of the Company
is acting as Paying Agent, segregate and hold in trust for the benefit of the
Persons entitled thereto) a sum sufficient to pay such principal and interest
when so becoming due. The
<PAGE>
29
Company shall require each Paying Agent (other than the Trustee, the Company or
a Subsidiary of the Company) to agree in writing that the Paying Agent shall
hold in trust for the benefit of Securityholders or the Trustee all money held
by the Paying Agent for the payment of principal of or interest on the
Securities and shall notify the Trustee of any default by the Company in making
any such payment. If the Company or a Subsidiary of the Company acts as Paying
Agent, it shall segregate the money held by it as Paying Agent and hold it as a
separate trust fund. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee and to account for any funds disbursed by
the Paying Agent. Upon complying with this Section, the Paying Agent shall have
no further liability for the money delivered to the Trustee.
SECTION 2.06. Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish, or cause the Registrar to furnish, to the
Trustee, in writing at least five Business Days before each interest payment
date and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the names
and addresses of Securityholders.
SECTION 2.07. Transfer and Exchange. The Securities shall be issued in
registered form and shall be transferable only upon the surrender of a Security
for registration of transfer. When a Security is presented to the Registrar with
a request to register a transfer, the Registrar shall register the transfer as
requested if the requirements of Section 8-401(a)(l) of the Uniform Commercial
Code are met. When Securities are presented to the Registrar with a request to
exchange them for an equal principal amount of Securities of other
denominations, the Registrar shall make the exchange as requested if the same
requirements are met. To permit registration of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Securities at the
Registrar's request. The Company may require payment of a sum sufficient to pay
all taxes, assessments or other governmental charges in connection with any
transfer or exchange pursuant to this Section. The Company shall not be required
to make and the Registrar need not register transfers or exchanges of Securities
selected for redemption (except, in the case of Securities to be redeemed in
part, the portion thereof not to be redeemed) or transfers or exchanges of
Securities for a period of 15 days before a selection of Securities to be
redeemed.
Prior to the due presentation for registration of transfer of any Security,
the Company, the Subsidiary Guarantors, the Trustee, the Paying Agent and the
Registrar may deem and treat the Person in whose name a Security is registered
as the absolute owner of such Security for the purpose of receiving payment of
principal of and interest, if any, on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
any Subsidiary Guarantor, the Trustee, the Paying Agent or the Registrar shall
be affected by notice to the contrary.
<PAGE>
30
Any Holder of a Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interest in such Global Security
may be effected only through a book-entry system maintained by (i) the Holder of
such Global Security (or its agent) or (ii) any Holder of a beneficial interest
in such Global Security, and that ownership of a beneficial interest in such
Global Security shall be required to be reflected in a book entry.
All Securities issued upon any transfer or exchange pursuant to the terms
of this Indenture shall evidence the same debt and shall be entitled to the same
benefits under this Indenture as the Securities surrendered upon such transfer
or exchange.
SECTION 2.08. Replacement Securities. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met, such that the Holder (i)
satisfies the Company or the Trustee within a reasonable time after he has
notice of such loss, destruction or wrongful taking and the Registrar does not
register a transfer prior to receiving such notification, (ii) makes such
request to the Company or the Trustee prior to the Security being acquired by a
protected purchaser as defined in Section 8-303 of the Uniform Commercial Code
(a "protected purchaser") and (iii) satisfies any other reasonable requirements
of the Trustee. If required by the Trustee or the Company, such Holder shall
furnish an indemnity bond sufficient in the judgment of the Trustee to protect
the Company, the Trustee, the Paying Agent and the Registrar from any loss that
any of them may suffer if a Security is replaced. The Company and the Trustee
may charge the Holder for their expenses in replacing a Security. In the event
any such mutilated, lost, destroyed or wrongfully taken Security has become or
is about to become due and payable, the Company in its discretion may pay such
Security instead of issuing a new Security in replacement thereof.
Every replacement Security is an additional obligation of the Company.
The provisions of this Section 2.08 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, lost, destroyed or wrongfully taken Securities.
SECTION 2.09. Outstanding Securities. Securities outstanding at any time
are all Securities authenticated by the Trustee except for those canceled by it,
those delivered to it for cancelation and those described in this Section as not
outstanding. A Security does not cease to be outstanding because the Company or
an Affiliate of the Company holds the Security.
<PAGE>
31
If a Security is replaced pursuant to Section 2.08, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a protected purchaser.
If the Paying Agent segregates and holds in trust, in accordance with this
Indenture, on a redemption date or maturity date money sufficient to pay all
principal and interest payable on that date with respect to the Securities (or
portions thereof) to be redeemed or maturing, as the case may be, and the Paying
Agent is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture, then on and after that date such
Securities (or portions thereof) cease to be outstanding and interest on them
ceases to accrue.
SECTION 2.10. Temporary Securities. In the event that Definitive Securities
(as defined in the Appendix) are to be issued under the terms of this Indenture,
until such Definitive Securities are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Securities upon a written order of
the Company signed by two Officers. Such order shall specify the amount of the
temporary Securities to be authenticated and the date on which such temporary
Securities are to be authenticated. Temporary Securities shall be substantially
in the form of Definitive Securities but may have variations that the Company
considers appropriate for temporary Securities. Without unreasonable delay, the
Company shall prepare and the Trustee (upon a written order of the Company
signed by two Officers) shall authenticate Definitive Securities and deliver
them in exchange for temporary Securities upon surrender of such temporary
Securities at the office or agency of the Company, without charge to the Holder.
SECTION 2.11. Cancelation. The Company at any time may deliver Securities
to the Trustee for cancelation. The Registrar and the Paying Agent shall forward
to the Trustee any Securities surrendered to them for registration of transfer,
exchange or payment. The Trustee and no one else shall cancel all Securities
surrendered for registration of transfer, exchange, payment or cancelation and
deliver canceled Securities to the Company pursuant to written direction by an
Officer. The Company may not issue new Securities to replace Securities it has
redeemed, paid or delivered to the Trustee for cancelation. The Trustee shall
not authenticate Securities in place of canceled Securities other than pursuant
to the terms of this Indenture.
SECTION 2.12. Defaulted Interest. If the Company defaults in a payment of
interest on the Securities, the Company shall pay the defaulted interest (plus
interest on such defaulted interest to the extent lawful) in any lawful manner.
The Company may pay the defaulted interest to the Persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail or
<PAGE>
32
cause to be mailed to each Securityholder a notice that states the special
record date, the payment date and the amount of defaulted interest to be paid.
SECTION 2.13. CUSIP Numbers. The Company in issuing the Securities may use
"CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers. The Company, upon
becoming aware of any change in such "CUSIP" numbers, shall promptly notify the
Trustee of such change.
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed and the paragraph of the Securities pursuant to which the redemption
shall occur.
The Company shall give each notice to the Trustee provided for in this
Section at least 60 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption shall comply with the conditions herein. If fewer than all the
Securities are to be redeemed, the record date relating to such redemption shall
be selected by the Company and given to the Trustee, which record date shall be
not fewer than 15 days after the date of notice to the Trustee. Any such notice
may be canceled at any time prior to notice of such redemption being mailed to
any Holder and shall thereby be void and of no effect.
SECTION 3.02. Selection of Securities To Be Redeemed. In the case of any
partial redemption, selection of the Securities for redemption shall be made by
the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which such Securities are listed, or if such
Securities are not so listed, on a pro rata basis, by lot or by such other
method as the Trustee shall deem fair and appropriate (and in such manner as
complies with applicable legal requirements); provided that no Securities of
$1,000 or less shall be redeemed in part. Provisions of this Indenture that
apply to Securities called for redemption also apply to portions of Securities
called for redemption. The Trustee shall notify the Company promptly of the
Securities or portions of Securities to be redeemed.
<PAGE>
33
SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60
days before a date for redemption of Securities, the Company shall mail or cause
to be mailed a notice of redemption by first-class mail to each Holder of
Securities to be redeemed at such Holder's registered address.
The notice shall identify the Securities to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the certificate numbers and principal amounts of the particular Securities
to be redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment pursuant
to the terms of this Indenture, interest on Securities (or portion thereof)
called for redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed;
(8) the CUSIP number, if any, printed on the Securities being
redeemed; and
(9) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's written request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is
mailed, Securities called for redemption become due and payable on the
redemption date and at the redemption price stated in the notice. Upon surrender
to the Paying Agent, such Securities shall be paid at the redemption price
stated in the notice, plus accrued interest, if any, to the redemption date;
provided, however, that if the
<PAGE>
34
redemption date is after a regular record date and on or prior to the interest
payment date, the accrued interest shall be payable to the Securityholder of the
redeemed Securities registered on the relevant record date. Failure to give
notice or any defect in the notice to any Holder shall not affect the validity
of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Prior to 10:00 a.m. on the
redemption date, the Company shall deposit with the Paying Agent (or, if the
Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust)
money sufficient to pay the redemption price of and accrued interest on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption that have been delivered by the Company to the
Trustee for cancelation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part, the Company shall execute and the Trustee shall
authenticate for the Holder (at the Company's expense) a new Security equal in
principal amount to the unredeemed portion of the Security surrendered.
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities. The Company shall promptly pay or
cause to be paid the principal of and interest on the Securities on the dates
and in the manner provided in the Securities and in this Indenture. Principal
and interest shall be considered paid on the date due if on such date the
Trustee or the Paying Agent holds in accordance with this Indenture money
sufficient to pay all principal and interest then due and the Trustee or the
Paying Agent, as the case may be, is not prohibited from paying such money to
the Securityholders on that date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate specified
therefor in the Securities, and it shall pay interest on overdue installments of
interest at the same rate to the extent lawful.
SECTION 4.02. Reports and Other Information. Notwithstanding that the
Company may not be subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act or otherwise report on an annual and quarterly basis on
forms provided for such annual and quarterly reporting pursuant to rules and
regulations promulgated by the SEC, the Company shall file with the SEC (and
provide the Trustee and Holders with copies thereof, without cost to each
Holder, within 15 days after it files them with the SEC), (i) within 90 days
after the end of each fiscal year, annual reports on Form 10- K (or any
successor or comparable form) containing the information required to be
contained therein (or required in such successor or comparable form), (ii)
within 45 days after the
<PAGE>
35
end of each of the first three fiscal quarters of each fiscal year, reports on
Form 10-Q (or any successor or comparable form), (iii) promptly from time to
time after the occurrence of an event required to be therein reported, such
other reports on Form 8-K (or any successor or comparable form), and (iv) any
other information, documents and other reports that the Company would be
required to file with the SEC if it were subject to Section 13 or 15(d) of the
Exchange Act; provided, however, the Company shall not be so obligated to file
such reports with the SEC if the SEC does not permit such filing, in which event
the Company shall make available such information to prospective purchasers of
Securities, in addition to providing such information to the Trustee and the
Holders, in each case within 15 days after the time the Company would be
required to file such information with the SEC if it were subject to Section 13
or 15(d) of the Exchange Act. The Company also shall comply with the other
provisions of TIA ss. 314(a).
SECTION 4.03. Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock. (a) The Company (i) shall not, and shall not permit any of
its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness
(including Acquired Indebtedness) or issue any shares of Disqualified Stock and
(ii) shall not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; provided, however, that the Company and any Subsidiary
Guarantor may Incur Indebtedness (including Acquired Indebtedness) or issue
shares of Disqualified Stock and the Subsidiary Guarantors may issue shares of
preferred stock if the Fixed Charge Coverage Ratio of the Company for the most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is Incurred or such Disqualified Stock or preferred stock is issued
would have been at least 2.00 to 1.00, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been Incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be, and the application of
proceeds therefrom had occurred at the beginning of such four-quarter period.
(b) Notwithstanding Section 4.03(a), the Company and its Restricted
Subsidiaries may Incur the following Indebtedness:
(i) the Incurrence by the Company or its Restricted Subsidiaries of
Indebtedness under the Credit Agreement and the issuance and creation of
letters of credit and bankers' acceptances thereunder (with letters of
credit and bankers' acceptances being deemed to have a principal amount
equal to the face amount thereof) up to an aggregate principal amount of
$330,000,000 outstanding at any one time;
(ii) the Incurrence by the Company and the Subsidiary Guarantors of
Indebtedness represented by the Securities and the Subsidiary Guarantees,
as applicable;
<PAGE>
36
(iii) Indebtedness existing on the Closing Date (other than
Indebtedness described in clauses (i) and (ii));
(iv) Purchase Money Indebtedness and Capitalized Lease Obligations
Incurred by the Company or any of its Restricted Subsidiaries, and any
Refinancing Indebtedness (as defined in clause (xiv) below relating
thereto, in an aggregate principal amount which, when aggregated with the
principal amount of all other Purchase Money Indebtedness, Capitalized
Lease Obligations and related Refinancing Indebtedness then outstanding and
Incurred pursuant to this clause (iv), does not exceed the greater of 3.5%
of Total Tangible Assets at the time of Incurrence or $15,000,000;
(v) Indebtedness Incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, however, that
upon the drawing of such letters of credit or the Incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or Incurrence;
(vi) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, Incurred in connection with the
disposition of any business, assets or a Subsidiary of the Company in
accordance with the terms of this Indenture, other than guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such
acquisition;
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company; provided that any subsequent issuance or
transfer of any Capital Stock or any other event which results in any such
Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned Restricted
Subsidiary of the Company or any other subsequent transfer of any such
Indebtedness (except to the Company or another Wholly Owned Restricted
Subsidiary) shall be deemed, in each case to be an Incurrence of such
Indebtedness;
(viii) shares of preferred stock of a Subsidiary Guarantor issued to
the Company or a Wholly Owned Restricted Subsidiary of the Company;
provided that any subsequent issuance or transfer of any Capital Stock or
any other event which results in any such Subsidiary Guarantor ceasing to
be a Subsidiary Guarantor or any other subsequent transfer of any such
shares of preferred stock (except to the Company or another Wholly Owned
Restricted Subsidiary of the
<PAGE>
37
Company) shall be deemed, in each case, to be an issuance of shares of
preferred stock;
(ix) Indebtedness of a Restricted Subsidiary to the Company or a
Wholly Owned Restricted Subsidiary of the Company; provided that any
subsequent transfer of any such Indebtedness (except to the Company or
another Wholly Owned Restricted Subsidiary of the Company) shall be deemed,
in each case, to be an Incurrence of such Indebtedness;
(x) Hedging Obligations that are Incurred in the ordinary course of
business (A) for the purpose of fixing or hedging interest rate risk with
respect to any Indebtedness that is permitted by the terms of this
Indenture to be outstanding, (B) for the purpose of fixing or hedging
currency exchange rate risk with respect to any currency exchanges, or (C)
for the purpose of fixing or hedging commodity price risk with respect to
any commodity purchases;
(xi) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(xii) Indebtedness of the Company and any Restricted Subsidiary not
otherwise permitted hereunder in an aggregate principal amount, which when
aggregated with the principal amount of all other Indebtedness then
outstanding and Incurred pursuant to this clause (xii), does not exceed
$10,000,000 at any one time outstanding; provided, however, that
Indebtedness of Foreign Subsidiaries, which when aggregated with the
principal amount of all other Indebtedness of Foreign Subsidiaries then
outstanding and Incurred pursuant to this clause (xii), does not exceed
$5,000,000 (or the equivalent thereof in any other currency) at any one
time outstanding;
(xiii) any guarantee by the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the Incurrence
of such Indebtedness Incurred by such Restricted Subsidiary is permitted
under the terms of this Indenture;
(xiv) the Incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness which serves to refinance any Indebtedness
Incurred as permitted under Section 4.03(a) and clauses (ii) and (iii)
above or clause (xv) below of this Section 4.03(b), or any Indebtedness
issued to so refund or refinance such Indebtedness (subject to the
following proviso, "Refinancing Indebtedness") prior to its respective
maturity; provided, however, that such Refinancing Indebtedness (A) has a
Weighted Average
<PAGE>
38
Life to Maturity at the time such Refinancing Indebtedness is Incurred
which is not less than the remaining Weighted Average Life to Maturity of
the Indebtedness being refunded or refinanced, (B) to the extent such
Refinancing Indebtedness refinances Indebtedness pari passu with the
Securities, is pari passu with the Securities, (C) is Incurred in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to or less than the aggregate
principal amount (or if issued with original issue discount, the aggregate
accreted value) then outstanding of the Indebtedness being refinanced plus
premium and fees Incurred in connection with such refinancing, and (D)
shall not include (x) Indebtedness of a Subsidiary that refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary; provided further, however, that subclauses (A) and (B) of this
clause (xiv) shall not apply to any refunding or refinancing of any Senior
Indebtedness; and
(xv) Indebtedness or Disqualified Stock of Persons that are acquired
by the Company or any of its Restricted Subsidiaries or merged into a
Restricted Subsidiary in accordance with the terms of this Indenture;
provided, however, that such Indebtedness or Disqualified Stock is not
Incurred in contemplation of such acquisition or merger or to provide all
or a portion of the funds or credit support required to consummate such
acquisition or merger; provided further, however, that after giving effect
to such acquisition and the Incurrence of such Indebtedness either (A) the
Company would be permitted to Incur at least $1.00 of additional
Indebtedness pursuant to Section 4.03(a) or (B) the Fixed Charge Coverage
Ratio is greater than immediately prior to such acquisition; and
(xvi) Contribution Indebtedness.
(c) Notwithstanding the foregoing, the Company may not Incur any
Indebtedness pursuant to Section 4.03(b) above if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire, refund or
refinance any Subordinated Indebtedness unless such Indebtedness shall be
subordinated to the Securities to at least the same extent as such Subordinated
Indebtedness. For purposes of determining compliance with this Section 4.03, in
the event that an item of Indebtedness meets the criteria of more than one of
the categories of permitted Indebtedness described in clauses (i) through (xvi)
above or is entitled to be Incurred pursuant to Section 4.03(a), the Company
shall, in its sole discretion, classify such item of Indebtedness in any manner
that complies with this Section 4.03 and such item of Indebtedness shall be
treated as having been Incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest, the accretion of accreted
value and the payment of interest in the form of additional Indebtedness shall
not be deemed to be an Incurrence of Indebtedness for purposes of this Section
4.03.
(d) The Company shall not, and shall not permit any Subsidiary Guarantor
to, directly or indirectly, Incur any Indebtedness (including Acquired
<PAGE>
39
Indebtedness) that is subordinate in right of payment to any Indebtedness of the
Company or any Indebtedness of any Subsidiary Guarantor, as the case may be,
unless such Indebtedness is either (i) pari passu in right of payment with the
Securities or such Subsidiary Guarantor's Subsidiary Guarantee, as the case may
be, or (ii) subordinate in right of payment to the Securities or such Subsidiary
Guarantor's Subsidiary Guarantee, as the case may be.
SECTION 4.04. Limitation on Restricted Payments. (a) The Company shall not,
and shall not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests,
including any payment made in connection with any merger or consolidation
involving the Company (other than (A) dividends or distributions by the Company
payable in Equity Interests (other than Disqualified Stock) of the Company or
(B) dividends or distributions by a Restricted Subsidiary so long as, in the
case of any dividend or distribution payable on or in respect of any class or
series of securities issued by a Restricted Subsidiary other than a Wholly Owned
Restricted Subsidiary, the Company or a Restricted Subsidiary receives at least
its pro rata share of such dividend or distribution in accordance with its
Equity Interests in such class or series of securities); (ii) purchase or
otherwise acquire or retire for value any Equity Interests of the Company or any
Restricted Subsidiary (other than the purchase or other acquisition for value of
such Equity Interests held by the Company or another Restricted Subsidiary (and,
if such Restricted Subsidiary has stockholders other than the Company or other
Restricted Subsidiaries, Equity Interests held by such other stockholders on a
pro rata basis)); (iii) make any principal payment on, or redeem, repurchase,
defease or otherwise acquire or retire for value, in each case prior to any
scheduled repayment or scheduled maturity, any Subordinated Indebtedness (other
than the payment, redemption, repurchase, defeasance, acquisition or retirement
of Subordinated Indebtedness in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of such payment, redemption, repurchase, defeasance,
acquisition or retirement); or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(2) immediately after giving effect to such transaction on a pro forma
basis, the Company could Incur $1.00 of additional Indebtedness under
Section 4.03(a); and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries
<PAGE>
40
after the Closing Date (including Restricted Payments permitted by clauses
(i), (iv), (v), (vi), (vii), (viii) and (xiv) of Section 4.04(b), but
excluding all other Restricted Payments permitted by Section 4.04(b), is
less than the sum of, without duplication, (A) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period) from
the fiscal quarter that first begins after the Closing Date to the end of
the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, in the case such Consolidated Net Income for such period is a deficit,
minus 100% of such deficit), plus (B) 100% of the aggregate net proceeds,
including cash and the fair market value (as determined in accordance with
the next succeeding sentence) of property other than cash, received by the
Company since the Closing Date from the issue or sale of Equity Interests
of the Company (excluding Refunding Capital Stock (as defined below),
Designated Preferred Stock, Excluded Contributions and Disqualified Stock),
including Equity Interests issued upon conversion of Indebtedness or upon
exercise of warrants or options (other than an issuance or sale to a
Subsidiary of the Company or an employee stock ownership plan or trust
established by the Company or any of its Subsidiaries to the extent such
issuance or sale was financed by loans from or guarantees by the Company or
one of its Subsidiaries), plus (C) 100% of the aggregate amount of
contributions to the capital of the Company received in cash and the fair
market value (as determined in accordance with the next succeeding
sentence) of property other than cash since the Closing Date (other than
Excluded Contributions), plus (D) 100% of the aggregate amount received in
cash and the fair market value (as determined in accordance with the next
succeeding sentence) of property other than cash received from (x) the sale
or other disposition (other than to the Company or a Restricted Subsidiary)
of Restricted Investments made by the Company and its Restricted
Subsidiaries or (y) the sale (other than to the Company or a Restricted
Subsidiary) of the Capital Stock of an Unrestricted Subsidiary, plus (E) in
the event any Unrestricted Subsidiary has been redesignated a Restricted
Subsidiary or has been merged, consolidated or amalgamated with or into, or
transfers or conveys its assets to, or is liquidated into, the Company or a
Restricted Subsidiary, the fair market value (as determined in good faith
by the Board of Directors) of such Investment in such Unrestricted
Subsidiary at the time of such redesignation, combination or transfer (or
of the assets transferred or conveyed, as applicable), after deducting any
Indebtedness associated with the Unrestricted Subsidiary so designated or
combined or any Indebtedness associated with the assets so transferred or
conveyed, not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included in
the calculation of the amount of Restricted Payments, less (F) the
aggregate principal amount of any outstanding Contribution Indebtedness or,
if less, the Cash Contribution Amount. The fair market value of property
other than cash covered by clauses (B), (C) and (D)
<PAGE>
41
above shall be determined in good faith by the Company and (x) in the event
of property with a fair market value in excess of $1,000,000, shall be set
forth in an Officers' Certificate or (y) in the event of property with a
fair market value in excess of $10,000,000, shall be set forth in a
resolution approved by at least a majority of the Board of Directors.
(b) The provisions of Section 4.04(a) shall not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of this Indenture;
(ii) (A) the repurchase, retirement or other acquisition of any Equity
Interests ("Retired Capital Stock") or Subordinated Indebtedness of the
Company in exchange for, or out of the proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of, Equity
Interests of the Company (other than any Disqualified Stock or any Equity
Interests sold to an employee stock ownership plan or any trust established
by the Company or any of its Subsidiaries to the extent such sale was
financed by loans from or guarantees by the Company or one of its
Subsidiaries) ("Refunding Capital Stock") and (B) the declaration and
payment of accrued dividends on the Retired Capital Stock out of the
proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary) of Refunding Capital Stock;
(iii) the redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness of the Company made by exchange for, or out of
the proceeds of the substantially concurrent sale of, new Indebtedness of
the Company that is Incurred in accordance with Section 4.03 so long as (A)
the principal amount of such new Indebtedness does not exceed the principal
amount of the Subordinated Indebtedness being so redeemed, repurchased,
acquired or retired for value (plus the amount of any premium required to
be paid under the terms of the instrument governing the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired), (B) such
Indebtedness is subordinated to Senior Indebtedness and the Securities at
least to the same extent as such Subordinated Indebtedness so purchased,
exchanged, redeemed, repurchased, acquired or retired for value, (C) such
Indebtedness has a final scheduled maturity date equal to or later than the
final scheduled maturity date of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired, and (D) such Indebtedness has a
Weighted Average Life to Maturity equal to or greater than the remaining
Weighted Average Life to Maturity of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired;
<PAGE>
42
(iv) the repurchase, retirement or other acquisition for value of
Equity Interests of the Company held by any future, present or former
employee, director or consultant of the Company or any Subsidiary of the
Company pursuant to any management equity plan or stock option plan or any
other management or employee benefit plan or agreement; provided, however,
that the aggregate amounts paid under this clause (iv) does not exceed (A)
$5,000,000 in any calendar year and (B) $10,000,000 in the aggregate;
provided further, however, that such aggregate amount (but not annual
amount) may be increased by an amount not to exceed (I) the cash proceeds
from the sale of Equity Interests of the Company to members of management
or directors of the Company and its Subsidiaries that occurs after the
Closing Date plus (II) the cash proceeds of key man life insurance policies
received by the Company and its Restricted Subsidiaries after the Closing
Date;
(v) the declaration and payment of dividends to holders of any class
or series of Designated Preferred Stock issued after the Closing Date;
provided, however, that (A) 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 would have
had a Fixed Charge Coverage Ratio of at least 2.50 to 1.00 and (B) the
aggregate amount of dividends declared and paid pursuant to this clause (v)
does not exceed the net cash proceeds received by the Company from the sale
of Designated Preferred Stock issued after the Closing Date;
(vi) Investments in Unrestricted Subsidiaries having an aggregate Fair
Market Value, taken together with all other Investments made pursuant to
this clause (vi) that are at that time outstanding, not to exceed
$5,000,000 at the time of such Investment (with the Fair Market Value of
each Investment being measured at the time made and without giving effect
to subsequent changes in value);
(vii) the payment of dividends on the Company's Common Stock,
following the first public offering of the Company's Common Stock after the
Closing Date, of up to 6% per annum of the net proceeds received by the
Company in such public offering;
(viii) the repurchase, retirement or other acquisition for value of
Equity Interests of the Company in existence on the Closing Date and which
are not held by Blackstone or the Management Group on the Closing Date
(including any Equity Interests issued in respect of such Equity Interests
as a result of a stock split, recapitalization, merger, combination,
consolidation or otherwise, but excluding any management equity plan or
stock option plan or similar agreement),
<PAGE>
43
provided that (A) the aggregate amounts paid under this clause (viii) shall
not exceed $10,000,000 and (B) after giving effect thereto the Company
would be permitted to Incur at least $1.00 of additional Indebtedness
pursuant to Section 4.03(a);
(ix) Investments that are made with Excluded Contributions;
(x) the payment of dividends in an amount not to exceed 50% of the Net
Proceeds in excess of $30,000,000 received by the Company or any of its
Restricted Subsidiaries from the sale of Vernon Plastics; provided,
however, that for the most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the
date of such sale and the date of payment of any such dividends the Company
has a Fixed Charge Coverage Ratio (after giving effect to such sale) of at
least 2.50 to 1.00;
(xi) the declaration and payment of dividends to holders of any class
or series of Disqualified Stock of the Company issued in accordance with
Section 4.03;
(xii) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options;
(xiii) Restricted Payments made on the Closing Date contemplated by
the Recapitalization Agreement; and
(xiv) other Restricted Payments in an aggregate amount not to exceed
$2,000,000; provided, however, that at the time of, and after giving effect
to, any Restricted Payment permitted under clauses (v), (vi), (vii),
(viii), (ix), (x) and (xiv) of this Section 4.04(b), no Default or Event of
Default shall have occurred and be continuing or would occur as a
consequence thereof; provided further, however, that for purposes of
determining the aggregate amount expended for Restricted Payments in
accordance with clause (3) of Section 4.04(a), only the amounts expended
under clauses (i), (iv), (v), (vi), (vii), (viii) and (xiv) of this Section
4.04(b) shall be included.
SECTION 4.05. Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or consensual restriction
on the ability of any Restricted Subsidiary to: (a)(i) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (ii) pay any
<PAGE>
44
Indebtedness owed to the Company or any of its Restricted Subsidiaries; (b) make
loans or advances to the Company or any of its Restricted Subsidiaries; or (c)
sell, lease or transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries except in each case for such encumbrances or
restrictions existing under or by reason of:
(1) contractual encumbrances or restrictions in effect on the Closing
Date, including pursuant to the Credit Agreement and the other Senior
Credit Documents;
(2) this Indenture and the Securities;
(3) applicable law or any applicable rule, regulation or order;
(4) any agreement or other instrument relating to Indebtedness of a
Person acquired by the Company or any Restricted Subsidiary which was in
existence at the time of such acquisition (but not created in contemplation
thereof or to provide all or any portion of the funds or credit support
utilized to consummate such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so
acquired;
(5) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition;
(6) Secured Indebtedness otherwise permitted to be Incurred pursuant
to Sections 4.03 and 4.12 that limit the right of the debtor to dispose of
the assets securing such Indebtedness;
(7) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(8) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business;
(9) customary provisions contained in leases and other similar
agreements entered into in the ordinary course of business that impose
restrictions of the type described in clause (c) above;
(10) 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; or
<PAGE>
45
(11) any encumbrances or restrictions of the type referred to in
clauses (a), (b) and (c) above imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of the contracts, instruments or obligations referred to in
clauses (1) through (10) above; provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of the Board
of Directors, no more restrictive with respect to such dividend and other
payment restrictions than those contained in the dividend or other payment
restrictions prior to such amendment, modification, restatement, renewal,
increase, supplement, refunding, replacement or refinancing.
SECTION 4.06. Asset Sales. (a) The Company shall not, and shall not permit
any of its Restricted Subsidiaries to, cause or make an Asset Sale, unless (x)
the Company, or its Restricted Subsidiaries, 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 and (y) at least 75% of the
consideration therefor received by the Company, or such Restricted Subsidiary,
as the case may be, is in the form of Cash Equivalents; provided that the amount
of (i) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto) of the Company
or any Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Securities) that are assumed by the transferee of any such
assets, (ii) any notes or other obligations received by the Company or such
Restricted Subsidiary from such transferee that are converted by the Company or
such Restricted Subsidiary into cash within 60 days of the receipt thereof (to
the extent of the cash received), and (iii) any Designated Noncash Consideration
received by the Company or any of its Restricted Subsidiaries in such Asset Sale
having an aggregate Fair Market Value, taken together with all other Designated
Noncash Consideration received pursuant to this clause (iii) that is at that
time outstanding, not to exceed the greater of 3.5% of Total Tangible Assets or
$15,000,000 at the time of the receipt of such Designated Noncash Consideration
(with the Fair Market Value of each item of Designated Noncash Consideration
being measured at the time received and without giving effect to subsequent
changes in value) shall be deemed to be Cash Equivalents for the purposes of
this provision.
(b) Within 365 days after the Company's or any Restricted Subsidiary's
receipt of the Net Proceeds of any Asset Sale, the Company or such Restricted
Subsidiary may apply the Net Proceeds from such Asset Sale, at its option, (i)
permanently to reduce Obligations under the Credit Agreement (and, in the case
of revolving Obligations, to correspondingly reduce commitments with respect
thereto) or other Senior Indebtedness or Pari Passu Indebtedness (provided that
if the Company shall so reduce Obligations under Pari Passu Indebtedness, it
shall equally and ratably reduce Obligations under the Securities by making an
offer (in accordance with the procedures set forth below for an Asset Sale
Offer) to all Holders to purchase at a purchase price equal to 100% of the
<PAGE>
46
principal amount thereof, plus accrued and unpaid interest, if any, the pro rata
principal amount of Securities) or Indebtedness of a Restricted Subsidiary, in
each case other than Indebtedness owed to the Company or an Affiliate of the
Company, (ii) to an investment in any one or more businesses, capital
expenditures or acquisitions of other assets in each case used or useful in a
Similar Business, and/or (iii) to make an investment in properties or assets
that replace the properties and assets that are the subject of such Asset Sale.
Pending the final application of any such Net Proceeds, the Company or such
Restricted Subsidiary may temporarily reduce Indebtedness under a revolving
credit facility, if any, or otherwise invest such Net Proceeds in Cash
Equivalents or Investment Grade Securities. Any Net Proceeds from any Asset Sale
that are not invested as provided and within the time period set forth in the
first sentence of this paragraph shall be deemed to constitute "Excess
Proceeds". When the aggregate amount of Excess Proceeds exceeds $15,000,000, the
Company shall make an offer to all Holders of Securities (an "Asset Sale Offer")
to purchase the maximum principal amount of Securities, that is an integral
multiple of $1,000, that may be purchased out of the Excess Proceeds at an offer
price in cash in an amount equal to 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date fixed for the closing of such
offer, in accordance with the procedures set forth in this Indenture. The
Company shall commence an Asset Sale Offer with respect to Excess Proceeds
within ten Business days after the date that Excess Proceeds exceeds $15,000,000
by mailing the notice required pursuant to the terms of this Indenture, with a
copy to the Trustee. To the extent that the aggregate amount of Securities
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of Securities surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Securities
to be purchased in the manner described below. Upon completion of any such Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero. The Company
may apply as a credit in satisfaction of all or any part of the Company's
obligation to make an Asset Sale Offer the aggregate principal amount of
Securities purchased by the Company in open-market transactions (excluding
Securities optionally redeemed, or required to be purchased by the Company,
pursuant to the terms of this Indenture) within the previous 24 consecutive
months.
(c) 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 or regulations are applicable in connection with the repurchase
of the Securities pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in this Indenture by virtue thereof.
If more Securities are tendered pursuant to an Asset Sale Offer than the
Company is required to purchase, selection of such Securities for purchase shall
be made by the Trustee in compliance with the requirements of the principal
national securities
<PAGE>
47
exchange, if any, on which such Securities are listed, or if such Securities are
not so listed, on a pro rata basis, by lot or by such other method as the
Trustee shall deem fair and appropriate (and in such manner as complies with
applicable legal requirements); provided that no Securities of $1,000 or less
shall be purchased in part.
Notices of an Asset Sale Offer shall be mailed by first class mail, postage
prepaid, at least 30 but not more than 60 days before the purchase date to each
Holder of Securities at such Holder's registered address.
A new Security in principal amount equal to the unpurchased portion of any
Security purchased in part shall be issued in the name of the Holder thereof
upon cancelation of the original Security. On and after the purchase date unless
the Company defaults in payment of the purchase price, interest shall cease to
accrue on Securities or portions thereof purchased.
SECTION 4.07. Transactions with Affiliates. (a) The Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly or indirectly,
make any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction") involving aggregate consideration in
excess of $5,000,000, unless (i) such Affiliate Transaction is on terms that are
not materially less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable transaction
by the Company or such Restricted Subsidiary with an unrelated Person and (ii)
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10,000,000, the
Company delivers to the Trustee a resolution adopted by the majority of the
Board of Directors of the Company, approving such Affiliate Transaction and set
forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above.
(b) The provisions of Section 4.07(a) shall not apply to the following: (i)
transactions between or among the Company and/or any of its Restricted
Subsidiaries; (ii) Permitted Investments and Restricted Payments permitted by
Section 4.04; (iii) the payment of annual monitoring fees to Blackstone in an
amount not to exceed $1,500,000 in any calendar year and any related
out-of-pocket expenses; (iv) the payment of reasonable and customary fees paid
to, and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Restricted Subsidiary; (v) payments by the
Company or any of its Restricted Subsidiaries to Blackstone made for any
financial advisory, financing, underwriting or placement services or in respect
of other investment banking activities, including, without limitation, in
connection with acquisitions or divestitures, which payments are approved by a
majority of the Board of Directors of the Company in good faith; (vi)
transactions in which the Company or any of
<PAGE>
48
its Restricted Subsidiaries, as the case may be, delivers to the Trustee a
letter from a nationally recognized investment banking firm stating that such
transaction is fair to the Company or such Restricted Subsidiary from a
financial point of view or meets the requirements of clause (i) of Section
4.07(a); (vii) payments or loans to employees in the ordinary course of business
in accordance with past practices which are approved by a majority of the Board
of Directors of the Company in good faith; (viii) any agreement as in effect as
of the Closing Date or any amendment thereto (so long as any such amendment is
not disadvantageous to the Holders of the Securities in any material respect) or
any transaction contemplated thereby; and (ix) the payment of all fees and
expenses related to the Transactions.
SECTION 4.08. Change of Control. (a) Upon a Change of Control, each Holder
shall have the right to require that the Company repurchase all or any part of
such Holder's Securities at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date), in
accordance with the terms contemplated in Section 4.08(b); provided, however,
that notwithstanding the occurrence of a Change in Control, the Company shall
not be obligated to purchase the Securities pursuant to this Section 4.08 in the
event that it has exercised its right to redeem all the Securities under
paragraph 5 of the Securities. In the event that at the time of such Change of
Control the terms of the Bank Indebtedness restrict or prohibit the repurchase
of Securities pursuant to this Section 4.08, then prior to the mailing of the
notice to Holders provided for in Section 4.08(b) below but in any event within
60 days following any Change of Control, the Company shall (i) repay in full all
Bank Indebtedness or (ii) obtain the requisite consent under the agreements
governing the Bank Indebtedness to permit the repurchase of the Securities as
provided for in Section 4.08(b).
(b) Within 30 days following any Change of Control (except as provided in
Section 4.08(a)), the Company shall mail a notice to each Holder with a copy to
the Trustee (the "Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Securities at a
purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase (subject to
the right of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date);
(2) the circumstances and relevant facts and financial information
regarding such Change of Control;
<PAGE>
49
(3) the repurchase date (which shall be no earlier than 60 days nor
later than 90 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased shall be required to
surrender the Security, with an appropriate form duly completed, to the Company
at the address specified in the notice at least three Business Days prior to the
purchase date. Holders shall be entitled to withdraw their election if the
Trustee or the Company receives not later than one Business Day prior to the
purchase date a telegram, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Security which was delivered for
purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased.
(d) On the purchase date, all Securities purchased by the Company under
this Section shall be delivered to the Trustee for cancelation, and the Company
shall pay the purchase price plus accrued and unpaid interest, if any, to the
Holders entitled thereto.
(e) Notwithstanding the foregoing provisions of this Section, the Company
shall not be required to make a Change of Control Offer upon a Change of Control
if a third party makes the Change of Control Offer in the manner, at the times
and otherwise in compliance with the requirements set forth in Section 4.08(b)
applicable to a Change of Control Offer made by the Company and purchases all
Securities validly tendered and not withdrawn under such Change of Control
Offer.
(f) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section 4.08, 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.
SECTION 4.09. Compliance Certificate. The Company shall deliver to the
Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of the Company they would normally have
knowledge of any Default and whether or not the signers know of any Default that
occurred during such period. If they do, the certificate shall describe the
Default, its status and what action the Company is taking or proposes to take
with respect thereto. The Company also shall comply with Section 314(a)(4) of
the TIA.
<PAGE>
50
SECTION 4.10. Further Instruments and Acts. Upon request of the Trustee,
the Company shall execute and deliver such further instruments and do such
further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.11. Future Subsidiary Guarantors. The Company shall cause each
Domestic Subsidiary that Incurs Indebtedness or that is a guarantor of
Indebtedness Incurred pursuant to Sections 4.03(b)(i) and 4.03(b)(xii) to
execute and deliver to the Trustee a supplemental indenture pursuant to which
such Subsidiary shall guarantee payment of the Securities. Each Subsidiary
Guarantee shall be limited to an amount not to exceed the maximum amount that
can be guaranteed by that Subsidiary without rendering the Subsidiary Guarantee,
as it relates to such Subsidiary, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
SECTION 4.12. Liens. The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, Incur or suffer to
exist any Lien on any asset or property of the Company or such Restricted
Subsidiary, or any income or profits therefrom, or assign or convey any right to
receive income therefrom, that secures any obligations of the Company or any of
its Subsidiaries (other than Senior Indebtedness) unless the Securities are
equally and ratably secured with (or on a senior basis to, in the case of
obligations subordinated in right of payment to the Securities) the obligations
so secured until such time as such obligations are no longer secured by a Lien.
The preceding sentence shall not require the Company or any Restricted
Subsidiary to secure the Securities if the Lien consists of a Permitted Lien.
No Subsidiary Guarantor shall directly or indirectly create, Incur or
suffer to exist any Lien on any asset or property of such Subsidiary Guarantor
or any income or profits therefrom, or assign or convey any right to receive
income therefrom, that secures any obligation of such Subsidiary Guarantor
(other than Senior Indebtedness of such Subsidiary Guarantor) unless the
Subsidiary Guarantee of such Subsidiary Guarantor is equally and ratably secured
with (or on a senior basis to, in the case of obligations subordinated on right
of payment to such Subsidiary Guarantor's Subsidiary Guarantee) the obligations
so secured. The preceding sentence shall not require any Subsidiary Guarantor to
secure its Subsidiary Guarantee if the Lien consists of a Permitted Lien.
ARTICLE 5
Successor Company
SECTION 5.01. (a) Merger, Consolidation, or Sale of All or Substantially
All Assets. The Company shall not consolidate with or merge with or into,
<PAGE>
51
or wind up into (whether or not the Company is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to any Person unless:
(i) the Company is the surviving corporation or the Person formed by
or surviving any such consolidation or merger (if other than the Company)
or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof, the District of
Columbia, or any territory thereof (the Company or such Person, as the case
may be, being herein called the "Successor Company");
(ii) the Successor Company (if other than the Company) expressly
assumes all the obligations of the Company under this Indenture and the
Securities pursuant to a supplemental indenture or other documents or
instruments in form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any of
its Restricted Subsidiaries as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the time
of such transaction) no Default or Event of Default shall have occurred and
be continuing;
(iv) immediately after giving pro forma effect to such transaction, as
if such transaction had occurred at the beginning of the applicable
four-quarter period, the Successor Company would be permitted to Incur at
least $1.00 of additional Indebtedness pursuant to Section 4.03(a) or the
Fixed Charge Coverage Ratio for the Successor Company and its Restricted
Subsidiaries would be greater than such ratio for the Company and its
Restricted Subsidiaries immediately prior to such transaction;
(v) each Subsidiary Guarantor, unless it is the other party to the
transaction described above, shall have by supplemental indenture confirmed
that its Subsidiary Guarantee shall apply to such Person's obligations
under this Indenture and the Securities; and
(vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
The Successor Company shall succeed to, and be substituted for, the Company
under this Indenture and the Securities.
<PAGE>
52
(b) Each Subsidiary Guarantor shall not, and the Company shall not permit a
Subsidiary Guarantor to, consolidate or merge with or into or wind up into
(whether or not such Subsidiary Guarantor is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions to, any Person unless:
(i) such Subsidiary Guarantor is the surviving corporation or the
Person formed by or surviving any such consolidation or merger (if other
than such Subsidiary Guarantor) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any
state thereof, the District of Columbia, or any territory thereof (such
Subsidiary Guarantor or such Person, as the case may be, being herein
called the 'successor Guarantor");
(ii) the Successor Guarantor (if other than such Subsidiary Guarantor)
expressly assumes all the obligations of such Subsidiary Guarantor under
this Indenture and such Subsidiary Guarantors's Subsidiary Guarantee
pursuant to a supplemental indenture or other documents or instruments in
form reasonably satisfactory to the Trustee;
(iii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Guarantor or any of its Subsidiaries as a result of such transaction as
having been Incurred by the Successor Guarantor or such Subsidiary at the
time of such transaction) no Default or Event of Default shall have
occurred and be continuing; and
(iv) the Subsidiary Guarantor shall have delivered or caused to be
delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with this Indenture.
The Successor Guarantor shall succeed to, and be substituted for, such
Subsidiary Guarantor under this Indenture and such Subsidiary Guarantor's
Subsidiary Guarantee.
Notwithstanding anything to the contrary stated above, (a) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company or to another Restricted Subsidiary and (b)
the Company may merge with an Affiliate incorporated solely for the purposes of
reincorporating the Company in another state of the United States so long as the
amount of Indebtedness of the Company and its Restricted Subsidiaries is not
increased thereby.
<PAGE>
53
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, whether or not such payment shall be
prohib ited by Article 10, and such default continues for a period of 30
days;
(2) the Company defaults in the payment of the principal or premium,
if any, of any Security when due at its Stated Maturity, upon optional
redemption, upon required repurchase, upon declaration or otherwise,
whether or not such payment shall be prohibited by Article 10;
(3) the Company fails to comply with Section 5.01 and such failure
continues for 30 days;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05,
4.06, 4.07, 4.08, 4.11 or 4.12 (other than a failure to purchase Securities
when required under Section 4.06 or 4.08) and such failure continues for 30
days after the notice specified below;
(5) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in (1), (2), (3)
or (4) above) and such failure continues for 60 days after the notice
specified below;
(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or the
acceleration by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $15,000,000 or
its foreign currency equivalent;
(7) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
<PAGE>
54
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 60 consecutive days;
(9) any judgment or decree for the payment of money in excess of
$15,000,000 or its foreign currency equivalent is entered against the
Company or any Significant Subsidiary and is not discharged, waived or
stayed and either (A) an enforcement proceeding has been commenced by any
creditor upon such judgment or decree or (B) there is a period of 60 days
following the entry of such judgment or decree during which such judgment
or decree is not discharged, waived or the execution thereof stayed; or
(10) any Subsidiary Guarantee shall cease to be in full force and
effect (except as contemplated by the terms thereof) or any Subsidiary
Guarantor shall deny or disaffirm its obligations under this Indenture or
any Subsidiary Guarantee and such Default continues for 10 days after the
notice specified below.
The foregoing shall constitute Events of Default whatever the reason for
any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
<PAGE>
55
A Default under clause (4) or (5) is not an Event of Default until the
Trustee or the Holders of at least 25% in principal amount of the outstanding
Securities notify the Company of the Default and the Company does not cure such
Default within the time specified in clause (4) or (5), as the case may be,
after receipt of such notice. Such notice must specify the Default, demand that
it be remedied and state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (6) or (10) and any event which with the
giving of notice or the lapse of time would become an Event of Default under
clause (4), (5) or (9), its status and what action the Company is taking or
proposes to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than an Event of
Default specified in Section 6.01(7) or (8) with respect to the Company) occurs
and is continuing, the Trustee by notice to the Company, or the Holders of at
least 25% in principal amount of the outstanding Securities by notice to the
Company, may declare the principal of and accrued but unpaid interest on all the
Securities to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default specified
in Section 6.01(7) or (8) with respect to the Company occurs, the principal of
and interest on all the Securities shall ipso facto become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any Securityholders. The Holders of a majority in principal amount of the
Securities by notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquies cence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive an
existing Default
<PAGE>
56
and its consequences except (i) a Default in the payment of the principal
of or interest on a Security (ii) a Default arising from the failure to
redeem or purchase any Security when required pursuant to the terms of this
Indenture or (iii) a Default under Section 9.02 that cannot be amended
without the consent of each Securityholder affected. When a Default is
waived, it is deemed cured, but no such waiver shall extend to any
subsequent or other Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in principal
amount of the outstanding Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemni fication
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
SECTION 6.06. Limitation on Suits. Except to enforce the right to receive
payment of principal or interest when due, no Securityholder may pursue any
remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the outstanding
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the outstanding
Securities do not give the Trustee a direction inconsistent with the
request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
<PAGE>
57
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment of
principal of and liquidated damages and interest on the Securities held by such
Holder, on or after the respective due dates expressed in the Securities, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default speci fied
in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
for the whole amount then due and owing (together with interest on any unpaid
interest to the extent lawful) and the amounts provided for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee and the Securityholders allowed in
any judicial proceedings relative to the Company, any Subsidiary or Subsidiary
Guarantor, their creditors or their property and, unless prohibited by law or
applicable regulations, may vote on behalf of the Holders in any election of a
trustee in bankruptcy or other Person performing similar functions, and any
Custodian in any such judicial proceeding is hereby authorized by each Holder to
make payments to the Trustee and, in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disburse ments and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.07.
SECTION 6.10. Priorities. If the Trustee collects any money or property
pursuant to this Article 6, it shall pay out the money or property in the
following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Senior Indebtedness of the Company to the extent
required by Article 10;
THIRD: to Securityholders for amounts due and unpaid on the Securities
for principal and interest, ratably, and any liquidated damages without
preference or priority of any kind, according to the amounts due and
payable on the Securi ties for principal, any liquidated damages and
interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the
<PAGE>
58
Trustee shall mail to each Securityholder and the Company a notice that states
the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any
right or remedy under this Indenture or in any suit against the Trustee for any
action taken or omitted by it as Trustee, a court in its discretion may require
the filing by any party litigant in the suit of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party litigant. This Section does not apply to a suit by the Trustee, a suit
by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in
principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. Neither the Company nor any
Subsidiary Guarantor (to the extent it may lawfully do so) shall at any time
insist upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Indenture; and the Company and each Subsidiary Guarantor (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and shall not hinder, delay or impede the execution of any power herein
granted to the Trustee, but shall suffer and permit the execution of every such
power as though no such law had been enacted.
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred
and is continuing, the Trustee shall exercise the rights and powers vested in it
by this Indenture and use the same degree of care and skill in their exercise as
a prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to
<PAGE>
59
the requirements of this Indenture. However, in the case of any such
certificates or opinions which any provisions hereof specifically require
to be furnished to the Trustee, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the requirements
of this Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own wilful misconduct, except
that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section 7.01 and to the provisions of the
TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any document
believed by it to be genuine and to have been signed or presented by the proper
person. The Trustee need not investigate any fact or matter stated in the
document.
<PAGE>
60
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct, negligence or bad faith.
(e) The Trustee may consult with counsel of its selection, and the advice
or opinion of counsel with respect to legal matters relating to this Indenture
and the Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond, debenture,
note or other paper or document unless requested in writing to do so by the
Holders of not less than a majority in principal amount of the Securities at the
time outstanding, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney and at the sole cost of the Company.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual
or any other capacity may become the owner or pledgee of Securities and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee. Any Paying Agent, Registrar or co-paying agent may
do the same with like rights. However, the Trustee must comply with Sections
7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be responsible
for and makes no representation as to the validity or adequacy of this Indenture
or the Securities, it shall not be accountable for the Company's use of the
proceeds from the Securities, and it shall not be responsible for any statement
of the Company in this Indenture or in any document issued in connection with
the sale of the Securities or in the Securities other than the Trustee's
certificate of authentication.
<PAGE>
61
SECTION 7.05. Notice of Defaults. If a Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to each Securityholder
notice of the Default within the earlier of 90 days after it occurs or 30 days
after it is known to a Trust Officer or written notice of it, referencing the
Securities and this Indenture, is received by the Trustee at its address
specified pursuant to Section 13.02. Except in the case of a Default in payment
of principal of or interest on any Security (including payments pursuant to the
mandatory redemption provisions of such Security, if any), the Trustee may
withhold the notice if and so long as a committee of its Trust Officers in good
faith determines that withholding the notice is in the interests of
Securityholders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as practicable
after each March 1 beginning with the March 1 following the date of this
Indenture, and in any event prior to May 1 in each year, the Trustee shall mail
to each Securityholder a brief report dated as of March 1 that complies with
Section 313(a) of the TIA. The Trustee shall also comply with Section 313(b) of
the TIA.
A copy of each report at the time of its mailing to Securityholders shall
be filed with the SEC and each stock exchange (if any) on which the Securities
are listed. The Company agrees to notify promptly the Trustee whenever the
Securities become listed on any stock exchange and of any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
Trustee such compensation for its services as the Trustee and the Company shall
from time to time agree in writing. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred or made by it, including costs of collection, in addition to
the compensation for its services (except any such expenses as may be
attributable to the Trustee's negligence or bad faith). Such expenses shall
include the reasonable compensation and expenses, disbursements and advances of
the Trustee's agents, counsel, accountants and experts. The Company and each
Subsidiary Guarantor, jointly and severally shall indemnify the Trustee against
any and all loss, liability or expense (including reasonable attorneys' fees and
expenses) incurred by or in connection with the administration of this trust and
the performance of its duties hereunder. The Trustee shall notify the Company of
any claim for which it may seek indemnity promptly upon obtaining actual
knowledge thereof; provided, however, that any failure so to notify the Company
shall not relieve the Company or any Subsidiary Guarantor of its indemnity
obligations hereunder. The Company shall defend the claim and the indemnified
party shall provide reasonable cooperation at the Company's expense in the
defense. Such indemnified parties may have separate counsel and the Company and
the Subsidiary Guarantors, as applicable shall pay the reasonable fees and
expenses of such counsel; provided, however, that the Company shall not be
required to pay such fees and expenses if it assumes such indemnified parties'
defense with counsel reasonably acceptable to the indemnified party and, in such
indemnified parties' reasonable
<PAGE>
62
judgment, there is no conflict of interest between the Company and the
Subsidiary Guarantors, as applicable, and such parties in connection with such
defense. The Company need not reimburse any expense or indemnify against any
loss, liability or expense incurred by an indemnified party through such party's
own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee other than money or property held in trust to pay
principal of and interest and any liquidated damages on particular Securities.
The Company's payment obligations pursuant to this Section shall survive
the satisfaction or discharge of this Indenture, any rejection or termination of
this Indenture under any bankruptcy law or the resignation or removal of the
Trustee. When the Trustee incurs expenses after the occurrence of a Default
specified in Section 6.01(7) or (8) with respect to the Company, the expenses
are intended to constitute expenses of administration under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any time by
so notifying the Company. The Holders of a majority in principal amount of the
Securities may remove the Trustee by so notifying the Trustee and may appoint a
successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of a
majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Securityholders. The
retiring Trustee shall promptly transfer
<PAGE>
63
all property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition, at the expense of the
Company, any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section,
the Company's obligations under Section 7.07 shall continue for the benefit of
the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion or
consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times
satisfy the requirements of TIA ss. 310(a). The Trustee shall have a combined
capital and surplus of at least $100,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA ss.
310(b); provided, however, that there shall be excluded from the operation of
TIA ss. 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA
<PAGE>
64
ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA
ss. 311(a) to the extent indicated.
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a) When
(i) the Company delivers to the Trustee all outstanding Securities (other than
Securities replaced pursuant to Section 2.08) for cancelation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article 3 hereof and
the Company irrevocably deposits with the Trustee funds or U.S. Government
Obligations on which payment of principal and interest when due shall be
sufficient to pay at maturity or upon redemption all outstanding Securities,
including interest thereon to maturity or such redemption date (other than
Securities replaced pursuant to Section 2.08), and if in either case the Company
pays all other sums payable hereunder by the Company, then this Indenture shall,
subject to Section 8.01(c), cease to be of further effect. The Trustee shall
acknow ledge satisfaction and discharge of this Indenture on demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel and at
the cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may
terminate (i) all of its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11 and 4.12 and the operation of
Section 5.01(a)(iv), 6.01(4), 6.01(6), 6.01(7) (with respect to Significant
Subsidiaries of the Company only), 6.01(8) (with respect to Significant
Subsidiaries of the Company only), 6.01(9) and 6.01(10) ("covenant defeasance
option"). In the event that the Company terminates all of its obligations under
the Securities and this Indenture by exercising either its legal defeasance
option or its covenant defeasance option, the obligations under the Subsidiary
Guarantees shall each be terminated simultaneously with the termination of such
obligations.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Securities may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the Securities may not be accelerated
because of an Event of Default specified in Section 6.01(4), 6.01(6), 6.01(7)
(with respect to Significant Subsidiaries of the Company only), 6.01(8) (with
respect to Significant Subsidiaries of the Company only) 6.01(9), and 6.01(10)
or because of the failure of the Company to comply with clause (iv) of Section
5.01(a).
<PAGE>
65
Upon satisfaction of the conditions set forth herein and upon request of
the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's obligations in
Sections 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 7.07, 7.08 and in this Article 8
shall survive until the Securities have been paid in full. Thereafter, the
Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive.
SECTION 8.02. Conditions to Defeasance. The Company may exercise its legal
defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal and interest on
the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the pay ments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment shall provide cash at such times and in
such amounts as shall be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Section 6.01(7) or (8) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article 10;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been a
change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Securityholders shall not recognize income, gain or loss for Federal
income tax purposes as a result of such defeasance and shall be subject to
Federal income tax on the same amounts, in the
<PAGE>
66
same manner and at the same times as would have been the case if such
defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Security holders shall not recognize income, gain or loss for Federal
income tax purposes as a result of such covenant defeasance and shall be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such covenant defeasance
had not occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
8 have been complied with.
Before or after a deposit, the Company may make arrangements satisfactory
to the Trustee for the redemption of Securities at a future date in accordance
with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in trust
money or U.S. Government Obligations deposited with it pursuant to this Article
8. It shall apply the deposited money and the money from U.S. Government
Obligations through the Paying Agent and in accordance with this Indenture to
the payment of principal of and interest on the Securities. Money and securities
so held in trust are not subject to Article 10.
SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent shall
promptly turn over to the Company upon written request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Securityholders entitled to the money must look to the
Company for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Company shall pay
and shall indemnify the Trustee against any tax, fee or other charge imposed on
or assessed against deposited U.S. Government Obligations or the principal and
interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to
apply any money or U.S. Government Obligations in accordance with this Article 8
by
<PAGE>
67
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the
Trustee or Paying Agent is permitted to apply all such money or U.S.
Government Obligations in accordance with this Article 8; provided,
however, that, if the Company has made any payment of interest on or
principal of any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders
of such Securities to receive such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders. The Company and the Trustee may
amend this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article 10 or Article 12 that would limit or
terminate the benefits available to any holder of Senior Indebtedness (or
Representatives therefor) under Article 10 or Article 12;
(5) to add additional Guarantees with respect to the Securities or to
secure the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(7) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under the
TIA;
<PAGE>
68
(8) to make any change that does not adversely affect the rights of
any Securityholder; or
(9) to provide for the issuance of the Exchange Securities, Private
Exchange Securities or Additional Securities, which shall have terms
substantially identical in all material respects to the Original Securities
(except that the transfer restrictions contained in the Original Securities
shall be modified or eliminated, as appropriate), and which shall be
treated, together with any outstanding Original Securities, as a single
issue of securities.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 or Article 12 of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any group or representative thereof authorized to give a consent) consent to
such change.
After an amendment under this Section becomes effective, the Company shall
mail to Securityholders a notice briefly describing such amendment. The failure
to give such notice to all Securityholders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section.
SECTION 9.02. With Consent of Holders. The Company, the Subsidiary
Guarantors and the Trustee may amend this Indenture or the Securities without
notice to any Securityholder but with the written consent of the Holders of at
least a majority in principal amount of the Securities then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Securities). However, without the consent of each Securityholder affected,
an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest or
any liquidated damages on any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security or
change the time at which any Security may be redeemed in accordance with
Article 3;
(5) make any Security payable in money other than that stated in the
Security;
<PAGE>
69
(6) make any change in Article 10 or Article 12 that adversely affects
the rights of any Securityholder under Article 10 or Article 12;
(7) make any change in Section 6.04 or 6.07 or the second sentence of
this Section 9.02; or
(8) modify or affect in any manner adverse to the Holders the terms
and conditions of the obligation of any Subsidiary Guarantor for the due
and punctual payment of the principal of or any liquidated damages or
interest on the Securities.
It shall not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment, but it shall be
sufficient if such consent approves the substance thereof.
An amendment under this Section 9.02 may not make any change that adversely
affects the rights under Article 10 of any holder of Senior Indebtedness then
outstanding unless the holders of such Senior Indebtedness (or any group or
representative thereof authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company shall
mail to Securityholders a notice briefly describing such amendment. The failure
to give such notice to all Securityholders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to this
Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A consent to
an amendment or a waiver by a Holder of a Security shall bind the Holder and
every subsequent Holder of that Security or portion of the Security that
evidences the same debt as the consenting Holder's Security, even if notation of
the consent or waiver is not made on the Security. However, any such Holder or
subsequent Holder may revoke the consent or waiver as to such Holder's Security
or portion of the Security if the Trustee receives the notice of revocation
before the date the amendment or waiver becomes effective. After an amendment or
waiver becomes effective, it shall bind every Securityholder. An amendment or
waiver becomes effective once both (i) the requisite number of consents have
been received by the Company or the Trustee and (ii) such amendment or waiver
has been executed by the Company and the Trustee.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those
<PAGE>
70
Persons who were Securityholders at such record date (or their duly designated
proxies), and only those Persons, shall be entitled to give such consent or to
revoke any consent previously given or to take any such action, whether or not
such Persons continue to be Holders after such record date. No such consent
shall be valid or effective for more than 120 days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company so determines, the Company in exchange for
the Security shall issue and the Trustee shall authenticate a new Security that
reflects the changed terms. Failure to make the appropriate notation or to issue
a new Security shall not affect the validity of such amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.01) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture and that such amendment
is the legal, valid and binding obligation of the Company and the Subsidiary
Guarantors enforceable against them in accordance with its terms, subject to
customary exceptions, and complies with the provisions hereof (including Section
9.03).
SECTION 9.07. Payment for Consent. Neither the Company nor any Affiliate of
the Company shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 10
Subordination
SECTION 10.01. Agreement To Subordinate. The Company agrees, and each
Securityholder by accepting a Security agrees, that the Indebtedness evidenced
by the Securities is subordinated in right of payment, to the extent and in the
manner
<PAGE>
71
provided in this Article 10, to the prior payment in full of all Senior
Indebtedness of the Company and that the subordination is for the benefit of and
enforceable by the holders of such Senior Indebtedness. The Securities shall in
all respects rank pari passu with all other Pari Passu Indebtedness of the
Company and only Indebtedness of the Company that is Senior Indebtedness of the
Company shall rank senior to the Securities in accordance with the provisions
set forth herein. For purposes of this Article 10, the Indebtedness evidenced by
the Securities shall be deemed to include the liquidated damages payable
pursuant to the provisions set forth in the Securities and the Registration
Agreement (the "Additional Amounts"). All provisions of this Article 10 shall be
subject to Section 10.12.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any payment or
distribution of the assets of the Company upon a total or partial liquidation or
dissolution or reorganization of or similar proceeding relating to the Company
or its property, the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash or Cash Equivalents of the Senior Indebtedness before
the Securityholders are entitled to receive any payment and until the Senior
Indebtedness is paid in full in Cash Equivalents, any payment or distribution to
which Securityholders would be entitled but for this Article 10 shall be made to
holders of the Senior Indebtedness as their interest may appear (except that
Holders of Securities may receive and retain (i) Permitted Junior Securities,
and (ii) payments made from the trust described under Section 8.01 so long as,
on the date or dates the respective amounts were paid into the trust, such
payments were made with respect to the Securities without violating this Article
10. If a distribution is made to Securityholders that due to this Article 10
should not have been made to them, such Securityholders are required to hold it
in trust for the holders of Senior Indebtedness and pay it over to them as their
interests may appear.
SECTION 10.03. Default on Senior Indebtedness. The Company may not pay
principal of or interest on (or Additional Amounts in respect of), the
Securities or make any deposit pursuant to Section 8.01 and may not otherwise
purchase, redeem or otherwise retire any Securities (except that Holders may
receive and retain (a) Permitted Junior Securities and (b) payments made from
the trust described in Section 8.01) (collectively, "pay the Securities") if (i)
a default in the payment of the principal of or interest on any Designated
Senior Indebtedness of the Company occurs and is continuing or any other amount
owing in respect of any Designated Senior Indebtedness of the Company is not
paid when due, or (ii) any other default on Designated Senior Indebtedness of
the Company occurs and the maturity of such Designated Senior Indebtedness of
the Company is accelerated in accordance with its terms unless, in either case,
the default has been cured or waived and any such acceleration has been
rescinded or such Designated Senior Indebtedness of the Company has been paid in
full in Cash Equivalents. However, the Company may pay the Securities without
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of the Designated Senior
Indebtedness of the Company with
<PAGE>
72
respect to which either of the events set forth in clause (i) or (ii) of the
immediately preceding sentence has occurred and is continuing. During the
continuance of any default (other than a default described in clause (i) or (ii)
of the second preceding sentence) with respect to any Designated Senior
Indebtedness of the Company pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Company may not pay the Securities for a period (a "Payment
Blockage Period") commencing upon the receipt by the Trustee (with a copy to the
Company) of written notice (a "Blockage Notice") of such default from the
Representative of the Designated Senior Indebtedness of the Company specifying
an election to effect a Payment Blockage Period and ending 179 days thereafter
(or earlier if such Payment Blockage Period is terminated (i) by written notice
to the Trustee and the Company from the Person or Persons who gave such Blockage
Notice, (ii) by repayment in full in Cash Equivalents of such Designated Senior
Indebtedness of the Company or (iii) because the default giving rise to such
Blockage Notice is no longer continuing). Notwithstanding the provisions
described in the immediately preceding sentence (but subject to the provisions
contained in the first sentence of this paragraph and in Section 10.02), unless
the holders of such Designated Senior Indebtedness of the Company or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness of the Company, the Company may resume payments on the
Securities after the end of such Payment Blockage Period. Not more than one
Blockage Notice may be given in any consecutive 360-day period, irrespective of
the number of defaults with respect to Designated Senior Indebtedness of the
Company during such period. However, if any Blockage Notice within such 360-day
period is given by or on behalf of any holders of Designated Senior Indebtedness
of the Company other than the Bank Indebtedness, the Representative of the Bank
Indebtedness may give one additional Blockage Notice within such period. In no
event, however, may the total number of days during which any Payment Blockage
Period or Periods is in effect exceed 179 days in the aggregate during any 360
consecutive day period. For purposes of this Section 10.03, no default or event
of default that existed or was continuing on the date of the commencement of any
Payment Blockage Period with respect to the Designated Senior Indebtedness of
the Company initiating such Payment Blockage Period shall be, or be made, the
basis of the commencement of a subsequent Payment Blockage Period by the
Representative of such Designated Senior Indebtedness of the Company, whether or
not within a period of 360 consecutive days, unless such default or event of
default shall have been cured or waived for a period of not less than 90
consecutive days.
SECTION 10.04. Acceleration of Payment of Securities. If payment of the
Securities is accelerated because of an Event of Default, the Company or the
Trustee (at the written direction of the Company) shall promptly notify the
holders of the Designated Senior Indebtedness of the Company (or their
Representative) of the acceleration. If any Designated Senior Indebtedness of
the Company is outstanding, the Company may not pay the Securities until five
Business Days after such holders or the
<PAGE>
73
Representative of the Designated Senior Indebtedness of the Company receive
notice of such acceleration and, thereafter, may pay the Securities only if this
Article 10 otherwise permits payment at that time.
SECTION 10.05. When Distribution Must Be Paid Over. If a distribution is
made to Securityholders that because of this Article 10 should not have been
made to them, the Securityholders who receive the distribution shall hold it in
trust for holders of Senior Indebtedness of the Company and pay it over to them
as their interests may appear.
SECTION 10.06. Subrogation. After all Senior Indebtedness of the Company is
paid in full and until the Securities are paid in full, Securityholders shall be
subrogated to the rights of holders of such Senior Indebtedness to receive
distributions applicable to Senior Indebtedness. A distribution made under this
Article 10 to holders of such Senior Indebtedness which otherwise would have
been made to Securityholders is not, as between the Company and Securityholders,
a payment by the Company on such Senior Indebtedness.
SECTION 10.07. Relative Rights. This Article 10 defines the relative rights
of Securityholders and holders of Senior Indebtedness of the Company. Nothing in
this Indenture shall:
(1) impair, as between the Company and Securityholders, the obligation
of the Company, which is absolute and unconditional, to pay principal of
and interest on and liquidated damages in respect of, the Securities in
accordance with their terms; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights of holders of
Senior Indebtedness of the Company to receive distributions otherwise
payable to Securityholders.
SECTION 10.08. Subordination May Not Be Impaired by Company. No right of
any holder of Senior Indebtedness of the Company to enforce the subordination of
the Indebtedness evidenced by the Securities shall be impaired by any act or
failure to act by the Company or by its failure to comply with this Indenture.
SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding Section
10.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than three
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives written notice satisfactory to it that payments may not be made under
this Article 10. The Company, the Registrar, the Paying Agent, a Representative
or a holder of Senior Indebtedness of the
<PAGE>
74
Company may give the notice; provided, however, that, if an issue of Senior
Indebtedness of the Company has a Representative, only the Representative may
give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness of the Company with the same rights it would have if it were not
Trustee. The Registrar and the Paying Agent may do the same with like rights.
The Trustee shall be entitled to all the rights set forth in this Article 10
with respect to any Senior Indebtedness of the Company which may at any time be
held by it, to the same extent as any other holder of such Senior Indebtedness;
and nothing in Article 7 shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article 10 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 7.07.
SECTION 10.10. Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness
of the Company, the distribution may be made and the notice given to their
Representative (if any).
SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit Right
To Accelerate. The failure to make a payment pursuant to the Securities by
reason of any provision in this Article 10 shall not be construed as preventing
the occurrence of a Default. Nothing in this Article 10 shall have any effect on
the right of the Secu rityholders or the Trustee to accelerate the maturity of
the Securities.
SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding anything
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations held in trust under Article 8 by the Trustee for the
payment of principal of and interest on the Securities shall not be subordinated
to the prior payment of any Senior Indebtedness of the Company or subject to the
restrictions set forth in this Article 10, and none of the Securityholders shall
be obligated to pay over any such amount to the Company or any holder of Senior
Indebtedness of the Company or any other creditor of the Company.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or distribution
pursuant to this Article 10, the Trustee and the Securityholders shall be
entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 10.02
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness of the Company for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of such Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article 10. In the event that the Trustee
determines, in good faith, that
<PAGE>
75
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness of the Company to participate in any payment or distribution
pursuant to this Article 10, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of such
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and other facts
pertinent to the rights of such Person under this Article 10, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all
actions or omissions of actions by the Trustee pursuant to this Article 10.
SECTION 10.14. Trustee To Effectuate Subordination. Each Securityholder by
accepting a Security authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to acknowledge or effectuate the
subordination between the Securityholders and the holders of Senior Indebtedness
of the Company as provided in this Article 10 and appoints the Trustee as
attorney-in-fact for any and all such purposes.
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Indebtedness of the Company and shall not be liable to any such holders
if it shall mistakenly pay over or distribute to Securityholders or the Company
or any other Person, money or assets to which any holders of Senior Indebtedness
of the Company shall be entitled by virtue of this Article 10 or otherwise.
SECTION 10.16. Reliance by Holders of Senior Indebtedness on Subordination
Provisions. Each Securityholder by accepting a Security acknowledges and agrees
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior Indebtedness of the
Company, whether such Senior Indebtedness was created or acquired before or
after the issuance of the Securities, to acquire and continue to hold, or to
continue to hold, such Senior Indebtedness and such holder of such Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold, or in continuing to hold, such
Senior Indebtedness.
SECTION 10.17. Trustee's Compensation Not Prejudiced. Nothing in this
Article shall apply to amounts due to the Trustee pursuant to other sections of
this Indenture.
<PAGE>
76
ARTICLE 11
Subsidiary Guarantees
SECTION 11.01. Subsidiary Guarantees. Each Subsidiary Guarantor hereby
jointly and severally unconditionally and irrevocably guarantees, as a primary
obligor and not merely as a surety, to each Holder and to the Trustee and its
successors and assigns (a) the full and punctual payment of principal of and
interest on and liquidated damages in respect of the Securities when due,
whether at Stated Maturity, by acceleration, by redemption or otherwise, and all
other monetary obligations of the Company under this Indenture (including
obligations to the Trustee) and the Securities and (b) the full and punctual
performance within applicable grace periods of all other obligations of the
Company whether for expenses, indemnification or otherwise under this Indenture
and the Securities (all the foregoing being hereinafter collectively called the
"Guaranteed Obligations"). Each Subsidiary Guarantor further agrees that the
Guaranteed Obligations may be extended or renewed, in whole or in part, without
notice or further assent from each such Subsidiary Guarantor, and that each such
Subsidiary Guarantor shall remain bound under this Article 11 notwithstanding
any extension or renewal of any Guaranteed Obligation.
Each Subsidiary Guarantor waives presentation to, demand of, payment from
and protest to the Company of any of the Guaranteed Obligations and also waives
notice of protest for nonpayment. Each Subsidiary Guarantor waives notice of any
default under the Securities or the Guaranteed Obligations. The obligations of
each Subsidiary Guarantor hereunder shall not be affected by (a) the failure of
any Holder or the Trustee to assert any claim or demand or to enforce any right
or remedy against the Company or any other Person under this Indenture, the
Securities or any other agreement or otherwise; (b) any extension or renewal of
any thereof; (c) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Indenture, the Securities or any other agreement;
(d) the release of any security held by any Holder or the Trustee for the
Guaranteed Obligations or any of them; (e) the failure of any Holder or Trustee
to exercise any right or remedy against any other guarantor of the Guaranteed
Obligations; or (f) any change in the ownership of such Subsidiary Guarantor,
except as provided in Section 11.02(b).
Each Subsidiary Guarantor hereby waives any right to which it may be
entitled to have its obligations hereunder divided among the Subsidiary
Guarantors, such that such Subsidiary Guarantor's obligations would be less than
the full amount claimed. Each Subsidiary Guarantor hereby waives any right to
which it may be entitled to have the assets of the Company first be used and
depleted as payment of the Company's or such Subsidiary Guarantor's obligations
hereunder prior to any amounts being claimed from or paid by such Subsidiary
Guarantor hereunder. Each Subsidiary Guarantor hereby
<PAGE>
77
waives any right to which it may be entitled to require that the Company be sued
prior to an action being initiated against such Subsidiary Guarantor.
Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee
herein constitutes a guarantee of payment, performance and compliance when due
(and not a guarantee of collection) and waives any right to require that any
resort be had by any Holder or the Trustee to any security held for payment of
the Guaranteed Obligations.
The Subsidiary Guarantee of each Subsidiary Guarantor is, to the extent and
in the manner set forth in Article 12, subordinated and subject in right of
payment to the prior payment in full of the of and premium, if any, and interest
on all Senior Indebtedness of the relevant Subsidiary Guarantor and is made
subject to such provisions of this Indenture.
Except as expressly set forth in Sections 8.01(b), 11.02 and 11.06, the
obligations of each Subsidiary Guarantor hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason, including any
claim of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense of setoff, counterclaim, recoupment or termination
whatsoever or by reason of the invalidity, illegality or unenforceability of the
Guaranteed Obligations or otherwise. Without limiting the generality of the
foregoing, the obligations of each Subsidiary Guarantor herein shall not be
discharged or impaired or otherwise affected by the failure of any Holder or the
Trustee to assert any claim or demand or to enforce any remedy under this
Indenture, the Securities or any other agreement, by any waiver or modification
of any thereof, by any default, failure or delay, wilful or otherwise, in the
performance of the obligations, or by any other act or thing or omission or
delay to do any other act or thing which may or might in any manner or to any
extent vary the risk of any Subsidiary Guarantor or would otherwise operate as a
discharge of any Subsidiary Guarantor as a matter of law or equity.
Each Subsidiary Guarantor agrees that its Subsidiary Guarantee shall remain
in full force and effect until payment in full of all the Guaranteed
Obligations. Each Subsidiary Guarantor further agrees that its Subsidiary
Guarantee herein shall continue to be effective or be reinstated, as the case
may be, if at any time payment, or any part thereof, of principal of or interest
on any Guaranteed Obligation is rescinded or must otherwise be restored by any
Holder or the Trustee upon the bankruptcy or reorganization of the Company or
otherwise.
In furtherance of the foregoing and not in limitation of any other right
which any Holder or the Trustee has at law or in equity against any Subsidiary
Guarantor by virtue hereof, upon the failure of the Company to pay the principal
of or interest on any Guaranteed Obligation when and as the same shall become
due, whether at maturity, by acceleration, by redemption or otherwise, or to
perform or comply with any other
<PAGE>
78
Guaranteed Obligation, each Subsidiary Guarantor hereby promises to and shall,
upon receipt of written demand by the Trustee, forthwith pay, or cause to be
paid, in cash, to the Holders or the Trustee an amount equal to the sum of (i)
the unpaid principal amount of such Guaranteed Obligations, (ii) accrued and
unpaid interest on such Guaranteed Obligations (but only to the extent not
prohibited by law) and (iii) all other monetary obligations of the Company to
the Holders and the Trustee.
Each Subsidiary Guarantor agrees that it shall not be entitled to any right
of subrogation in relation to the Holders in respect of any Guaranteed
Obligations guaranteed hereby until payment in full of all Guaranteed
Obligations and all obligations to which the Guaranteed Obligations are
subordinated as provided in Article 12. Each Subsidiary Guarantor further agrees
that, as between it, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the Guaranteed Obligations guaranteed hereby may
be accelerated as provided in Article 6 for the purposes of any Subsidiary
Guarantee herein, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the Guaranteed Obligations guaranteed
hereby, and (y) in the event of any declaration of acceleration of such
Guaranteed Obligations as provided in Article 6, such Guaranteed Obligations
(whether or not due and payable) shall forthwith become due and payable by such
Subsidiary Guarantor for the purposes of this Section 11.01.
Each Subsidiary Guarantor also agrees to pay any and all costs and expenses
(including reasonable attorneys' fees and expenses) incurred by the Trustee or
any Holder in enforcing any rights under this Section 11.01.
Upon request of the Trustee, each Subsidiary Guarantor shall execute and
deliver such further instruments and do such further acts as may be reasonably
necessary or proper to carry out more effectively the purpose of this Indenture.
SECTION 11.02. Limitation on Liability. (a) Any term or provision of this
Indenture to the contrary notwithstanding, the maximum, aggregate amount of the
Guaranteed Obligations guaranteed hereunder by any Subsidiary Guarantor shall
not exceed the maximum amount that can be hereby guaranteed without rendering
this Indenture, as it relates to such Subsidiary Guarantor, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally.
(b) A Subsidiary Guarantee shall be automatically released upon the sale
(including through merger or consolidation) of the Capital Stock, or all or
substantially all the assets, of the applicable Subsidiary Guarantor if (i) such
sale is made in compliance with Section 4.06 and (ii) such Subsidiary Guarantor
is released from its guarantees of, and all pledges and security granted in
connection with, the Credit Agreement and any other Indebtedness of the Company
or any Subsidiary Guarantor. A Subsidiary Guarantee
<PAGE>
79
also shall be automatically released upon the applicable Subsidiary Guarantor
ceasing to be a Subsidiary of the Company as a result of any foreclosure of any
pledge or security interest securing Bank Indebtedness or other exercise of
remedies in respect thereof if such Subsidiary Guarantor is released from its
guarantees of, and all pledges and security interests granted in connection
with, the Credit Agreement. At the request of the Company, the Trustee shall
execute and deliver an appropriate instrument evidencing such release.
SECTION 11.03. Successors and Assigns. This Article 11 shall be binding
upon each Subsidiary Guarantor and its successors and assigns and shall inure to
the benefit of the successors and assigns of the Trustee and the Holders and, in
the event of any transfer or assignment of rights by any Holder or the Trustee,
the rights and privileges conferred upon that party in this Indenture and in the
Securities shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions of this Indenture.
SECTION 11.04. No Waiver. Neither a failure nor a delay on the part of
either the Trustee or the Holders in exercising any right, power or privilege
under this Article 11 shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the
Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article 11 at law,
in equity, by statute or otherwise.
SECTION 11.05. Modification. No modification, amendment or waiver of any
provision of this Article 11, nor the consent to any departure by any Subsidiary
Guarantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Trustee, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on any Subsidiary Guarantor in any case shall entitle such
Subsidiary Guarantor to any other or further notice or demand in the same,
similar or other circumstances.
SECTION 11.06. Execution of Supplemental Indenture for Future Subsidiary
Guarantors. Each Subsidiary which is required to become a Subsidiary Guarantor
pursuant to Section 4.11 shall promptly execute and deliver to the Trustee a
supplemental indenture in the form of Exhibit C hereto pursuant to which such
Subsidiary shall become a Subsidiary Guarantor under this Article 11 and shall
guarantee the Guaranteed Obligations. Concurrently with the execution and
delivery of such supplemental indenture, the Company shall deliver to the
Trustee an Opinion of Counsel and an Officers' Certificate to the effect that
such supplemental indenture has been duly authorized, executed and delivered by
such Subsidiary and that, subject to the application of bankruptcy, insolvency,
moratorium, fraudulent conveyance or transfer and other similar laws relating to
creditors' rights generally and to the principles of equity, whether
<PAGE>
80
considered in a proceeding at law or in equity, the Subsidiary Guarantee of such
Subsidiary Guarantor is a legal, valid and binding obligation of such Subsidiary
Guarantor, enforceable against such Subsidiary Guarantor in accordance with its
terms.
ARTICLE 12
Subordination of the Subsidiary Guarantees
SECTION 12.01. Agreement To Subordinate. Each Subsidiary Guarantor agrees,
and each Securityholder by accepting a Security agrees, that the obligations of
a Subsidiary Guarantor hereunder are subordinated in right of payment, to the
extent and in the manner provided in this Article 12, to the prior payment in
full of all Senior Indebtedness of such Subsidiary Guarantor and that the
subordination is for the benefit of and enforceable by the holders of such
Senior Indebtedness of such Subsidiary Guarantor. The obligations hereunder with
respect to a Subsidiary Guarantor shall in all respects rank pari passu with all
other Pari Passu Indebtedness of such Subsidiary Guarantor and shall rank senior
to all existing and future Subordinated Indebtedness of such Subsidiary
Guarantor; and only Indebtedness of such Subsidiary Guarantor that is Senior
Indebtedness of such Subsidiary Guarantor shall rank senior to the obligations
of such Subsidiary Guarantor in accordance with the provisions set forth herein.
SECTION 12.02. Liquidation, Dissolution, Bankruptcy. Upon any payment or
distribution of the assets of a Subsidiary Guarantor upon a total or partial
liquidation or dissolution or in a bankruptcy, reorganization or similar
proceeding relating to such Subsidiary Guarantor and its properties, the holders
of Senior Indebtedness shall be entitled to receive payment in full in cash or
Cash Equivalents of the Senior Indebtedness before the Securityholders are
entitled to receive any payment and until the Senior Indebtedness is paid in
full in Cash Equivalents, any payment or distribution to which Securityholders
would be entitled but for this Article 12 shall be made to holders of the Senior
Indebtedness as their interest may appear. If a distribution is made to
Securityholders that due to this Article 12 should not have been made to them,
such Securityholders are required to hold it in trust for the holders of Senior
Indebtedness and pay it over to them as their interests may appear.
SECTION 12.03. Default on Designated Senior Indebtedness of a Subsidiary
Guarantor. A Subsidiary Guarantor may not make any payment pursuant to any of
the Guaranteed Obligations or repurchase, redeem or otherwise retire any
Securities (collectively, "pay its Guarantee") if (i) any amount owing in
respect of any Designated Senior Indebtedness of such Subsidiary Guarantor is
not paid when due or (ii) any other default on Senior Indebtedness of such
Subsidiary Guarantor occurs and the maturity of such Designated Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
the default has been cured or waived and any such
<PAGE>
81
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full in Cash Equivalents. However, such Subsidiary Guarantor may pay its
Guarantee without regard to the foregoing if such Subsidiary Guarantor and the
Trustee receive written notice approving such payment from the Representative of
the holders of such Designated Senior Indebtedness with respect to which either
of the events set forth in clause (i) or (ii) of the immediately preceding
sentence has occurred and is continuing. During the continuance of any default
(other than a default described in clause (i) or (ii) of the second preceding
sentence) with respect to any Designated Senior Indebtedness of a Subsidiary
Guarantor pursuant to which the maturity thereof may be accelerated immediately
without further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, such Subsidiary
Guarantor may not pay its Guarantee for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to such Subsidiary
Guarantor and the Company) of written notice (a "Blockage Notice") of such
default from the Representative of the holders of the Designated Senior
Indebtedness of such Subsidiary Guarantor specifying an election to effect a
Payment Blockage Period and ending 179 days thereafter (or earlier if such
Payment Blockage Period is terminated (i) by written notice to the Trustee (with
a copy to such Subsidiary Guarantor and the Company) from the Person or Persons
who gave such Blockage Notice, (ii) because such Designated Senior Indebtedness
has been repaid in full in Cash Equivalents or (iii) because the default giving
rise to such Blockage Notice is no longer continuing). Notwithstanding the
provisions described in the immediately preceding sentence (but subject to the
provisions contained in the first sentence of this paragraph and in Section
12.02), unless the holders of such Designated Senior Indebtedness or the
Representative of such holders shall have accelerated the maturity of such
Designated Senior Indebtedness, such Subsidiary Guarantor may resume to paying
its Guarantee after the end of such Payment Blockage Period, including any
missed payments. Not more than one Blockage Notice may be given with respect to
a Subsidiary Guarantor in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness of such
Subsidiary Guarantor during such period.
SECTION 12.04. Demand for Payment. If payment of the Securities is
accelerated because of an Event of Default and a demand for payment is made on a
Subsidiary Guarantor pursuant to Article 11, the Trustee shall promptly notify
the holders of the Designated Senior Indebtedness of such Subsidiary Guarantor
(or the Representative of such holders) of such demand. If any Designated Senior
Indebtedness of such Subsidiary Guarantor is outstanding, such Subsidiary
Guarantor may not pay its Guarantee until five Business Days after such holders
or the Representative of the holders of the Designated Senior Indebtedness of
such Subsidiary Guarantor receive notice of such demand and, thereafter, may pay
its Guarantee only if this Article 12 otherwise permits payment at that time.
<PAGE>
82
SECTION 12.05. When Distribution Must Be Paid Over. If a payment or
distribution is made to Securityholders that because of this Article 12 should
not have been made to them, the Securityholders who receive the payment or
distribution shall hold such payment or distribution in trust for holders of the
Senior Indebtedness of the relevant Subsidiary Guarantor and pay it over to them
as their respective interests may appear.
SECTION 12.06. Subrogation. After all Designated Senior Indebtedness of a
Subsidiary Guarantor is paid in full and until the Securities are paid in full
in cash, Securityholders shall be subrogated to the rights of holders of
Designated Senior Indebtedness of such Subsidiary Guarantor to receive
distributions applicable to Designated Senior Indebtedness of such Subsidiary
Guarantor. A distribution made under this Article 12 to holders of Designated
Senior Indebtedness of such Subsidiary Guarantor which otherwise would have been
made to Securityholders is not, as between such Subsidiary Guarantor and
Securityholders, a payment by such Subsidiary Guarantor on Designated Senior
Indebtedness of such Subsidiary Guarantor.
SECTION 12.07. Relative Rights. This Article 12 defines the relative rights
of Securityholders and holders of Designated Senior Indebtedness of a Subsidiary
Guarantor. Nothing in this Indenture shall:
(1) impair, as between a Subsidiary Guarantor and Securityholders, the
obligation of a Subsidiary Guarantor which is absolute and unconditional,
to make payments with respect to the Guaranteed Obligations to the extent
set forth in Article 11; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a default by a Subsidiary Guarantor under its
obligations with respect to the Guaranteed Obligations, subject to the
rights of holders of Designated Senior Indebtedness of such Subsidiary
Guarantor to receive distributions otherwise payable to Securityholders.
SECTION 12.08. Subordination May Not Be Impaired by a Subsidiary Guarantor.
No right of any holder of Designated Senior Indebtedness of a Subsidiary
Guarantor to enforce the subordination of the obligations of such Subsidiary
Guarantor hereunder shall be impaired by any act or failure to act by such
Subsidiary Guarantor or by its failure to comply with this Indenture.
SECTION 12.09. Rights of Trustee and Paying Agent. Notwithstanding Section
12.03, the Trustee or the Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than three
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives written notice
<PAGE>
83
satisfactory to it that payments may not be made under this Article 12. A
Subsidiary Guarantor, the Registrar or co-registrar, the Paying Agent, a
Representative or a holder of Designated Senior Indebtedness of a Subsidiary
Guarantor may give the notice; provided, however, that if an issue of Designated
Senior Indebtedness of a Subsidiary Guarantor has a Representative, only the
Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness of a Subsidiary Guarantor with the same rights it would have if it
were not Trustee. The Registrar and co-registrar and the Paying Agent may do the
same with like rights. The Trustee shall be entitled to all the rights set forth
in this Article 12 with respect to any Senior Indebtedness of a Subsidiary
Guarantor which may at any time be held by it, to the same extent as any other
holder of Senior Indebtedness of such Subsidiary Guarantor; and nothing in
Article 7 shall deprive the Trustee of any of its rights as such holder. Nothing
in this Article 12 shall apply to claims of, or payments to, the Trustee under
or pursuant to Section 7.07.
SECTION 12.10. Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness
of a Subsidiary Guarantor, the distribution may be made and the notice given to
their Representative (if any).
SECTION 12.11. Article 12 Not To Prevent Events of Default or Limit Right
To Accelerate. The failure of a Subsidiary Guarantor to make a payment on any of
its obligations by reason of any provision in this Article 12 shall not be
construed as preventing the occurrence of a default by such Subsidiary Guarantor
under such obligations. Nothing in this Article 12 shall have any effect on the
right of the Securityholders or the Trustee to make a demand for payment on a
Subsidiary Guarantor pursuant to Article 11.
SECTION 12.12. Trustee Entitled To Rely. Upon any payment or distribution
pursuant to this Article 12, the Trustee and the Securityholders shall be
entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 12.02
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Designated
Senior Indebtedness of a Subsidiary Guarantor for the purpose of ascertaining
the Persons entitled to participate in such payment or distribution, the holders
of the Designated Senior Indebtedness such Subsidiary Guarantor and other
Indebtedness of a Subsidiary Guarantor, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 12. In the event that the Trustee determines, in good
faith, that evidence is required with respect to the right of any Person as a
holder of Designated Senior Indebtedness of a Subsidiary Guarantor to
participate in any payment or distribution
<PAGE>
84
pursuant to this Article 12, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Designated Senior Indebtedness of such Subsidiary Guarantor held by such Person,
the extent to which such Person is entitled to participate in such payment or
distribution and other facts pertinent to the rights of such Person under this
Article 12, and, if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall
be applicable to all actions or omissions of actions by the Trustee pursuant to
this Article 12.
SECTION 12.13. Trustee To Effectuate Subordination. Each Securityholder by
accepting a Security authorizes and directs the Trustee on his or her behalf to
take such action as may be necessary or appropriate to acknowledge or effectuate
the subordination between the Securityholders and the holders of Senior
Indebtedness of each of the Subsidiary Guarantors as provided in this Article 12
and appoints the Trustee as attorney-in-fact for any and all such purposes.
SECTION 12.14. Trustee Not Fiduciary for Holders of Senior Indebtedness of
a Subsidiary Guarantor. The Trustee shall not be deemed to owe any fiduciary
duty to the holders of Senior Indebtedness of a Subsidiary Guarantor and shall
not be liable to any such holders if it shall mistakenly pay over or distribute
to Securityholders or the relevant Subsidiary Guarantor or any other Person,
money or assets to which any holders of Senior Indebtedness of such Subsidiary
Guarantor shall be entitled by virtue of this Article 12 or otherwise.
SECTION 12.15. Reliance by Holders of Senior Indebtedness of a Subsidiary
Guarantor on Subordination Provisions. Each Securityholder by accepting a
Security acknowledges and agrees that the foregoing subordination provisions
are, and are intended to be, an inducement and a consideration to each holder of
any Senior Indebtedness of a Subsidiary Guarantor, whether such Senior
Indebtedness was created or acquired before or after the issuance of the
Securities, to acquire and continue to hold, or to continue to hold, such Senior
Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively
to have relied on such subordination provisions in acquiring and continuing to
hold, or in continuing to hold, such Senior Indebtedness.
SECTION 12.16. Defeasance. The terms of this Article 12 shall not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Securities
pursuant to the provisions described in Section 8.03.
<PAGE>
85
ARTICLE 13
Miscellaneous
SECTION 13.01. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 13.02. Notices. Any notice or communication shall be in writing and
delivered in person or mailed by first-class mail addressed as follows:
if to the Company:
The Imperial Home Decor Group Inc.
23645 Mercantile Road
Cleveland, Ohio 44122
Attention of: Chief Financial Officer
if to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Attention of:
Corporate Trust Trustee Administration
The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed to
the Securityholder at the Securityholder's address as it appears on the
registration books of the Registrar and shall be sufficiently given if so mailed
within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
<PAGE>
86
SECTION 13.03. Communication by Holders with Other Holders. Securityholders
may communicate pursuant to TIA ss. 312(b) with other Securityholders with
respect to their rights under this Indenture or the Securities. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA ss.
312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent. Upon any
request or application by the Company to the Trustee to take or refrain from
taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) except with respect to the Original Securities, an Opinion of
Counsel in form and substance reasonably satisfactory to the Trustee
stating that, in the opinion of such counsel, all such conditions precedent
have been complied with.
SECTION 13.05. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 13.06. When Securities Disregarded. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direc tion, waiver or consent, Securities owned by the Company, any Subsidiary
Guarantor or by any Person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company or any Subsidiary
Guarantor shall be disregarded and deemed not to be outstanding, except that,
for the purpose of determining whether the
<PAGE>
87
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities which the Trustee knows are so owned shall be so disregarded.
Subject to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.
SECTION 13.07. Rules by Trustee, Paying Agent and Registrar. The Trustee
may make reasonable rules for action by or a meeting of Securityholders. The
Registrar and the Paying Agent may make reasonable rules for their functions.
SECTION 13.08. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or
a day on which banking institutions are not required to be open in the State of
New York. If a payment date is a Legal Holiday, payment shall be made on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period. If a regular record date is a Legal Holiday, the
record date shall not be affected.
SECTION 13.09. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE
EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
SECTION 13.10. No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 13.11. Successors. All agreements of the Company and each
Subsidiary Guarantor in this Indenture and the Securities shall bind its
successors. All agreements of the Trustee in this Indenture shall bind its
successors.
SECTION 13.12. Multiple Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Indenture.
SECTION 13.13. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have
<PAGE>
88
been inserted for convenience of reference only, are not intended to be
considered a part hereof and shall not modify or restrict any of the terms or
provisions hereof.
<PAGE>
89
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
THE IMPERIAL HOME DECOR GROUP
INC.,
by ______________________
Name:
Title:
THE IMPERIAL HOME DECOR GROUP
(US) LLC,
by ______________________
Name:
Title:
MARKETING SERVICE, INC.,
by ______________________
Name:
Title:
VERNON PLASTICS, INC.,
by ______________________
Name:
Title:
WDP INVESTMENTS, INC.,
by ______________________
Name:
Title:
IMPERIAL HOME DECOR GROUP
HOLDINGS I LIMITED,
by ______________________
Name:
Title:
<PAGE>
90
THE BANK OF NEW YORK, as Trustee
by ______________________
Name:
Title:
<PAGE>
APPENDIX A
PROVISIONS RELATING TO ORIGINAL SECURITIES,
ADDITIONAL SECURITIES, PRIVATE EXCHANGE SECURITIES
AND EXCHANGE SECURITIES
1. Definitions
1.1 Definitions
For the purposes of this Appendix A the following terms shall have the
meanings indicated below:
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Temporary Regulation S Global Security or beneficial interest
therein, the rules and procedures of the Depositary for such Global Security,
Euroclear and Cedel, in each case to the extent applicable to such transaction
and as in effect from time to time.
"Cedel" means Cedel Bank, S.A., or any successor securities clearing
agency.
"Definitive Security" means a certificated Initial Security or Exchange
Security (bearing the Restricted Securities Legend if the transfer of such
Security is restricted by applicable law) that does not include the Global
Securities Legend.
"Depositary" means The Depository Trust Company, its nominees and their
respective successors.
"Euroclear" means the Euroclear Clearance System or any successor
securities clearing agency.
"Global Securities Legend" means the legend set forth under that caption in
Exhibit A to this Indenture.
"IAI" means an institutional "accredited investor" as described in Rule
501(a)(1), (2), (3) or (7) under the Securities Act.
"Initial Purchasers" means Chase Securities Inc. and Bear, Stearns & Co.
Inc.
"Private Exchange" means an offer by the Company, pursuant to a
Registration Agreement, to issue and deliver to certain purchasers, in exchange
for the Initial Securities held by such purchasers as part of their initial
distribution, a like aggregate principal amount of Private Exchange Securities.
<PAGE>
2
"Private Exchange Securities" means the Securities of the Company issued in
exchange for Initial Securities pursuant to this Indenture in connection with a
Private Exchange pursuant to a Registration Agreement.
"Purchase Agreement" means (i) the Purchase Agreement dated March 11, 1998,
among BDPI Holdings Corporation, a Delaware corporation that was merged with and
into the Company prior to the issuance of the Original Securities, the
Subsidiary Guarantors and the Initial Purchasers and (ii) any other similar
Purchase Agreement relating to Additional Securities.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registered Exchange Offer" means an offer by the Company, pursuant to a
Registration Agreement, to certain Holders of Initial Securities, to issue and
deliver to such Holders, in exchange for their Initial Securities, a like
aggregate principal amount of Exchange Securities registered under the
Securities Act.
"Registration Agreement" means (i) the Exchange and Registration Rights
Agreement dated March 13, 1998, among the Company, the Subsidiary Guarantors and
the Initial Purchasers and (ii) any other similar Exchange and Registration
Rights Agreement relating to Additional Securities.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Securities" means all Initial Securities offered and sold
outside the United States in reliance on Regulation S.
"Restricted Period", with respect to any Securities, means the period of 40
consecutive days beginning on and including the later of (i) the day on which
such Securities are first offered to persons other than distributors (as defined
in Regulation S under the Securities Act) in reliance on Regulation S and (ii)
the Issue Date with respect to such Securities.
"Restricted Securities Legend" means the legend set forth in Section
2.3(e)(i) herein.
"Rule 501" means Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 144A Securities" means all Initial Securities offered and sold to
QIBs in reliance on Rule 144A.
<PAGE>
3
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to a Global
Security (as appointed by the Depositary) or any successor person thereto, who
shall initially be the Trustee.
"Shelf Registration Statement" means a registration statement filed by the
Company in connection with the offer and sale of Initial Securities pursuant to
a Registration Agreement.
"Transfer Restricted Securities" means Definitive Securities and any other
Securities that bear or are required to bear the Restricted Securities Legend.
1.2 Other Definitions
Term: Defined in Section:
----- -------------------
"Agent Members" ....................................................... 2.1(b)
"IAI Global Security .................................................. 2.1(a)
"Global Security" ..................................................... 2.1(a)
"Rule 144A Global Security" ........................................... 2.1(a)
2. The Securities
2.1 Form and Dating
The Initial Securities issued on the date hereof shall be (i) offered and
sold by the Company pursuant to a Purchase Agreement and (ii) resold, initially
only to (A) QIBs in reliance on Rule 144A and (B) Persons other than U.S.
Persons (as defined in Regulation S) in reliance on Regulation S. Such Initial
Securities may thereafter be transferred to, among others, QIBs, purchasers in
reliance on Regulation S and, except as set forth below, IAIs in accordance with
Rule 501. Additional Securities offered after the date hereof may be offered and
sold by the Company from time to time pursuant to one or more Purchase
Agreements in accordance with applicable law.
(a) Global Securities. Rule 144A Securities shall be issued initially in
the form of one or more permanent global Securities in definitive, fully
registered form (collectively, the "Rule 144A Global Security") and Regulation S
Securities shall be issued initially in the form of one or more global
Securities (collectively, the "Regulation S Global Security"), in each case
without interest coupons and bearing the Global Securities Legend and Restricted
Securities Legend, which shall be deposited on behalf of the purchasers of the
Securities represented thereby with the Securities Custodian, and registered in
the name of
<PAGE>
4
the Depositary or a nominee of the Depositary, duly executed by the Company and
authenticated by the Trustee as provided in this Indenture. One or more global
securities in definitive, fully registered form without interest coupons and
bearing the Global Securities Legend and the Restricted Securities Legend
(collectively, the "IAI Global Security") shall also be issued on the Closing
Date, deposited with the Securities Custodian, and registered in the name of the
Depositary or a nominee of the Depositary, duly executed by the Company and
authenticated by the Trustee as provided in this Indenture to accommodate
transfers of beneficial interests in the Securities to IAIs subsequent to the
initial distribution. Beneficial ownership interests in the Regulation S Global
Security shall not be exchangeable for interests in the Rule 144A Global
Security, the IAI Global Security or any other Security without a Restricted
Securities Legend until the expiration of the Restricted Period. The Rule 144A
Global Security, the IAI Global Security and the Regulation S Global Security
are each referred to herein as a "Global Security" and are collectively referred
to herein as "Global Securities." The aggregate principal amount of the Global
Securities may from time to time be increased or decreased by adjustments made
on the records of the Trustee and the Depositary or its nominee as hereinafter
provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a Global
Security deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.1(b) and pursuant to an order of the Company, authenticate and deliver
initially one or more Global Securities that (a) shall be registered in the name
of the Depositary for such Global Security or Global Securities or the nominee
of such Depositary and (b) shall be delivered by the Trustee to such Depositary
or pursuant to such Depositary's instructions or held by the Trustee as
Securities Custodian.
Members of, or participants in, the Depositary ("Agent Members") shall have
no rights under this Indenture with respect to any Global Security held on their
behalf by the Depositary or by the Trustee as Securities Custodian or under such
Global Security, and the Depositary may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices of such Depositary
governing the exercise of the rights of a holder of a beneficial interest in any
Global Security.
(c) Definitive Securities. Except as provided in Section 2.3 or 2.4, owners
of beneficial interests in Global Securities shall not be entitled to receive
physical delivery of certificated Securities.
<PAGE>
5
2.2 Authentication. The Trustee shall authenticate and make available for
delivery upon a written order of the Company signed by two Officers (1) Original
Securities for original issue on the date hereof in an aggregate principal
amount of $125,000,000 (2) subject to the terms of this Indenture, Additional
Securities in an aggregate principal amount of up to $150,000,000 and (3) the
(A) Exchange Securities for issue only in a Registered Exchange Offer and (B)
Private Exchange Securities for issue only in a Private Exchange, in the case of
each of (A) and (B) pursuant to a Registration Agreement and for a like
principal amount of Initial Securities exchanged pursuant thereto. Such order
shall specify the amount of the Securities to be authenticated, the date on
which the original issue of Securities is to be authenticated and whether the
Securities are to be Initial Securities, Exchange Securities or Private Exchange
Securities. The aggregate principal amount of Securities outstanding at any time
may not exceed $275,000,000 except as provided in Section 2.08 of this
Indenture.
2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive
Securities. When Definitive Securities are presented to the Registrar with a
request:
(x) to register the transfer of such Definitive Securities; or
(y) to exchange such Definitive Securities for an equal principal
amount of Definitive Securities of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its reasonable requirements for such transaction are met; provided, however,
that the Definitive Securities surrendered for transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Registrar,
duly executed by the Holder thereof or his attorney duly authorized in
writing; and
(ii) are being transferred or exchanged pursuant to an effective
registration statement under the Securities Act or pursuant to clause (A),
(B) or (C) below, and are accompanied by the following additional
information and documents, as applicable:
(A) if such Definitive Securities are being delivered to the
Registrar by a Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to that effect (in
the form set forth on the reverse side of the Initial Security); or
(B) if such Definitive Securities are being transferred to the
Company, a certification to that effect (in the form set forth on the
reverse side of the Initial Security); or
<PAGE>
6
(C) if such Definitive Securities are being transferred pursuant
to an exemption from registration in accordance with Rule 144 under
the Securities Act or in reliance upon another exemption from the
registration requirements of the Securities Act, (i) a certification
to that effect (in the form set forth on the reverse side of the
Initial Security) and (ii) if the Company so requests, an opinion of
counsel or other evidence reasonably satisfactory to it as to the
compliance with the restrictions set forth in the legend set forth in
Section 2.3(d)(i).
(b) Restrictions on Transfer of a Definitive Security for a Beneficial
Interest in a Global Security. A Definitive Security may not be exchanged for a
beneficial interest in a Global Security except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Definitive
Security, duly endorsed or accompanied by a written instrument of transfer in
form reasonably satisfactory to the Company and the Registrar, together with:
(i) certification (in the form set forth on the reverse side of the
Initial Security) that such Definitive Security is being transferred (A) to
a QIB in accordance with Rule 144A, (B) to an IAI that has furnished to the
Trustee a signed letter substantially in the form of Exhibit D or (C)
outside the United States in an offshore transaction within the meaning of
Regulation S and in compliance with Rule 904 under the Securities Act; and
(ii) written instructions directing the Trustee to make, or to direct
the Securities Custodian to make, an adjustment on its books and records
with respect to such Global Security to reflect an increase in the
aggregate principal amount of the Securities represented by the Global
Security, such instructions to contain information regarding the Depositary
account to be credited with such increase,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased by the aggregate principal amount of the Definitive Security to be
exchanged and shall credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the Global Security
equal to the principal amount of the Definitive Security so canceled. If no
Global Securities are then outstanding and the Global Security has not been
previously exchanged for certificated securities pursuant to Section 2.4, the
Company shall issue and the Trustee shall authenticate, upon written order of
the Company in the form of an Officers' Certificate, a new Global Security in
the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. (i) The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the
<PAGE>
7
Depositary, in accordance with this Indenture (including applicable restrictions
on transfer set forth herein, if any) and the procedures of the Depositary
therefor. A transferor of a beneficial interest in a Global Security shall
deliver a written order given in accordance with the Depositary's procedures
containing information regarding the participant account of the Depositary to be
credited with a beneficial interest in such Global Security or another Global
Security and such account shall be credited in accordance with such order with a
beneficial interest in the applicable Global Security and the account of the
Person making the transfer shall be debited by an amount equal to the beneficial
interest in the Global Security being transferred. Transfers by an owner of a
beneficial interest in the Rule 144A Global Security or the IAI Global Security
to a transferee who takes delivery of such interest through the Regulation S
Global Security, whether before or after the expiration of the Restricted
Period, shall be made only upon receipt by the Trustee of a certification from
the transferor to the effect that such transfer is being made in accordance with
Regulation S or (if available) Rule 144 under the Securities Act and that, if
such transfer is being made prior to the expiration of the Restricted Period,
the interest transferred shall be held immediately thereafter through Euroclear
or Cedel. In the case of a transfer of a beneficial interest in either the
Regulation S Global Security or the Rule 144A Global Security for an interest in
the IAI Global Security, the transferee must furnish a signed letter
substantially in the form of Exhibit D to the Trustee.
(ii) If the proposed transfer is a transfer of a beneficial interest
in one Global Security to a beneficial interest in another Global Security,
the Registrar shall reflect on its books and records the date and an
increase in the principal amount of the Global Security to which such
interest is being transferred in an amount equal to the principal amount of
the interest to be so transferred, and the Registrar shall reflect on its
books and records the date and a corresponding decrease in the principal
amount of Global Security from which such interest is being transferred.
(iii) Notwithstanding any other provisions of this Appendix (other
than the provisions set forth in Section 2.4), a Global Security may not be
transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(iv) In the event that a Global Security is exchanged for Definitive
Securities pursuant to Section 2.4 prior to the consummation of a
Registered Exchange Offer or the effectiveness of a Shelf Registration
Statement with respect to such Securities, such Securities may be exchanged
only in accordance with such procedures as are substantially consistent
with the provisions of this Section 2.3 (including the certification
requirements set forth on the reverse of the Initial Securities intended to
ensure that such transfers comply with Rule 144A, Regulation S or such
other
<PAGE>
8
applicable exemption from registration under the Securities Act, as the
case may be) and such other procedures as may from time to time be adopted
by the Company.
(d) Restrictions on Transfer of Regulation S Global Security. (i) Prior to
the expiration of the Restricted Period, interests in the Regulation S Global
Security may only be held through Euroclear or Cedel. During the Restricted
Period, beneficial ownership interests in the Regulation S Global Security may
only be sold, pledged or transferred through Euroclear or Cedel in accordance
with the Applicable Procedures and only (A) to the Company, (B) so long as such
security is eligible for resale pursuant to Rule 144A, to a person whom the
selling Holder reasonably believes is a QIB that purchases for its own account
or for the account of a QIB to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A, (C) in an offshore transaction
in accordance with Regulation S, (D) pursuant to an exemption from registration
under the Securities Act provided by Rule 144 (if applicable) under the
Securities Act, (E) to an IAI purchasing for its own account, or for the account
of such an IAI, in a minimum principal amount of Securities of $250,000 or (F)
pursuant to an effective registration statement under the Securities Act, in
each case in accordance with any applicable securities laws of any state of the
United States. Prior to the expiration of the Restricted Period, transfers by an
owner of a beneficial interest in the Regulation S Global Security to a
transferee who takes delivery of such interest through the Rule 144A Global
Security or the IAI Global Security shall be made only in accordance with
Applicable Procedures and upon receipt by the Trustee of a written certification
from the transferor of the beneficial interest in the form provided on the
reverse of the Initial Security to the effect that such transfer is being made
to (i) a person whom the transferor reasonably believes is a QIB within the
meaning of Rule 144A in a transaction meeting the requirements of Rule 144A or
(ii) an IAI purchasing for its own account, or for the account of such an IAI,
in a minimum principal amount of the Securities of $250,000. Such written
certification shall no longer be required after the expiration of the Restricted
Period. In the case of a transfer of a beneficial interest in the Regulation S
Global Security for an interest in the IAI Global Security, the transferee must
furnish a signed letter substantially in the form of Exhibit D to the Trustee.
(ii) Upon the expiration of the Restricted Period, beneficial
ownership interests in the Regulation S Global Security shall be
transferable in accordance with applicable law and the other terms of this
Indenture.
(e) Legend.
(i) Except as permitted by the following paragraphs (ii), (iii) or
(iv), each Security certificate evidencing the Global Securities and the
Definitive Securities (and
<PAGE>
9
all Securities issued in exchange therefor or in substitution thereof)
shall bear a legend in substantially the following form (each defined term
in the legend being defined as such for purposes of the legend only):
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR
OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C)
FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES
IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
"ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL INVESTOR ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE
SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR
FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY AND
THE TRUSTEE'S
<PAGE>
10
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D),
(E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
Each Definitive Security shall also bear the following additional legend:
"IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR
AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER
AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE
FOREGOING RESTRICTIONS."
(ii) Upon any sale or transfer of a Transfer Restricted Security that
is a Definitive Security, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a Definitive Security that
does not bear the legends set forth above and rescind any restriction on
the transfer of such Transfer Restricted Security if the Holder certifies
in writing to the Registrar that its request for such exchange was made in
reliance on Rule 144 (such certification to be in the form set forth on the
reverse of the Initial Security).
(iii) After a transfer of any Original or Additional Securities or
Private Exchange Securities during the period of the effectiveness of a
Shelf Registration Statement with respect to such Original or Additional
Securities or Private Exchange Securities, as the case may be, all
requirements pertaining to the Restricted Securities Legend on such
Original or Additional Securities or such Private Exchange Securities shall
cease to apply and the requirements that any such Original or Additional
Securities or such Private Exchange Securities be issued in global form
shall continue to apply.
(iv) Upon the consummation of a Registered Exchange Offer with respect
to the Original or Additional Securities pursuant to which Holders of such
Original or Additional Securities are offered Exchange Securities in
exchange for their Original or Additional Securities, all requirements
pertaining to Original or Additional Securities that Original or Additional
Securities be issued in global form shall continue to apply, and Exchange
Securities in global form without the Restricted Securities Legend shall be
available to Holders that exchange such Initial Securities in such
Registered Exchange Offer.
(v) Upon the consummation of a Private Exchange with respect to the
Original or Additional Securities pursuant to which Holders of such
Original or Additional
<PAGE>
11
Securities are offered Private Exchange Securities in exchange for their
Original or Additional Securities, all requirements pertaining to such
Original or Additional Securities that Original or Additional Securities be
issued in global form shall continue to apply, and Private Exchange
Securities in global form with the Restricted Securities Legend shall be
available to Holders that exchange such Original or Additional Securities
in such Private Exchange.
(vi) Upon a sale or transfer after the expiration of the Restricted
Period of any Initial Security acquired pursuant to Regulation S, all
requirements that such Initial Security bear the Restricted Securities
Legend shall cease to apply and the requirements requiring any such Initial
Security be issued in global form shall continue to apply.
(vii) Any Additional Securities sold in a registered offering shall
not be required to bear the Restricted Securities Legend.
(f) Cancelation or Adjustment of Global Security. At such time as all
beneficial interests in a Global Security have either been exchanged for
Definitive Securities, transferred, redeemed, repurchased or canceled, such
Global Security shall be returned by the Depositary to the Trustee for
cancelation or retained and canceled by the Trustee. At any time prior to such
cancelation, if any beneficial interest in a Global Security is exchanged for
Definitive Securities, transferred in exchange for an interest in another Global
Security, redeemed, repurchased or canceled, the principal amount of Securities
represented by such Global Security shall be reduced and an adjustment shall be
made on the books and records of the Trustee (if it is then the Securities
Custodian for such Global Security) with respect to such Global Security, by the
Trustee or the Securities Custodian, to reflect such reduction.
(g) Obligations with Respect to Transfers and Exchanges of Securities.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate, Definitive Securities and
Global Securities at the Registrar's request.
(ii) No service charge shall be made for any registration of transfer
or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax, assessments, or similar governmental charge payable
in connection therewith (other than any such transfer taxes, assessments or
similar governmental charge payable upon exchange or transfer pursuant to
Section 3.06, 4.06, 4.08 and 9.05 of the Indenture).
(iii) Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent or the Registrar
may deem and treat the Person in whose name a Security is registered as the
absolute owner of such Security
<PAGE>
12
for the purpose of receiving payment of principal of and interest on such
Security and for all other purposes whatsoever, whether or not such
Security is overdue, and none of the Company, the Trustee, the Paying Agent
or the Registrar shall be affected by notice to the contrary.
(iv) All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be
entitled to the same benefits under this Indenture as the Securities
surrendered upon such transfer or exchange.
(h) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to any
beneficial owner of a Global Security, a member of, or a participant in the
Depositary or any other Person with respect to the accuracy of the records
of the Depositary or its nominee or of any participant or member thereof,
with respect to any ownership interest in the Securities or with respect to
the delivery to any participant, member, beneficial owner or other Person
(other than the Depositary) of any notice (including any notice of
redemption or repurchase) or the payment of any amount, under or with
respect to such Securities. All notices and communications to be given to
the Holders and all payments to be made to Holders under the Securities
shall be given or made only to the registered Holders (which shall be the
Depositary or its nominee in the case of a Global Security). The rights of
beneficial owners in any Global Security shall be exercised only through
the Depositary subject to the applicable rules and pro cedures of the
Depositary. The Trustee may rely and shall be fully protected in relying
upon information furnished by the Depositary with respect to its members,
participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Inden ture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers between
or among Depositary participants, members or beneficial owners in any
Global Security) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do so
if and when expressly required by, the terms of this Indenture, and to
examine the same to determine substantial compliance as to form with the
express requirements hereof.
2.4 Definitive Securities
(a) A Global Security deposited with the Depositary or with the Trustee as
Securities Custodian pursuant to Section 2.1 shall be transferred to the
beneficial owners thereof in the form of Definitive Securities in an aggregate
principal amount equal to the
<PAGE>
13
principal amount of such Global Security, in exchange for such Global Security,
only if such transfer complies with Section 2.3 and (i) the Depositary notifies
the Company that it is unwilling or unable to continue as a Depositary for such
Global Security or if at any time the Depositary ceases to be a "clearing
agency" registered under the Exchange Act, and a successor depositary is not
appointed by the Company within 90 days of such notice, or (ii) an Event of
Default has occurred and is continuing or (iii) the Company, in its sole
discretion, notifies the Trustee in writing that it elects to cause the issuance
of certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial owners
thereof pursuant to this Section 2.4 shall be surrendered by the Depositary to
the Trustee, to be so transferred, in whole or from time to time in part,
without charge, and the Trustee shall authenticate and deliver, upon such
transfer of each portion of such Global Security, an equal aggregate principal
amount of Definitive Securities of authorized denominations. Any portion of a
Global Security transferred pursuant to this Section shall be executed,
authenticated and delivered only in denominations of $1,000 and any integral
multiple thereof and registered in such names as the Depositary shall direct.
Any certificated Initial Security in the form of a Definitive Security delivered
in exchange for an interest in the Global Security shall, except as otherwise
provided by Section 2.3(e), bear the Restricted Securities Legend.
(c) Subject to the provisions of Section 2.4(b), the registered Holder of a
Global Security may grant proxies and otherwise authorize any Person, including
Agent Members and Persons that may hold interests through Agent Members, to take
any action which a Holder is entitled to take under this Indenture or the
Securities.
(d) In the event of the occurrence of any of the events specified in
Section 2.4(a)(i), (ii) or (iii), the Company shall promptly make available to
the Trustee a reasonable supply of Definitive Securities in fully registered
form without interest coupons.
<PAGE>
EXHIBIT A
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY WILL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY WILL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY
BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY
WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A)
TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
EFFECTIVE UNDER
<PAGE>
2
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE
UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E)
TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR
(7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL INVESTOR ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE
SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR
OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES
ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY AND THE TRUSTEE'S
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR
(F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
Each Definitive Security shall also bear the following additional legend:
"IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT
MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS."
<PAGE>
No. [$__________]
11% Senior Subordinated Note due 2008
CUSIP No. ______
THE IMPERIAL HOME DECOR GROUP INC., a Delaware corporation, promises to pay
to Cede & Co., or registered assigns, the principal sum [of ___________ Dollars]
[listed on the Schedule of Increases or Decreases in Global Security attached
hereto]1 on March 15, 2008.
Interest Payment Dates: September 15 and March 15.
Record Dates: September 1 and March 1.
- ----------
1 Use the second set of bracketed language for a Global Security.
<PAGE>
2
Additional provisions of this Security are set forth on the other side of
this Security.
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed.
THE IMPERIAL HOME DECOR GROUP
INC.,
by
-------------------------------
Name:
Title:
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE BANK OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
-----------------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE SIDE OF SECURITY]
11% Senior Subordinated Note due 2008
Capitalized terms used but not defined herein shall have the meanings given
to such terms in the Indenture (as defined).
1. Interest
(a) THE IMPERIAL HOME DECOR GROUP INC., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above. The Company
shall pay interest semiannually on September 15 and March 15 of each year.
Interest on the Securities shall accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from March 13, 1998.
Interest shall be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
(b) Liquidated Damages. The Holder of this Security is entitled to the
benefits of an Exchange and Registration Rights Agreement, dated as of March 13,
1998, among the Company, each Subsidiary of the Company listed on the signature
pages hereto (the "Subsidiary Guarantors") and the Initial Purchasers named
therein (the "Registration Agreement"). Capitalized terms used in this paragraph
(b) but not defined herein have the meanings assigned to them in the
Registration Agreement. If (i) the Shelf Registration Statement or Exchange
Offer Registration Statement, as applicable under the Registration Agreement, is
not filed with the SEC on or prior to 120 days after the Issue Date, (ii) the
Exchange Offer Registration Statement or the Shelf Registration Statement, as
the case may be, is not declared effective within 180 days after the Issue Date,
(iii) the Registered Exchange Offer is not consummated on or prior to 210 days
after the Issue Date, or (iv) the Shelf Registration Statement is filed and
declared effective within 180 days after the Issue Date but shall thereafter
cease to be effective (at any time that the Company is obligated to maintain the
effectiveness thereof) without being succeeded within 60 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Company shall pay
liquidated damages to each Holder of Transfer Restricted Securities, during the
period of such Registration Default, in an amount equal to $0.192 per week per
$1,000 principal amount of the Securities constituting Transfer Restricted
Securities held by such Holder until the applicable Registration Statement is
filed or declared effective, the Registered Exchange Offer is consummated or the
Shelf Registration Statement again becomes effective, as the case may be. All
accrued liquidated damages shall be paid to Holders in the same manner as
interest payments on the Securities on semi-annual payment dates which
correspond to interest payment dates for the Securities.
<PAGE>
2
Following the cure of all Registration Defaults, the accrual of liquidated
damages shall cease. The Trustee shall have no responsibility with respect to
the determination of the amount of any such liquidated damages. For purposes of
the foregoing, "Transfer Restricted Securities" means (i) each Initial Security
until the date on which such Initial Security has been exchanged for a freely
transferable Exchange Security in the Registered Exchange Offer, (ii) each
Initial Security or Private Exchange Security until the date on which such
Initial Security or Private Exchange Security has been effectively registered
under the Securities Act and disposed of in accordance with a Shelf Registration
Statement or (iii) each Initial Security or Private Exchange Security until the
date on which such Initial Security or Private Exchange Security is distributed
to the public pursuant to Rule 144 under the Securities Act or is saleable
pursuant to Rule 144(k) under the Securities Act.
2. Method of Payment
The Company shall pay interest on the Securities (except defaulted
interest) to the Persons who are registered Holders of Securities at the close
of business on the September 1 or March 1 next preceding the interest payment
date even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States of America that at the time of payment is legal
tender for payment of public and private debts. Payments in respect of the
Securities represented by a Global Security (including principal, premium and
interest) shall be made by wire transfer of immediately available funds to the
accounts specified by The Depository Trust Company. The Company shall make all
payments in respect of a certificated Security (including principal, premium and
interest), and the Securities may be exchanged or transferred, at the office or
agency of the Company in the Borough of Manhattan, The City of New York (which
initially shall be the principal corporate trust office of the Trustee, at 101
Barclay Street, New York, New York 10286), except that, at the option of the
Company, payment of interest may be made by check mailed to the Holders at their
registered addresses; provided, however, that payments on the Securities may
also be made, in the case of a Holder of at least $1,000,000 aggregate principal
amount of Securities, by wire transfer to a U.S. dollar account maintained by
the payee with a bank in the United States if such Holder elects payment by wire
transfer by giving written notice to the Trustee or the Paying Agent to such
effect designating such account no later than 30 days immediately preceding the
relevant due date for payment (or such other date as the Trustee may accept in
its discretion).
3. Paying Agent and Registrar
Initially, THE BANK OF NEW YORK, a New York banking corporation (the
"Trustee"), shall act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
or any of its domestically incorporated Wholly Owned Subsidiaries may act as
Paying Agent, Registrar or co-registrar.
<PAGE>
3
4. Indenture
The Company issued the Securities under an Indenture dated as of March 13,
1998 (the "Indenture"), among the Company, the Subsidiary Guarantors and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the
"TIA"). The Securities are subject to all such terms, and Securityholders are
referred to the Indenture and the TIA for a statement of those terms.
The Securities are senior subordinated unsecured obligations of the Company
limited to $275,000,000 aggregate principal amount at any one time outstanding
(subject to Sections 2.01 and 2.08 of the Indenture), of which $125,000,000 in
aggregate principal amount shall be initially issued on the Closing Date.
Subject to the conditions set forth in the Indenture, the Company may issue up
to an additional $150,000,000 aggregate principal amount of Additional
Securities. This Security is one of the [Original Securities] [Additional
Securities] referred to in the Indenture issued in an aggregate principal amount
of $[ ]. The Securities include the Original Securities, the Additional
Securities and any Exchange Securities and Private Exchange Securities issued in
exchange for the Initial Securities pursuant to the Indenture. The Original
Securities, the Additional Securities, the Exchange Securities and the Private
Exchange Securities are treated as a single class of securities under the
Indenture. The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries to, among other things, make certain
Investments and other Restricted Payments, pay dividends and other
distributions, incur Indebtedness, enter into consensual restrictions upon the
payment of certain dividends and distributions by such Restricted Subsidiaries,
enter into or permit certain transactions with Affiliates, create or incur Liens
and make Asset Sales. The Indenture also imposes limitations on the ability of
the Company to consolidate or merge with or into any other Person or convey,
transfer or lease all or substantially all of the property of the Company.
To guarantee the due and punctual payment of the principal and interest on
the Securities and all other amounts payable by the Company under the Indenture
and the Securities when and as the same shall be due and payable, whether at
maturity, by acceleration or otherwise, according to the terms of the Securities
and the Indenture, the Subsidiary Guarantors have, jointly and severally,
unconditionally guaranteed the Guaranteed Obligations on a senior subordinated
basis pursuant to the terms of the Indenture.
<PAGE>
4
5. Optional Redemption
The Securities shall be redeemable, at the Company's option, in whole or in
part, at any time on or after March 15, 2003, and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's registered address, at the following redemption prices (expressed
as a percentage of principal amount), plus accrued interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on March 15 of the years set
forth below:
Redemption
Year Price
---- -----
2003 105.500%
2004 103.667%
2005 101.833%
2006 and thereafter 100.000%
In addition, at any time and from time to time prior to March 15, 2001, the
Company may redeem in the aggregate up to 331/3% of the original aggregate
principal amount of the Securities with the net cash proceeds of one or more
Equity Offerings by the Company, at a redemption price (expressed as a
percentage of principal amount thereof) of 111.000% plus accrued interest, if
any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); provided, however, that at least 662/3% of the original aggregate
principal amount of the Securities must remain outstanding after each such
redemption; and provided further that such redemption shall occur within 360
days after the date on which any such Equity Offering is consummated.
At any time prior to March 15, 2003, the Securities may be redeemed as a
whole but not in part at the option of the Company upon the occurrence of a
Change of Control, upon not less than 30 or more than 60 days' prior notice (but
in no event may any such redemption occur more than 90 days after the occurrence
of such Change of Control) mailed by first-class mail to each Holder's
registered address, at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium as of, and accrued but unpaid interest, if
any, to, the redemption date, subject to the right of Holders on the relevant
record date to receive interest due on the relevant interest payment date.
6. Sinking Fund
The Securities are not subject to any sinking fund.
<PAGE>
5
7. Notice of Redemption
Notice of redemption shall be mailed by first-class mail at least 30 days
but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his or her registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
8. Repurchase of Securities at the Option of Holders upon Change of Control
Upon a Change of Control, any Holder of Securities shall have the right,
subject to certain conditions specified in the Indenture, to cause the Company
to repurchase all or any part of the Securities of such Holder at a purchase
price equal to 101% of the principal amount of the Securities to be repurchased
plus accrued and unpaid interest, if any, to the date of purchase (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date that is on or prior to the date of
purchase) as provided in, and subject to the terms of, the Indenture.
9. Subordination
The Securities are subordinated to Senior Indebtedness, as defined in the
Indenture. To the extent provided in the Indenture, Senior Indebtedness must be
paid before the Securities may be paid. The Company and each Subsidiary
Guarantor agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give it effect and appoints the Trustee as attorney-in-fact for such purpose.
10. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in denominations of
$1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. Upon any transfer or exchange, the
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes required by law or permitted by the Indenture. The
Company is not required to transfer or exchange any Security selected for
redemption (except, in the case of a Security to be redeemed in part, the
portion of the Security not to be redeemed) or to transfer or exchange any
Security for a period of 15 days prior to a selection of Securities to be
redeemed.
<PAGE>
6
11. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of it
for all purposes.
12. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent shall pay the money back to the Company at
its written request unless an abandoned property law designates another Person.
After any such payment, Holders entitled to the money must look only to the
Company and not to the Trustee for payment.
13. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate some
of or all its obligations under the Securities and the Indenture if the Company
deposits with the Trustee money or U.S. Government Obligations for the payment
of principal and interest on the Securities to redemption or maturity, as the
case may be.
14. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the Indenture
or the Securities may be amended without prior notice to any Securityholder but
with the written consent of the Holders of at least a majority in aggregate
principal amount of the outstanding Securities and (ii) any default or
noncompliance with any provision may be waived with the written consent of the
Holders of at least a majority in principal amount of the outstanding
Securities. Subject to certain exceptions set forth in the Indenture, without
the consent of any Holder of Securities, the Company and the Trustee may amend
the Indenture or the Securities (i) to cure any ambiguity, omission, defect or
inconsistency; (ii) to comply with Article 5 of the Indenture; (iii) to provide
for uncertificated Securities in addition to or in place of certificated
Securities; (iv) to add Subsidiary Guarantees with respect to the Securities;
(v) to secure the Securities; (vi) to add additional covenants or to surrender
rights and powers conferred on the Company; (vii) to comply with the
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the TIA; (viii) to make any change that does not adversely
affect the rights of any Securityholder; (ix) to make any change in the
subordination provisions of the Indenture that would limit or terminate the
benefits available to any holder of Senior Indebtedness of the Company (or
Representatives therefor) under Article 10 of the Indenture; or (x) to provide
for the issuance of the Exchange Securities, Private Exchange Securities, or
Additional Securities.
<PAGE>
7
15. Defaults and Remedies
If an Event of Default occurs (other than an Event of Default relating to
certain events of bankruptcy, insolvency or reorganization of the Company) and
is continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Securities may declare the principal of and accrued but unpaid
interest on all the Securities to be due and payable. If an Event of Default
relating to certain events of bankruptcy, insolvency or reorganization of the
Company occurs, the principal of and interest on all the Securities shall become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders. Under certain circumstances, the Holders of a
majority in principal amount of the outstanding Securities may rescind any such
acceleration with respect to the Securities and its consequences.
If an Event of Default occurs and is continuing, the Trustee shall be under
no obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the Holders unless such Holders have offered to
the Trustee reasonable indemnity or security against any loss, liability or
expense. Except to enforce the right to receive payment of principal, premium
(if any) or interest when due, no Holder may pursue any remedy with respect to
the Indenture or the Securities unless (i) such Holder has previously given the
Trustee notice that an Event of Default is continuing, (ii) Holders of at least
25% in principal amount of the outstanding Securities have requested the Trustee
in writing to pursue the remedy, (iii) such Holders have offered the Trustee
reasonable security or indemnity against any loss, liability or expense, (iv)
the Trustee has not complied with such request within 60 days after the receipt
of the request and the offer of security or indemnity and (v) the Holders of a
majority in principal amount of the outstanding Securities have not given the
Trustee a direction inconsistent with such request within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal amount
of the outstanding Securities are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability. Prior to taking
any action under the Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
16. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
<PAGE>
8
17. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the Company or
any Subsidiary Guarantor shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
18. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
19. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK BUT WITH OUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
21. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company shall furnish to any Holder of Securities upon written request
and without charge to the Holder a copy of the Indenture which has in it the
text of this Security.
<PAGE>
9
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint _________________ agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
____________________________________________________________
Date: ________________ Your Signature: _____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this Security.
<PAGE>
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF
TRANSFER RESTRICTED SECURITIES
This certificate relates to $_________ principal amount of Securities held in
(check applicable space) ____ book-entry or _____ definitive form by the
undersigned.
The undersigned (check one box below):
[ ] has requested the Trustee by written order to deliver in exchange for its
beneficial interest in the Global Security held by the Depositary a
Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial
interest in such Global Security (or the portion thereof indicated above);
[ ] has requested the Trustee by written order to exchange or register the
transfer of a Security or Securities.
<PAGE>
2
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act, the undersigned confirms that such Securities
are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) |_| to the Company; or
(2) |_| pursuant to an effective registration statement under the
Securities Act; or
(3) |_| inside the United States to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act) that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that such transfer
is being made in reliance on Rule 144A, in each case pursuant
to and in compliance with Rule 144A under the Securities Act;
or
(4) |_| outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act; or
(5) |_| to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) that has
furnished to the Trustee a signed letter containing certain
representations and agreements; or
(6) |_| pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act.
Unless one of the boxes is checked, the Trustee shall refuse to register
any of the Securities evidenced by this certificate in the name of any
Person other than the registered Holder thereof; provided, however, that if
box (4), (5) or (6) is checked, the Trustee may require, prior to
registering any such transfer of the Securities, such legal
<PAGE>
3
opinions, certifications and other information as the Company has
reasonably requested to confirm that such transfer is being made pursuant
to an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933.
___________________________
Your Signature
Signature Guarantee:
Date: ___________________ __________________________
Signature must be guaranteed Signature of Signature
by a participant in a Guarantee
recognized signature guaranty
medallion program or other
signature guarantor acceptable
to the Trustee
________________________________________________________________________________
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated: ________________ ______________________________
NOTICE: To be executed by
an executive officer
<PAGE>
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The initial principal amount of this Global Security is $[ ]. The
following increases or decreases in this Global Security have been made:
<TABLE>
<CAPTION>
Date of Amount of decrease in Amount of increase in Principal amount of this Signature of authorized
Exchange Principal Amount of this Principal Amount of this Global Security following signatory of Trustee or
Global Security Global Security such decrease or increase Securities Custodian
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.06 (Asset Sale) or 4.08 (Change of Control) of the
Indenture, check the box:
Asset Sale |_| Change of Control |_|
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.06 or 4.08 of the Indenture, state the amount:
$
Date: __________________ Your Signature: __________________
(Sign exactly as your name appears on the other side of the Security)
Signature Guarantee:_______________________________________
Signature must be guaranteed by a participant in a recognized
signature guaranty medallion program or other signature
guarantor acceptable to the Trustee
<PAGE>
EXHIBIT B
[FORM OF FACE OF EXCHANGE SECURITY]
No. [$__________]
11% Senior Subordinated Note due 2008
CUSIP No. ______
THE IMPERIAL HOME DECOR GROUP INC., a Delaware corporation, promises to pay
to Cede & Co., or registered assigns, the principal sum [of ___________ Dollars]
[listed on the Schedule of Increases or Decreases in Global Security attached
hereto]1 on March 15, 2008.
Interest Payment Dates: September 15 and March 15.
Record Dates: September 1 and March 1.
- ----------
1 Use the second set of bracketed language for a Global Security.
<PAGE>
2
Additional provisions of this Security are set forth on the other side of
this Security.
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed.
THE IMPERIAL HOME DECOR GROUP
INC.,
by
_______________________________
Name:
Title:
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE BANK OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
______________________________
Authorized Signatory
<PAGE>
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY]
11% Senior Subordinated Note due 2008
Capitalized terms used but not defined herein shall have the meanings given
to such terms in the Indenture (as defined).
1. Interest
THE IMPERIAL HOME DECOR GROUP INC., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above. The Company
shall pay interest semiannually on September 15 and March 15 of each year.
Interest on the Securities shall accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from March 13, 1998.
Interest shall be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. Method of Payment
The Company shall pay interest on the Securities (except defaulted
interest) to the Persons who are registered Holders of Securities at the close
of business on the September 1 or March 1 next preceding the interest payment
date even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States of America that at the time of payment is legal
tender for payment of public and private debts. Payments in respect of the
Securities represented by a Global Security (including principal, premium and
interest) shall be made by wire transfer of immediately available funds to the
accounts specified by The Depository Trust Company. The Company shall make all
payments in respect of a certificated Security (including principal, premium and
interest), and the Securities may be exchanged or transferred, at the office or
agency of the Company in the Borough of Manhattan, The City of New York (which
initially shall be the principal corporate trust office of the Trustee, at 101
Barclay Street, New York, New York 10286), except that, at the option of the
Company, payment of interest may be made by check mailed to the Holders at their
registered addresses; provided, however, that payments on the Securities may
also be made, in the case of a Holder of at least $1,000,000 aggregate principal
amount of Securities, by wire transfer to a U.S. dollar account maintained by
the payee with a bank in the United States if such Holder elects payment by wire
transfer by giving written notice to the Trustee or the Paying Agent to such
effect designating such account no later than 30 days immediately preceding the
relevant due date for payment (or such other date as the Trustee may accept in
its discretion).
<PAGE>
2
3. Paying Agent and Registrar
Initially, THE BANK OF NEW YORK, a New York banking corporation (the
"Trustee"), shall act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
or any of its domestically incorporated Wholly Owned Subsidiaries may act as
Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of March 13,
1998 (the "Indenture"), among the Company, the Subsidiary Guarantors and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the
"TIA"). The Securities are subject to all such terms, and Securityholders are
referred to the Indenture and the TIA for a statement of those terms.
The Securities are senior subordinated unsecured obligations of the Company
limited to $275,000,000 aggregate principal amount at any one time outstanding
(subject to Sections 2.01 and 2.08 of the Indenture), of which $125,000,000 in
aggregate principal amount was initially issued on the Closing Date. Subject to
the conditions set forth in the Indenture, the Company may issue up to an
additional $150,000,000 aggregate principal amount of Additional Securities.
This Security is one of the [Exchange Securities] [Private Exchange Securities]
referred to in the Indenture. The Securities include the Original Securities,
the Additional Securities and any Exchange Securities and Private Exchange
Securities issued in exchange for the Initial Securities pursuant to the
Indenture. The Original Securities, the Additional Securities, the Exchange
Securities and the Private Exchange Securities are treated as a single class of
securities under the Indenture. The Indenture imposes certain limitations on the
ability of the Company and its Restricted Subsidiaries to, among other things,
make certain Investments and other Restricted Payments, pay dividends and other
distributions, incur Indebtedness, enter into consensual restrictions upon the
payment of certain dividends and distributions by such Restricted Subsidiaries,
enter into or permit certain transactions with Affiliates, create or incur Liens
and make Asset Sales. The Indenture also imposes limitations on the ability of
the Company to consolidate or merge with or into any other Person or convey,
transfer or lease all or substantially all of the property of the Company.
To guarantee the due and punctual payment of the principal and interest on
the Securities and all other amounts payable by the Company under the Indenture
and the Securities when and as the same shall be due and payable, whether at
maturity, by acceleration or otherwise, according to the terms of the Securities
and the Indenture, the Subsidiary Guarantors have, jointly and severally,
unconditionally guaranteed the Guaranteed Obligations on a senior subordinated
basis pursuant to the terms of the Indenture.
<PAGE>
3
5. Optional Redemption
The Securities shall be redeemable, at the Company's option, in whole or in
part, at any time on or after March 15, 2003, and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's registered address, at the following redemption prices (expressed
as a percentage of principal amount), plus accrued interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on March 15 of the years set
forth below:
Redemption
Year Price
---- -----------
2003 105.500%
2004 103.667%
2005 101.833%
2006 and thereafter 100.000%
In addition, at any time and from time to time prior to March 15, 2001, the
Company may redeem in the aggregate up to 331/3% of the original aggregate
principal amount of the Securities with the net cash proceeds of one or more
Equity Offerings by the Company, at a redemption price (expressed as a
percentage of principal amount thereof) of 111.000% plus accrued interest, if
any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); provided, however, that at least 662/3% of the original aggregate
principal amount of the Securities must remain outstanding after each such
redemption; and provided further that such redemption shall occur within 360
days after the date on which any such Equity Offering is consummated.
At any time prior to March 15, 2003, the Securities may be redeemed as a
whole but not in part at the option of the Company upon the occurrence of a
Change of Control, upon not less than 30 or more than 60 days' prior notice (but
in no event may any such redemption occur more than 90 days after the occurrence
of such Change of Control) mailed by first-class mail to each Holder's
registered address, at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium as of, and accrued but unpaid interest, if
any, to, the redemption date, subject to the right of Holders on the relevant
record date to receive interest due on the relevant interest payment date.
6. Sinking Fund
The Securities are not subject to any sinking fund.
<PAGE>
4
7. Notice of Redemption
Notice of redemption shall be mailed by first-class mail at least 30 days
but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his or her registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
8. Repurchase of Securities at the Option of Holders upon Change of Control
Upon a Change of Control, any Holder of Securities shall have the right,
subject to certain conditions specified in the Indenture, to cause the Company
to repurchase all or any part of the Securities of such Holder at a purchase
price equal to 101% of the principal amount of the Securities to be repurchased
plus accrued and unpaid interest, if any, to the date of purchase (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date that is on or prior to the date of
purchase) as provided in, and subject to the terms of, the Indenture.
9. Subordination
The Securities are subordinated to Senior Indebtedness, as defined in the
Indenture. To the extent provided in the Indenture, Senior Indebtedness must be
paid before the Securities may be paid. The Company and each Subsidiary
Guarantor agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give it effect and appoints the Trustee as attorney-in-fact for such purpose.
10. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in denominations of
$1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. Upon any transfer or exchange, the
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes required by law or permitted by the Indenture. The
Company is not required to transfer or exchange any Security selected for
redemption (except, in the case of a Security to be redeemed in part, the
portion of the Security not to be redeemed) or to transfer or exchange any
Security for a period of 15 days prior to a selection of Securities to be
redeemed.
<PAGE>
5
11. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of it
for all purposes.
12. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent shall pay the money back to the Company at
its written request unless an abandoned property law designates another Person.
After any such payment, Holders entitled to the money must look only to the
Company and not to the Trustee for payment.
13. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate some
of or all its obligations under the Securities and the Indenture if the Company
deposits with the Trustee money or U.S. Government Obligations for the payment
of principal and interest on the Securities to redemption or maturity, as the
case may be.
14. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the Indenture
or the Securities may be amended without prior notice to any Securityholder but
with the written consent of the Holders of at least a majority in aggregate
principal amount of the outstanding Securities and (ii) any default or
noncompliance with any provision may be waived with the written consent of the
Holders of at least a majority in principal amount of the outstanding
Securities. Subject to certain exceptions set forth in the Indenture, without
the consent of any Holder of Securities, the Company and the Trustee may amend
the Indenture or the Securities (i) to cure any ambiguity, omission, defect or
inconsistency; (ii) to comply with Article 5 of the Indenture; (iii) to provide
for uncertificated Securities in addition to or in place of certificated
Securities; (iv) to add Subsidiary Guarantees with respect to the Securities;
(v) to secure the Securities; (vi) to add additional covenants or to surrender
rights and powers conferred on the Company; (vii) to comply with the
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the TIA; (viii) to make any change that does not adversely
affect the rights of any Securityholder; (ix) to make any change in the
subordination provisions of the Indenture that would limit or terminate the
benefits available to any holder of Senior Indebtedness of the Company (or
Representatives therefor) under Article 10 of the Indenture; or (x) to provide
for the issuance of the Exchange Securities, Private Exchange Securities, or
Additional Securities.
<PAGE>
6
15. Defaults and Remedies
If an Event of Default occurs (other than an Event of Default relating to
certain events of bankruptcy, insolvency or reorganization of the Company) and
is continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Securities may declare the principal of and accrued but unpaid
interest on all the Securities to be due and payable. If an Event of Default
relating to certain events of bankruptcy, insolvency or reorganization of the
Company occurs, the principal of and interest on all the Securities shall become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders. Under certain circumstances, the Holders of a
majority in principal amount of the outstanding Securities may rescind any such
acceleration with respect to the Securities and its consequences.
If an Event of Default occurs and is continuing, the Trustee shall be under
no obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the Holders unless such Holders have offered to
the Trustee reasonable indemnity or security against any loss, liability or
expense. Except to enforce the right to receive payment of principal, premium
(if any) or interest when due, no Holder may pursue any remedy with respect to
the Indenture or the Securities unless (i) such Holder has previously given the
Trustee notice that an Event of Default is continuing, (ii) Holders of at least
25% in principal amount of the outstanding Securities have requested the Trustee
in writing to pursue the remedy, (iii) such Holders have offered the Trustee
reasonable security or indemnity against any loss, liability or expense, (iv)
the Trustee has not complied with such request within 60 days after the receipt
of the request and the offer of security or indemnity and (v) the Holders of a
majority in principal amount of the outstanding Securities have not given the
Trustee a direction inconsistent with such request within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal amount
of the outstanding Securities are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability. Prior to taking
any action under the Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
16. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
<PAGE>
7
17. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the Company or
any Subsidiary Guarantor shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
18. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
19. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK BUT WITH OUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
21. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company shall furnish to any Holder of Securities upon written request
and without charge to the Holder a copy of the Indenture which has in it the
text of this Security.
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint ____________________ agent to transfer this Security on
the books of the Company. The agent may substitute another to act for him.
____________________________________________________________
Date: ________________ Your Signature: _____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this Security. Signature
must be guaranteed by a participant in a recognized signature guaranty medallion
program or other signature guarantor acceptable to the Trustee.
<PAGE>
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The initial principal amount of this Global Security is $[ ]. The
following increases or decreases in this Global Security have been made:
<TABLE>
<CAPTION>
Date of Amount of decrease in Amount of increase in Principal amount of this Signature of authorized
Exchange Principal Amount of this Principal Amount of this Global Security following signatory of Trustee or
Global Security Global Security such decrease or increase Securities Custodian
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.06 (Asset Sale) or 4.08 (Change of Control) of the
Indenture, check the box:
Asset Sale |_| Change of Control |_|
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.06 or 4.08 of the Indenture, state the amount:
$
Date: __________________ Your Signature: __________________
(Sign exactly as your name appears on the other side of the Security)
Signature Guarantee:_______________________________________
Signature must be guaranteed by a participant in a recognized
signature guaranty medallion program or other signature
guarantor acceptable to the Trustee
<PAGE>
EXHIBIT C
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated as of
____________, among [GUARANTOR] (the "New Guarantor"), a subsidiary of THE
IMPERIAL HOME DECOR GROUP INC. (or its successor), a Delaware corporation
(the "Company") and THE BANK OF NEW YORK, a New York banking corporation,
as trustee under the indenture referred to below (the "Trustee").
W I T N E S S E T H :
WHEREAS the Company and [OLD GUARANTORS] (the "Existing Guarantors") has
heretofore executed and delivered to the Trustee an Indenture (the "Indenture")
dated as of March 13, 1998 , providing for the issuance of an aggregate
principal amount of up to $275,000,000 of 11% Senior Notes due 2008 (the
"Securities");
WHEREAS Section 4.11 of the Indenture provides that under certain
circumstances the Company is required to cause the New Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the New
Guarantor shall unconditionally guarantee all the Company's obligations under
the Securities pursuant to a Subsidiary Guarantee on the terms and conditions
set forth herein; and
WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the Company
and the Existing Guarantors are authorized to execute and deliver this
Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor, the Company, the Existing Guarantors and the Trustee mutually
covenant and agree for the equal and ratable benefit of the holders of the
Securities as follows:
1. Agreement to Guarantee. The New Guarantor hereby agrees, jointly and
severally with all the Existing Guarantors, to unconditionally guarantee the
Company's obligations under the Securities on the terms and subject to the
conditions set forth in Article 10 of the Indenture and to be bound by all other
applicable provisions of the Indenture and the Securities.
2. Ratification of Indenture; Supplemental Indentures Part of Indenture.
Except as expressly amended hereby, the Indenture is in all respects ratified
and confirmed and all the terms, conditions and provisions thereof shall remain
in full force and effect. This Supplemental
<PAGE>
2
Indenture shall form a part of the Indenture for all purposes, and every holder
of Securities heretofore or hereafter authenticated and delivered shall be bound
hereby.
3. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
4. Trustee Makes No Representation. The Trustee makes no representation as
to the validity or sufficiency of this Supplemental Indenture.
5. Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. Effect of Headings. The Section headings herein are for convenience only
and shall not effect the construction thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
[NEW GUARANTOR],
by
________________________________
Name:
Title:
THE IMPERIAL HOME DECOR GROUP INC.,
by
________________________________
Name:
Title:
<PAGE>
3
[EXISTING GUARANTORS],
by
________________________________
Name:
Title:
THE BANK OF NEW YORK, as Trustee,
by
________________________________
Name:
Title:
<PAGE>
EXHIBIT D
Form of
Transferee Letter of Representation
The Imperial Home Decor Group Inc.
23645 Mercantile Road
Cleveland, Ohio 44122
Ladies and Gentlemen:
This certificate is delivered to request a transfer of $__________ principal
amount of the 11% Senior Subordinated Notes due 2008 (the "Securities") of The
Imperial Home Decor Group Inc. (the "Company").
Upon transfer, the Securities would be registered in the name of the new
beneficial owner as follows:
Name:________________________
Address:_____________________
Taxpayer ID Number:__________
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the
"Securities Act")), purchasing for our own account or for the account of such an
institutional "accredited investor" at least $250,000 principal amount of the
Securities, and we are acquiring the Securities not with a view to, or for offer
or sale in connection with, any distribution in violation of the Securities Act.
We have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Securities,
and we invest in or purchase securities similar to the Securities in the normal
course of our business. We, and any accounts for which we are acting, are each
able to bear the economic risk of our or its investment.
2. We understand that the Securities have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted in
the following sentence. We agree on our own behalf and on behalf of any investor
account for which we are purchasing Securities to offer, sell or otherwise
transfer such Securities prior to the date that is two years after the later of
the date of original issue and the last date on which the Company or any
affiliate of the Company was the owner of such Securities (or any
<PAGE>
2
predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the
Company, (b) pursuant to a registration statement that has been declared
effective under the Securities Act, (c) in a transaction complying with the
requirements of Rule 144A under the Securities Act ("Rule 144A"), to a person we
reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB")
that is purchasing for its own account or for the account of a QIB and to whom
notice is given that the transfer is being made in reliance on Rule 144A, (d) in
an offshore transaction within the meaning of, and in compliance with,
Regulation S under the Securities Act, (e) to an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act that is purchasing for its own account or for the account of such
an institutional "accredited investor," in each case in a minimum principal
amount of Securities of $250,000, or (f) pursuant to any other available
exemption from the registration requirements of the Securities Act, subject in
each of the foregoing cases to any requirement of law that the disposition of
our property or the property of such investor account or accounts be at all
times within our or their control and in compliance with any applicable state
securities laws. The foregoing restrictions on resale shall not apply subsequent
to the Resale Restriction Termination Date. If any resale or other transfer of
the Securities is proposed to be made pursuant to clause (e) above prior to the
Resale Restriction Termination Date, the transferor shall deliver a letter from
the transferee substantially in the form of this letter to the Company and the
Trustee, which shall provide, among other things, that the transferee is an
institutional "accredited investor" within the meaning of Rule 501(a)(1), (2),
(3) or (7) under the Securities Act and that it is acquiring such Securities for
investment purposes and not for distribution in violation of the Securities Act.
Each purchaser acknowledges that the Company and the Trustee reserve the right
prior to the offer, sale or other transfer prior to the Resale Restriction
Termination Date of the Securities pursuant to clause (d), (e) or (f) above to
require the delivery of an opinion of counsel, certifications or other
information satisfactory to the Company and the Trustee.
TRANSFEREE:
________________________
by
____________________________
<PAGE>
EXHIBIT 10.1
CONFORMED COPY
================================================================================
CREDIT AGREEMENT
Dated as of March 13, 1998,
Among
THE IMPERIAL HOME DECOR GROUP INC.,
IMPERIAL HOME DECOR GROUP HOLDINGS II LIMITED,
THE IMPERIAL HOME DECOR GROUP (CANADA) ULC,
THE LENDERS NAMED HEREIN,
and
THE CHASE MANHATTAN BANK,
as U.S. Administrative Agent
and Collateral Agent,
THE CHASE MANHATTAN BANK OF CANADA,
as Canadian Administrative Agent,
and CHASE MANHATTAN BANK DELAWARE,
as Fronting Bank
================================================================================
<PAGE>
Page
[CS&M Ref. No. 6700-606]
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS........................................................4
SECTION 1.01. Defined Terms..........................................4
SECTION 1.02. Terms Generally.......................................48
ARTICLE II. THE CREDITS......................................................49
SECTION 2.01. Commitments...........................................49
SECTION 2.02. Loans.................................................53
SECTION 2.03. Borrowing Procedure...................................57
SECTION 2.04. Evidence of Debt; Repayment of Loans..................60
SECTION 2.05. Fees..................................................61
SECTION 2.06. Interest on Loans.....................................62
SECTION 2.07. Default Interest......................................64
SECTION 2.08. Alternate Rate of Interest............................65
SECTION 2.09. Termination and Reduction of
Commitments.........................................65
SECTION 2.10. Conversion and Continuation of Term
Borrowings..........................................70
SECTION 2.11. Repayment of Term Borrowings..........................72
SECTION 2.12. Prepayment............................................76
SECTION 2.13. Reserve Requirements; Change in
Circumstances.......................................80
SECTION 2.14. Change in Legality....................................83
SECTION 2.15. Indemnity.............................................85
SECTION 2.16. Pro Rata Treatment....................................86
SECTION 2.17. Sharing of Setoffs....................................86
SECTION 2.18. Payments..............................................87
SECTION 2.19. Taxes.................................................88
SECTION 2.20. Letters of Credit.....................................94
SECTION 2.21. Bankers' Acceptances.................................102
SECTION 2.22. Spot Exchange Rate Calculations......................105
SECTION 2.23. Mitigation Obligations; Replacement of
Lenders............................................106
SECTION 2.24. European Monetary Union..............................107
ARTICLE III. REPRESENTATIONS AND WARRANTIES.................................108
SECTION 3.01. Organization; Powers.................................108
SECTION 3.02. Authorization........................................108
SECTION 3.03. Enforceability.......................................109
SECTION 3.04. Governmental Approvals...............................109
SECTION 3.05. Financial Statements.................................109
SECTION 3.06. No Material Adverse Change...........................110
SECTION 3.07. Title to Properties; Possession Under
i
<PAGE>
Page
Leases.............................................110
SECTION 3.08. Subsidiaries.........................................111
SECTION 3.09. Litigation; Compliance with Laws.....................111
SECTION 3.10. Agreements...........................................112
SECTION 3.11. Federal Reserve Regulations..........................112
SECTION 3.12. Investment Company Act; Public Utility
Holding Company Act................................113
SECTION 3.13. Use of Proceeds......................................113
SECTION 3.14. Tax Returns..........................................113
SECTION 3.15. No Material Misstatements............................114
SECTION 3.16. Employee Benefit Plans...............................114
SECTION 3.17. Environmental Matters................................115
SECTION 3.18. Capitalization of the Borrowers......................116
SECTION 3.19. Security Documents...................................116
SECTION 3.20. Location of Real Property and
Leased Premises....................................118
SECTION 3.21. Solvency.............................................118
SECTION 3.22. Labor Matters........................................119
SECTION 3.23. No Foreign Assets Control Regulation
Violation..........................................119
SECTION 3.24. Insurance............................................120
ARTICLE IV. CONDITIONS OF LENDING...........................................120
SECTION 4.01. All Credit Events....................................120
SECTION 4.02. First Credit Event...................................121
SECTION 4.03. First Credit Event Under U.K. (pound)
Revolving Credit Commitments.......................127
ARTICLE V. AFFIRMATIVE COVENANTS............................................127
SECTION 5.01. Existence; Businesses and Properties.................128
SECTION 5.02. Insurance............................................128
SECTION 5.03. Taxes................................................131
SECTION 5.04. Financial Statements, Reports, etc...................131
SECTION 5.05. Litigation and Other Notices.........................133
SECTION 5.06. Employee Benefits....................................134
SECTION 5.07. Maintaining Records; Access to
Properties and Inspections.........................135
SECTION 5.08. Use of Proceeds......................................135
SECTION 5.09. Compliance with Environmental Laws...................135
SECTION 5.10. Preparation of Environmental Reports.................135
SECTION 5.11. Further Assurances...................................136
SECTION 5.12. Fiscal Year; Accounting..............................138
ii
<PAGE>
Page
SECTION 5.13. Dividends............................................138
SECTION 5.14. Interest/Exchange Rate Protection
Agreements.........................................138
SECTION 5.15. Surveys..............................................138
ARTICLE VI. NEGATIVE COVENANTS..............................................138
SECTION 6.01. Indebtedness.........................................139
SECTION 6.02. Liens................................................144
SECTION 6.03. Sale and Lease-Back Transactions.....................148
SECTION 6.04. Investments, Loans and Advances......................148
SECTION 6.05. Mergers, Consolidations, Sales of
Assets and Acquisitions............................151
SECTION 6.06. Dividends and Distributions..........................153
SECTION 6.07. Transactions with Affiliates.........................154
SECTION 6.08. Business of the Parent Borrower
and the Subsidiaries...............................155
SECTION 6.09. Subordinated Indebtedness and
Other Material Agreements..........................155
SECTION 6.10. Capital Expenditures.................................156
SECTION 6.11. Interest Coverage Ratio..............................157
SECTION 6.12. Adjusted Net Leverage Ratio..........................157
SECTION 6.13. Capital Stock of the Subsidiaries....................158
ARTICLE VII. EVENTS OF DEFAULT ...........................................158
ARTICLE VIII. THE ADMINISTRATIVE AGENTS AND THE
COLLATERAL AGENT.............................................162
ARTICLE IX. COLLECTION ALLOCATION MECHANISM................................167
SECTION 9.01. Implementation of CAM................................167
SECTION 9.02. Letters of Credit....................................168
SECTION 9.03. Conversion...........................................170
ARTICLE X. MISCELLANEOUS....................................................170
SECTION 10.01. Notices.............................................170
SECTION 10.02. Survival of Agreement...............................171
SECTION 10.03. Binding Effect......................................172
SECTION 10.04. Successors and Assigns..............................172
SECTION 10.05. Expenses; Indemnity.................................177
SECTION 10.06. Right of Setoff.....................................180
SECTION 10.07. Applicable Law......................................180
SECTION 10.08. Waivers; Amendment..................................181
iii
<PAGE>
Page
SECTION 10.09. Interest Rate Limitation............................182
SECTION 10.10. Entire Agreement....................................183
SECTION 10.11. WAIVER OF JURY TRIAL................................183
SECTION 10.12. Severability........................................183
SECTION 10.13. Counterparts........................................183
SECTION 10.14. Headings............................................184
SECTION 10.15. Jurisdiction; Consent to Service
of Process........................................184
SECTION 10.16. Judgment Currency...................................184
SECTION 10.17. Confidentiality.....................................185
SECTION 10.18. Release of Liens and Guarantees.....................186
iv
<PAGE>
Page
Exhibits and Schedules
Exhibit A Form of Administrative Questionnaire
Exhibit B Form of Assignment and Acceptance
Exhibit C-1,
C-2, C-3 Forms of Borrowing Requests
Exhibit D Form of Indemnity, Subrogation and Contribution
Agreement
Exhibit E Form of Intellectual Property Security Agreement
Exhibit F Form of Mortgage
Exhibit G-1 Form of Pledge Agreement
Exhibit G-2 Form of UK Newco Pledge Agreement
Exhibit G-3 Form of U.K. Borrower Pledge Agreement
Exhibit G-4 Form of Canadian Pledge Agreement
Exhibit H Form of Security Agreement
Exhibit I-1 Form of Domestic Subsidiary Guarantee Agreement
Exhibit I-2 Form of Canadian Subsidiary Guarantee Agreement
Exhibit I-3 Form of U.K. Subsidiary Guarantee
Exhibit I-4 Form of UK Newco Guarantee
Exhibit I-5 Form of Parent Borrower Guarantee Agreement
Exhibit J-1 Form of Opinion of Jones, Day, Reavis & Pogue
Exhibit J-2 Form of Opinion of U.K. Local Counsel
Exhibit J-3 Form of Opinion of Canadian Local Counsel
Exhibit J-4 Form of Opinion of U.S. Local Counsel
Exhibit 2.21(g) Form of B/A Equivalent Note
Schedule A Pricing Adjustments
Schedule B Synergy Addback Amounts
Schedule C Name Changes
Schedule D GAAP Deviations
Schedule 2.01 Commitments
Schedule 3.08 Subsidiaries
Schedule 3.09 Litigation
Schedule 3.14 Taxes
Schedule 3.17 Environmental Matters
Schedule 3.18 Capitalization
Schedule 3.19 Filing Offices
Schedule 3.20 Real Property and Leased Premises
Schedule 3.22 Labor Matters
Schedule 3.24 Insurance
v
<PAGE>
Page
Schedule 4.02(a) Local Counsel
Schedule 6.01 Indebtedness
Schedule 6.02 Liens
Schedule 6.04 Investments
Schedule 6.07 Transactions with Affiliates
Schedule 6.09 Limitations on Dividends
vi
<PAGE>
CREDIT AGREEMENT dated as of March 13, 1998, among THE IMPERIAL
HOME DECOR GROUP INC. (formerly known as Borden Decorative Products
Holdings, Inc.), a Delaware corporation (the "Parent Borrower"),
IMPERIAL HOME DECOR GROUP HOLDINGS II LIMITED, a limited company
incorporated under the laws of England and Wales (the "U.K.
Borrower"), THE IMPERIAL HOME DECOR GROUP (CANADA) ULC, an unlimited
liability company organized under the laws of Nova Scotia, Canada (the
"Canadian Borrower"), the financial institutions listed on Schedule
2.01 (the "Lenders"), THE CHASE MANHATTAN BANK, a New York banking
corporation, as administrative agent (in such capacity, the "U.S.
Administrative Agent") and as collateral agent (in such capacity, the
"Collateral Agent") for the Lenders, THE CHASE MANHATTAN BANK OF
CANADA, as administrative agent (in such capacity, the "Canadian
Administrative Agent") for the C $ Revolving Credit Lenders, and CHASE
MANHATTAN BANK DELAWARE, as fronting bank.
Pursuant to, or in connection with the transactions contemplated by, the
Recapitalization Agreement (such term and each other capitalized term used but
not defined herein having the meaning given it in Article I) and the Acquisition
Agreement, (a) the Fund has formed BDPI Holdings Corporation, a Delaware
corporation ("MergerCo") that is indirectly wholly owned by the Fund and one or
more other persons or entities (collectively with the Fund, the "Investors"),
which consist principally of affiliates of the Fund, (b) immediately prior to
the Merger, the Canadian Borrower will, directly or indirectly, acquire (the
"Sunworthy Acquisition") legal title to (but not beneficial ownership (which
shall reside in the Parent Borrower) of) substantially all the assets (the
"Sunworthy Assets") and assume substantially all the liabilities of Borden,
Inc.'s ("Borden") Sunworthy business from direct or indirect subsidiaries of
Borden, (c) MergerCo will merge with and into the Parent Borrower (the "Merger"
and, together with the Sunworthy Acquisition, the "Recapitalization"), with the
Parent Borrower as the surviving corporation in the Merger and Imperial Home
Decor Group Holdings LLC, a Delaware limited liability company ("Holdings"),
owning not less than 89% of the common stock of the Parent Borrower to be
outstanding immediately following the consummation of the Merger (subject to
reduction (i) by not more than 6.7% if Collins & Aikman Products Co. ("C&A")
exercises the C&A Option)
<PAGE>
2
and (ii) in connection with the exercise of the Management Options, (d) the
consideration payable to or receivable by existing shareholders of the Parent
Borrower (including existing holders of preferred stock of the Parent Borrower)
or owners of assets transferred pursuant to the Recapitalization Agreement
(collectively, the "Borden Sellers") will consist of not more than $320,000,000
(subject to adjustment as provided in the Recapitalization Agreement; such
amount, as so adjusted, the "Recapitalization Consideration"), consisting of (i)
cash and (ii) a retained common equity interest in the Parent Borrower
representing not more than 11% of the equity value of the Parent Borrower
immediately following the consummation of the Merger (valued on the same per
share basis as the investment made in the Parent Borrower by Holdings through
Holdings' investment in MergerCo), (e) not later than immediately following the
Recapitalization, (i) the Parent Borrower will acquire all the issued and
outstanding capital stock of Imperial Wallcoverings, Inc., a Delaware
corporation, and (ii) the Canadian Borrower will acquire the assets of Imperial
Wallcoverings (Canada) Inc., in each case from C&A and certain of C&A's
affiliates (the "C&A Sellers") (the "Imperial Acquisition" and, together with
the Recapitalization, the "Recapitalization/Acquisition"), for not more than
$58,500,000 in cash (subject to adjustment as provided in the Acquisition
Agreement) and an option (the "C&A Option") to purchase up to approximately 6.7%
of the Parent Borrower's common stock to be outstanding immediately following
the consummation of the Transactions (as defined below) (together, the "Imperial
Consideration") and (f) in conjunction with the Recapitalization/Acquisition,
the series of transactions described in the immediately succeeding paragraph
will be consummated (such transactions, together with the
Recapitalization/Acquisition, the "Transactions").
In connection with the Recapitalization/Acquisition, (a) the Investors will
contribute not less than $84,500,000 in cash to Holdings in exchange for all the
limited liability company interests of Holdings and Holdings will contribute
such amount to MergerCo in exchange for all the capital stock of MergerCo (the
"Equity Contribution"), (b) the Parent Borrower will issue in a public offering
or a Rule 144A private placement the Senior Subordinated Notes for gross
proceeds of approximately $125,000,000, (c) prior to the consummation of the
Merger, Borden will form Vernon Plastics, Inc. ("Vernon") and will transfer the
assets constituting the Vernon Plastics business of Borden
<PAGE>
3
Decorative Products, Inc. to Vernon in exchange for Vernon's assumption of the
liabilities related to the Vernon Plastics business and a promissory note (the
"Vernon Note") from Vernon in the principal amount of $50,000,000, (d)
substantially simultaneously with the consummation of the Imperial Acquisition,
(i) Borden Decorative U.K. IHC, Inc., a Delaware corporation and a direct wholly
owned subsidiary of the Parent Borrower ("IHC"), will form UK Newco, (ii) UK
Newco will acquire all the common stock of Borden Decorative Products Holdings,
Ltd., a limited company incorporated under the laws of England and Wales and a
wholly owned subsidiary of IHC, for a promissory note for $180,000,000 payable
to IHC (the "IHC Note") and (iii) IHC will merge with and into the Parent
Borrower, with the Parent Borrower as the surviving corporation in such merger,
(e) substantially simultaneously with the consummation of the Imperial
Acquisition, Imperial Wallcoverings, Inc. will merge with and into Borden
Decorative Products, Inc. (the "Imperial Merger"), with Borden Decorative
Products, Inc. as the surviving corporation in such merger, Borden Decorative
Products, Inc. will be merged into a newly created Delaware limited liability
company wholly owned by the Parent Borrower and having the name "The Imperial
Home Decor Group (US) LLC" and the name changes described in Schedule C will be
effected, (f) following the consummation of the Recapitalization/Acquisition,
the Parent Borrower will transfer its beneficial interest in the Sunworthy
Assets to the Canadian Borrower in exchange for shares of common stock issued by
the Canadian Borrower and (g) costs and expenses not in excess of $24,000,000
incurred in connection with the Transactions (the "Transaction Costs") will be
paid.
The Borrowers have requested the Lenders to extend credit in the form of
(a) Tranche A Term Loans to the Parent Borrower on and after the Closing Date,
in an aggregate principal amount not in excess of $65,000,000, (b) Tranche B
Term Loans to the Parent Borrower on the Closing Date, in an aggregate principal
amount not in excess of $115,000,000, (c) Tranche C Term Loans to the Parent
Borrower on the Closing Date, in an aggregate principal amount not in excess of
$45,000,000, (d) U.S. $ Revolving Credit Loans and Swingline Loans to the Parent
Borrower at any time and from time to time prior to the Revolving Credit
Maturity Date, in an aggregate principal amount at any time outstanding not in
excess of the difference between $55,000,000 and the Revolving L/C Exposure at
such time, (e) U.K. (pound) Revolving Credit Loans to the U.K. Borrower at any
time and
<PAGE>
4
from time to time prior to the Revolving Credit Maturity Date, in an aggregate
principal amount at any time outstanding not in excess of $10,000,000, (f) C $
Revolving Credit Loans to the Canadian Borrower at any time and from time to
time prior to the Revolving Credit Maturity Date, in an aggregate principal
amount at any time outstanding not in excess of $10,000,000 and (g) U.S. $
Letters of Credit at any time and from time to time prior to the Revolving
Credit Maturity Date, in an aggregate stated amount at any time outstanding not
in excess of $15,000,000.
The proceeds of the Tranche B Term Loans and the Tranche C Term Loans will
be used, together with (a) the proceeds of Tranche A Term Loans made on the
Closing Date, (b) the proceeds of U.S. $ Revolving Credit Loans made on the
Closing Date (in an aggregate principal amount which shall not be in excess of
$15,000,000), (c) the proceeds of the Equity Contribution and (d) the proceeds
of the issuance of the Senior Subordinated Notes, solely (i) to pay the cash
portion of the Recapitalization Consideration to the Borden Sellers, (ii) to pay
the cash portion of the Imperial Consideration to the C&A Sellers and (iii) to
pay the Transaction Costs.
The proceeds of Loans and Letters of Credit, if any, (a) made available to
the Parent Borrower in the form of (i) Tranche A Term Loans (other than Loans
used for the purposes specified in the immediately preceding paragraph), (ii)
U.S. $ Revolving Credit Loans (other than Loans used for the purposes specified
in the immediately preceding paragraph), (iii) U.K. (pound) Revolving Credit
Loans and C $ Revolving Credit Loans and (iv) Letters of Credit will be used for
general corporate purposes and (b) made available to the Subsidiary Borrowers in
the form of U.K. (pound) Revolving Credit Loans and C $ Revolving Credit Loans
will only be invested in current or fixed assets of the direct or indirect
subsidiaries (other than UK Newco) of the Parent Borrower located in the country
in which such Loans were made.
The Lenders are willing to extend such credit to the Borrowers and the
Fronting Bank is willing to issue Letters of Credit for the account of the
Parent Borrower, in each case on the terms and subject to the conditions set
forth herein. Accordingly, the parties hereto agree as follows:
<PAGE>
5
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following terms
shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any ABR Term Loan, ABR Revolving Credit Loan or
Swingline Loan.
"ABR Margin" shall mean, for any day, with respect to any ABR Borrowing,
the LIBOR Margin that would apply to such Borrowing on such day if it were a
Eurodollar Borrowing minus 1.00%.
"ABR Revolving Credit Loan" shall mean any Revolving Credit Loan bearing
interest at a rate determined by reference to the Alternate Base Rate in
accordance with the provisions of Article II.
"ABR Term Borrowing" shall mean a Borrowing comprised of ABR Term Loans.
"ABR Term Loan" shall mean any Term Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Acceptance Fee" shall mean a fee payable in Canadian Dollars by the
Canadian Borrower or the Parent Borrower, as applicable, to a C $ Revolving
Credit Lender with respect to the acceptance of a B/A or the purchase of a B/A
Equivalent Note, calculated on the face amount of the B/A or the B/A Equivalent
Note at the rate per annum equal to the B/A Spread on the basis of the number of
days in the applicable Contract Period and a year of 365 days (it being agreed
that the B/A Spread in respect of a B/A Equivalent Note is equivalent to the B/A
Spread otherwise applicable to the B/A Borrowing which has been replaced by the
purchase of such B/A Equivalent Note pursuant to Section 2.21(g)).
<PAGE>
6
"Acquisition Agreement" shall mean the Acquisition Agreement dated as of
November 4, 1997, among C&A, Imperial Wallcoverings, Inc. and MergerCo.
"Adjusted EBITDA" shall mean, for any period, EBITDA for such period plus
the synergy addback allowances, if any, set forth for such period on Schedule B
plus, at the request of the Parent Borrower, the amount of any cash equity
contribution made to the Parent Borrower by any holder of Capital Stock of the
Parent Borrower during such fiscal period (any such equity contribution, a
"Specified Equity Contribution"), provided that such a request may not be made
unless after giving effect thereto (a) during the four-fiscal-quarter period
ending with the quarter in which such contribution is made, there shall be at
least one fiscal quarter in which no Specified Equity Contribution shall be made
to the Parent Borrower and (b) during the eight-fiscal-quarter period ending
with the quarter in which such contribution is made, there shall be at least one
period of four consecutive fiscal quarters in which no Specified Equity
Contribution shall be made to the Parent Borrower.
"Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the product of (a) the LIBO Rate in
effect for such Interest Period and (b) Statutory Reserves, if any.
"Adjusted Net Leverage Ratio" shall mean, on any date, the ratio of (a)
Total Net Debt as of such date to (b) Adjusted EBITDA for the period of four
consecutive fiscal quarters of the Parent Borrower most recently ended as of
such date, all determined on a consolidated basis in accordance with GAAP.
"Administrative Agents" shall mean the U.S. Administrative Agent and the
Canadian Administrative Agent.
"Administrative Questionnaire" shall mean an Administrative Questionnaire
in the form of Exhibit A.
"Affiliate" shall mean, when used with respect to a specified person,
another person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the person
specified.
<PAGE>
7
"Aggregate C $ Revolving Credit Exposure" shall mean the aggregate amount
of the Lenders' C $ Revolving Credit Exposures.
"Aggregate U.K. (pound) Revolving Credit Exposure" shall mean the aggregate
amount of the Lenders' U.K. (pound) Revolving Credit Exposures.
"Aggregate U.S. $ Revolving Credit Exposure" shall mean the aggregate
amount of the Lenders' U.S. $ Revolving Credit Exposures.
"Alternate Base Rate" shall mean, for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the
Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. If for any reason the U.S. Administrative
Agent shall have determined (which determination shall be conclusive absent
manifest error) that it is unable to ascertain the Federal Funds Effective Rate,
including the failure of the Federal Reserve Bank of New York to publish rates
or the inability of the U.S. Administrative Agent to obtain quotations in
accordance with the terms thereof, the Alternate Base Rate shall be determined
without regard to clause (b) of the preceding sentence until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall
be effective on the effective date of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.
"Alternative Currency" shall mean Canadian Dollars and Sterling.
"Alternative Currency Borrowing" shall mean a Borrowing comprised of
Alternative Currency Loans.
"Alternative Currency Loan" shall mean any Loan denominated in an
Alternative Currency.
"Applicable Percentage" (a) of any U.S. $ Revolving Credit Lender at any
time shall mean the percentage of the Total U.S. $ Revolving Credit Commitment
represented by such Lender's U.S. $ Revolving Credit Commitment, (b) of any U.K.
(pound) Revolving Credit Lender at any time shall mean the percentage of the
Total
<PAGE>
8
U.K. (pound) Revolving Credit Commitment represented by such Lender's U.K.
(pound) Revolving Credit Commitment and (c) of any C $ Revolving Credit Lender
at any time shall mean the percentage of the Total C $ Revolving Credit
Commitment represented by such Lender's C $ Revolving Credit Commitment. In the
event any Revolving Credit Commitments shall have expired or been terminated,
the Applicable Percentages shall be determined on the basis of the relevant
Revolving Credit Commitments most recently in effect, but giving effect to any
assignments pursuant to Section 10.04.
"Approved Fund" shall mean, with respect to any Lender that is a fund that
invests in bank loans, any other fund that invests in bank loans and is advised
or managed by the same investment advisor as such Lender or by an Affiliate of
such investment advisor.
"Assigned Dollar Value" shall mean in respect of any U.K. (pound) Revolving
Credit Borrowing or C $ Revolving Credit Borrowing denominated in an Alternative
Currency, the amount thereof expressed in Dollars in the initial Borrowing
Request with respect thereto or, in the case of a B/A Borrowing, the amount
thereof expressed in Dollars as the face amount of the Bankers' Acceptances or
B/A Equivalent Notes relating thereto. Thereafter, Assigned Dollar Value shall
mean, in respect of any U.K. (pound) Revolving Credit Borrowing or C $ Revolving
Credit Borrowing denominated in an Alternative Currency, the Dollar Equivalent
of the principal amount of the Loans relating to such Borrowing (or the face
amounts of the Bankers' Acceptances or B/A Equivalent Notes relating thereto) as
determined on the most recent Reset Date based on the Spot Exchange Rate.
"Assignment and Acceptance" shall mean an assignment and acceptance entered
into by a Lender and an assignee, and accepted by the U.S. Administrative Agent
and the Parent Borrower (and, in the case of an assignment of C $ Revolving
Credit Commitments or C $ Revolving Credit Loans, accepted by the U.S.
Administrative Agent, the Canadian Administrative Agent and the Parent
Borrower), in the form of Exhibit B or such other form as shall be approved by
the U.S. Administrative Agent.
"B/A Borrowing" shall mean a Borrowing comprised of a Bankers' Acceptance
or, as applicable, a B/A Equivalent Note.
<PAGE>
9
"B/A Equivalent Note" shall have the meaning given such term in Section
2.21(g).
"B/A Spread" shall mean, for any day, with respect to any B/A Borrowing,
the LIBOR Margin that would apply to such Borrowing on such day if such
Borrowing were a Tranche A Term Borrowing.
"Bankers' Acceptance" and "B/A" shall mean a bill of exchange denominated
in Canadian Dollars, drawn by the Canadian Borrower or the Parent Borrower, as
applicable, and accepted by a C $ Revolving Credit Lender in accordance with
this Agreement, provided that with respect to a C $ Revolving Credit Lender that
is not a chartered bank under the Bank Act (Canada) or that has notified the
Canadian Administrative Agent that it is otherwise unable to accept such bills
of exchange, it shall mean a B/A Equivalent Note.
"Board" shall mean the Board of Governors of the Federal Reserve System of
the United States.
"Borden" shall have the meaning given such term in the preamble to this
Agreement.
"Borden Sellers" shall have the meaning given such term in the preamble to
this Agreement.
"Borrowers" shall mean the Parent Borrower and the Subsidiary Borrowers.
"Borrowing" shall mean a group of Loans of a single Type made under a
single Credit Facility or consisting solely of Swingline Loans and made on a
single date and, in the case of Eurodollar Loans, as to which a single Interest
Period is in effect.
"Borrowing Request" shall mean a request by a Borrower in accordance with
the terms of Section 2.03 and substantially in the form, in the case of the
Parent Borrower requesting Term Loans or U.S. $ Revolving Credit Borrowings, of
Exhibit C-1, in the case of an applicable Borrower requesting U.K. (pound)
Revolving Credit Borrowings, of Exhibit C-2, and, in the case of an applicable
Borrower requesting C $ Revolving Credit Borrowings, of Exhibit C-3.
<PAGE>
10
"Business Day" shall mean any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of New York) on which banks are open for
business in New York City; provided, however, that (i) when used in connection
with a Eurodollar Loan, the term "Business Day" shall also exclude any day on
which banks are not open for dealings in U.S. Dollar deposits in the London
interbank Eurodollar market or, if such Eurodollar Loans are denominated in
Sterling, on any day in which banks are not open for dealing in Sterling
deposits in the London interbank Eurodollar market, (ii) when used in connection
with a U.K. (pound) Revolving Credit Loan, "Business Day" shall also exclude any
day on which commercial banks are not open for foreign exchange business in
London, and (iii) when used in connection with a C $ Revolving Credit Loan
"Business Day" shall also exclude any day on which banks are required or
permitted to be closed in the city of Toronto.
"C&A" shall have the meaning given such term in the preamble to this
Agreement.
"C&A Option" shall have the meaning given such term in the preamble to this
Agreement.
"C&A Sellers" shall have the meaning given such term in the preamble to
this Agreement.
"C $ Revolving Credit Borrowing" shall mean a Borrowing comprised of C $
Revolving Credit Loans.
"C $ Revolving Credit Commitment" shall mean, with respect to any Lender at
any time, the commitment (if any) of such Lender to make loans and accept
Bankers' Acceptances pursuant to Section 2.01(d) or in the Assignment and
Acceptance pursuant to which such Lender assumed its C $ Revolving Credit
Commitment, as applicable. Subject to Section 10.04, the amount of each Lender's
C $ Revolving Credit Commitment is the amount set forth opposite such Lender's
name in Schedule 2.01 under the caption "C $ Revolving Credit Commitment", as
such amount may be permanently terminated or from time to time temporarily or
permanently reduced or increased pursuant to Section 2.09.
"C $ Revolving Credit Exposure" shall mean, with respect to any Lender at
any time, the sum of (a) the aggregate principal amount at such time of all
outstanding C $ Revolving
<PAGE>
11
Credit Loans of such Lender denominated in Dollars, plus (b) the Assigned Dollar
Value at such time of all outstanding C $ Revolving Credit Loans of such Lender
that are Alternative Currency Loans.
"C $ Revolving Credit Lender" shall mean a Lender with a C $ Revolving
Credit Commitment, each of which on the Closing Date shall be a Canadian
chartered bank or other Canadian financial institution.
"C $ Revolving Credit Loan" shall mean any loan made by a Lender, and any
Bankers' Acceptance accepted by a Lender, pursuant to its C $ Revolving Credit
Commitment.
"Calculation Date" shall mean (a) the last Business Day of each March,
June, September and December and (b)(i) in respect of U.K. (pound) Revolving
Credit Loans denominated in Sterling at any time when the Aggregate U.K. (pound)
Revolving Credit Exposure exceeds 85% of the Total U.K. (pound) Revolving Credit
Commitments, any other date the U.S. Administrative Agent may determine in its
discretion to be a Calculation Date (but not more than one date during any
calendar week), and (ii) in respect of C $ Revolving Credit Loans denominated in
Canadian Dollars at any time when the Aggregate C $ Revolving Credit Exposure
exceeds 85% of the Total C $ Revolving Credit Commitments, any other date the
Canadian Administrative Agent may determine in its discretion to be a
Calculation Date (but not more than one date during any calendar week).
"CAM" shall mean the mechanism for the allocation and exchange of interests
in the Credit Facilities and collections thereunder established under Article
IX.
"CAM Exchange" shall mean the exchange of the Lenders' interests provided
for in Section 9.01.
"CAM Exchange Date" shall mean the first date after the Closing Date on
which there shall occur (a) any event described in paragraph (g) or (h) of
Article VII with respect to any Borrower or (b) an acceleration of the maturity
of Loans pursuant to Article VII.
"CAM Percentage" shall mean, as to each Lender, a fraction, expressed as a
decimal, of which (a) the numerator
<PAGE>
12
shall be the sum of (i) the aggregate Designated Obligations owed to such Lender
and (ii) the Revolving L/C Exposure, if any, of such Lender, in each case
immediately prior to the CAM Exchange Date, and (b) the denominator shall be the
sum of (i) the aggregate Designated Obligations owed to all the Lenders and (ii)
the aggregate Revolving L/C Exposure of all the Lenders, in each case
immediately prior to such CAM Exchange Date. For purposes of computing each
Lender's CAM Percentage, all Designated Obligations which shall be denominated
in Alternative Currencies shall be translated into Dollars at the Spot Exchange
Rate in effect on the CAM Exchange Date.
"Canadian Administrative Agent" shall have the meaning given such term in
the preamble to this Agreement.
"Canadian Borrower" shall have the meaning given such term in the preamble
to this Agreement.
"Canadian Dollars" or "C$" shall mean lawful money of Canada.
"Canadian Guaranteed Parties" shall have the meaning given such term in the
Canadian Subsidiary Guarantee Agreement.
"Canadian Pledge Agreement" shall mean the Canadian Pledge Agreement,
substantially in the form of Exhibit G-4, between the Parent Borrower and the
Collateral Agent for the benefit of the Secured Parties.
"Canadian Prime Borrowing" shall mean a Borrowing comprised of Canadian
Prime Rate Loans.
"Canadian Prime Rate Loan" shall mean a Loan denominated in Canadian
Dollars which bears interest at a rate based upon the Canadian Prime Rate.
"Canadian Prime Rate" shall mean, on any day, the annual rate of interest
(rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to the greater
of:
(a) the annual rate of interest determined by the Canadian Administrative
Agent as the annual rate of interest announced from time to time by
the Canadian Administrative Agent as its prime rate in
<PAGE>
13
effect at its principal office in Toronto on such day for determining
interest rates on Canadian Dollar denominated commercial loans in
Canada; and
(b) the annual rate of interest equal to the sum of (i) the CDOR Rate in
effect on such day, and (ii) 1%.
"Canadian Subsidiary Guarantee Agreement" shall mean the Subsidiary
Guarantee Agreement, substantially in the form of Exhibit I-2, made by any
Canadian Subsidiary Guarantors in favor of the Collateral Agent for the benefit
of the Canadian Guaranteed Parties.
"Canadian Subsidiary Guarantor" shall mean each Subsidiary that is a
subsidiary of the Canadian Borrower organized under the laws of Canada other
than the Canadian Borrower.
"Capital Asset Exchange" shall mean any exchange of assets constituting
property, plant or equipment for other assets constituting property, plant or
equipment that are useful in the business of the Parent Borrower and the
Subsidiaries and have a value (determined in good faith by the Parent Borrower)
at least equal to the value of the exchanged assets.
"Capital Expenditures" shall mean, for any person in respect of any period,
the aggregate of all expenditures incurred by such person during such period
that, in accordance with GAAP, are or should be included in "additions to
property, plant or equipment" or similar items reflected in the statement of
cash flows of such person (which shall be deemed to include expenditures by such
person to acquire stock or other evidence of beneficial ownership of any other
person for the purpose of acquiring the capital assets of such person (as
opposed to acquiring such person as a going concern)); provided, however, that
Capital Expenditures for the Parent Borrower and the Subsidiaries shall not
include (a) expenditures to the extent they are made with the proceeds of the
issuance of Capital Stock of the Parent Borrower, or contributions to the
capital of the Parent Borrower, after the Closing Date (to the extent not
previously used to prepay Indebtedness (other than Revolving Credit Loans or
Swingline Loans), make any investment or capital expenditure or otherwise for
any purpose resulting in a deduction
<PAGE>
14
to Excess Cash Flow in any fiscal year) or with funds that if not so spent would
constitute Net Proceeds under clause (a) of the definition of the term "Net
Proceeds", (b) expenditures representing Capital Asset Exchanges, (c)
expenditures of proceeds of insurance settlements, condemnation awards and other
settlements in respect of lost, destroyed, damaged or condemned assets,
equipment or other property to the extent such expenditures are made to replace
or repair such lost, destroyed, damaged or condemned assets, equipment or other
property or otherwise to acquire assets or properties useful in the business of
the Parent Borrower and the Subsidiaries within 12 months of receipt of such
proceeds, (d) Interest Expense capitalized during such period, (e) expenditures
that are accounted for as capital expenditures of such person and that actually
are paid for by a third party (excluding Holdings or any subsidiary thereof) and
for which neither Holdings nor any subsidiary thereof has provided or is
required to provide or incur, directly or indirectly, any consideration or
obligation to such third party or any other person (whether before, during or
after such period), (f) the book value of any asset owned by such person prior
to or during such period to the extent that such book value is included as a
capital expenditure during such period as a result of such person reusing or
beginning to reuse such asset during such period without a corresponding
expenditure actually having been made in such period, provided that any
expenditure necessary in order to permit such asset to be reused shall be
included as a Capital Expenditure during the period that such expenditure
actually is made and such book value shall have been included in Capital
Expenditures when such asset was originally acquired or (g) payments in respect
of purchase price adjustments relating to the Recapitalization or the Imperial
Acquisition.
"Capital Lease Obligations" of any person shall mean the obligations of
such person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP
and, for purposes hereof, the amount of such obligations at any time shall be
the capitalized amount thereof at such time determined in accordance with GAAP.
"Capital Stock" of any person shall mean any and all shares, interests,
rights to purchase, warrants, options,
<PAGE>
15
participation or other equivalents of or interests in (however designated)
equity of such person, including any preferred stock, any limited or general
partnership interest and any limited liability company membership interest, but
excluding any debt securities convertible into such equity.
"Cash Interest Expense" shall mean, with respect to the Parent Borrower and
the Subsidiaries on a consolidated basis for any period, Interest Expense for
such period less the sum for such period of (a) pay-in-kind Interest Expense,
(b) to the extent included in Interest Expense, the amortization of fees paid by
the Parent Borrower or any Subsidiary on or prior to the Closing Date in
connection with the Transactions, (c) the amortization of debt discounts, if
any, or fees in respect of Interest/Exchange Rate Protection Agreements and (d)
gross interest income of the Parent Borrower and the Subsidiaries.
"CDOR Rate" shall mean, on any date, the annual rate of interest which is
the rate based on an average rate applicable to C$ bankers' acceptances for a
term of 30 days appearing on the "Reuters Screen CDOR Page" (as defined in the
International Swaps and Derivatives Association, Inc. definitions, as modified
and amended from time to time) at approximately 10:00 a.m. (Toronto time), on
such date, or if such date is not a Business Day, then on the immediately
preceding Business Day, provided that, if such rate does not appear on the
Reuters Screen CDOR Page as contemplated, then the CDOR Rate on any date shall
be calculated as the rate for the term referred to above applicable to C$
bankers' acceptances quoted by the Canadian Administrative Agent as of 10:00
a.m. (Toronto time) on such date or, if such date is not a Business Day, then on
the immediately preceding Business Day.
"CERCLA" shall have the meaning given such term in the definition of the
term "Environmental Law".
A "Change in Control" shall be deemed to have occurred if (a) any person or
group (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934
as in effect on the date hereof) (other than the Fund, Fund Affiliates and
members of management of the Parent Borrower holding voting stock of Holdings or
the Parent Borrower or options to acquire such stock on the Closing Date or
receiving Management Options or voting stock upon the exercise of such
Management Options after the
<PAGE>
16
Closing Date (collectively, the "Designated Persons")) or any combination of
Designated Persons, shall own beneficially, directly or indirectly, in the
aggregate shares representing more than 25% of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of the Parent
Borrower at a time when Designated Persons or any combination of Designated
Persons shall fail to own beneficially, directly or indirectly, shares
representing at least a majority of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Parent Borrower;
(b) the Designated Persons or any combination of Designated Persons shall fail
to own beneficially, directly or indirectly, in the aggregate shares
representing at least a majority of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Parent Borrower
(such majority requirement to be reduced by the percentage of such voting power
represented by the shares sold by such persons in any public offering of shares
of the Parent Borrower or by the dilution suffered by such persons in such
public offering, but in any event not to a percentage below 35%); (c) any person
or group (within the meaning of Rule 13d-5 of the Securities Exchange Act of
1934 as in effect on the date hereof), other than management of the Parent
Borrower, shall own beneficially, directly or indirectly, in the aggregate
shares representing a greater percentage of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Parent Borrower
than the aggregate ordinary voting power at such time represented by the issued
and outstanding capital stock of the Parent Borrower owned beneficially,
directly or indirectly, by the Fund and Fund Affiliates (excluding, for this
purpose, from the definition of Fund Affiliates management of the Parent
Borrower), provided that, a Change of Control shall be deemed to have occurred
at any time when both (i) management of the Parent Borrower shall own
beneficially, directly or indirectly, in the aggregate shares representing a
greater percentage of the aggregate ordinary voting power represented by the
issued and outstanding capital stock of the Parent Borrower than the aggregate
ordinary voting power at such time represented by the issued and outstanding
capital stock of the Parent Borrower owned beneficially, directly or indirectly,
by the Fund and Fund Affiliates (excluding, for this purpose, from the
definition of Fund Affiliates management of the Parent Borrower), and (ii) the
Fund and Fund Affiliates shall fail to own beneficially, directly or indirectly,
in the aggregate shares representing at least one-
<PAGE>
17
half the percentage of the aggregate ordinary voting power represented by the
issued and outstanding capital stock of the Parent Borrower owned by the Fund
and Fund Affiliates (excluding, for this purpose, from the definition of Fund
Affiliates management of the Parent Borrower) on the Closing Date; (d) a
majority of the seats (excluding vacant seats) on the board of directors of the
Parent Borrower shall at any time after the Closing Date have been occupied by
persons who were neither (i) nominated by any one or more Designated Persons or
by a majority of the board of directors of the Parent Borrower, nor (ii)
appointed by directors so nominated; or (e) a change in control with respect to
the Parent Borrower (or similar event, however denominated) shall occur under
and as defined in the Senior Subordinated Indenture (so long as any Indebtedness
for borrowed money is outstanding thereunder) or in any other indenture or
agreement in respect of Indebtedness in an aggregate outstanding principal
amount in excess of $3,000,000 to which the Parent Borrower or any Subsidiary is
party. For purposes of clauses (a) and (b) of this definition, the term
"Designated Person" shall be deemed to include any other holder or holders of
shares of the Parent Borrower having ordinary voting power if the Parent
Borrower or the Fund or any Fund Affiliate shall have the power to vote (or
cause to be voted at its discretion), pursuant to contract, irrevocable proxy or
otherwise, the shares held by such holder.
"Closing Date" shall mean a single date (which shall in no event be later
than March 31, 1998) on which the initial Credit Event occurs hereunder.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" shall mean all the "Collateral" as defined in any Security
Document and shall also include the Mortgaged Properties.
"Collateral Agent" shall have the meaning given such term in the
introductory paragraph of this Agreement.
"Commitment Fee" shall have the meaning given such term in Section 2.05(a).
<PAGE>
18
"Commitments" shall mean, with respect to any Lender, such Lender's U.S. $
Revolving Credit Commitment, U.K. (pound) Revolving Credit Commitment, C $
Revolving Credit Commitment, Term Commitments, Swingline Loan Commitment and,
with respect to the Fronting Bank, the Revolving L/C Commitment.
"Contract Period" shall mean the term of a B/A or B/A Equivalent Note
selected by the Canadian Borrower or the Parent Borrower, as applicable, in
accordance with Section 2.21 commencing on the date of such Borrowing or any
rollover date, as applicable, of such B/A or B/A Equivalent Note (which shall be
a Business Day) and expiring on a Business Day which shall be either 30 days, 60
days, 90 days or (subject to availability from all the C $ Revolving Credit
Lenders) 180 days thereafter, provided that no Contract Period shall extend
beyond the Revolving Credit Maturity Date. Notwithstanding the foregoing,
whenever the last day of any Contract Period would otherwise occur on a day
which is not a Business Day, the last day of such Contract Period shall occur on
the next succeeding Business Day and such extension of time shall in such case
be included in computing the Acceptance Fee in respect of the relevant B/A.
"Control" shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a person,
whether through the ownership of voting securities, by contract or otherwise,
and "Controlling" and "Controlled" shall have meanings correlative thereto.
"Credit Event" shall have the meaning given such term in Article IV.
"Credit Facility" shall mean a category of Commitments and extensions of
credit thereunder. For purposes hereof, each of the following comprises a
separate Credit Facility: (a) the U.S. $ Revolving Credit Commitments, U.S. $
Revolving Credit Loans, Swingline Exposure and Revolving L/C Exposure; (b) the
U.K. (pound) Revolving Credit Commitments and U.K. (pound) Revolving Credit
Loans; (c) the C $ Revolving Credit Commitments and C $ Revolving Credit Loans;
(d) the Tranche A Term Loan Commitments and Tranche A Term Loans; (e) the
Tranche B Term Loan Commitments and Tranche B Term Loans; and (f) the Tranche C
Term Loan Commitments and Tranche C Term Loans.
<PAGE>
19
"Current Assets" shall mean, with respect to the Parent Borrower and the
Subsidiaries on a consolidated basis at any date of determination, all assets
(other than cash and Permitted Investments or other cash equivalents) that
would, in accordance with GAAP, be classified on a consolidated balance sheet of
the Parent Borrower and the Subsidiaries as current assets at such date of
determination.
"Current Liabilities" shall mean, with respect to the Parent Borrower and
the Subsidiaries on a consolidated basis at any date of determination, all
liabilities that would, in accordance with GAAP, be classified on a consolidated
balance sheet of the Parent Borrower and the Subsidiaries as current liabilities
at such date of determination, other than (a) the current portion of long-term
debt, (b) accruals of Interest Expense (excluding Interest Expense that is due
and unpaid), (c) Revolving Credit Loans or Swingline Loans classified as
current, (d) accruals, if any, of Transaction Costs and (e) accruals of any
Restructuring Charges.
"Debt Service" shall mean, with respect to the Parent Borrower and the
Subsidiaries on a consolidated basis for any period, Interest Expense for such
period plus scheduled principal amortization of Total Debt for such period
(whether or not such payments are made).
"Default" shall mean any event or condition that upon notice, lapse of time
or both would constitute an Event of Default.
"Denomination Date" shall mean, in relation to any Alternative Currency
Borrowing, the date that is three Business Days before the date such Borrowing
is made.
"Designated Obligations" shall mean all Obligations of the Loan Parties in
respect of (a) principal of and interest on the Loans (including B/As, B/A
Equivalent Notes and Acceptance Fees with respect thereto) and (b) Fees, whether
or not the same shall at the time of any determination be due and payable under
the terms of the Loan Documents.
"Discount Proceeds" shall mean, for any B/A (or, as applicable, any B/A
Equivalent Note), an amount (rounded to the nearest whole cent, and with
one-half of one cent being rounded
<PAGE>
20
upwards) calculated on the applicable date of the Borrowing of which such B/A or
B/A Equivalent Note is a part or any rollover date for such Borrowing by
multiplying:
(a) the face amount of the B/A (or, as applicable, the B/A Equivalent
Note); by
(b) the quotient of one divided by the sum of one plus the product of:
(i) the Discount Rate (expressed as a decimal) applicable to such B/A
(or as applicable, such B/A Equivalent Note), and
(ii) a fraction, the numerator of which is the Contract Period of the
B/A (or, as applicable, the B/A Equivalent Note) and the
denominator of which is the number of days in the applicable
calendar year,
with such quotient being rounded up or down to the fifth decimal place, and
.000005 being rounded up.
"Discount Rate" shall mean:
(a) with respect to any C $ Revolving Credit Lender that is a Schedule
I chartered bank under the Bank Act (Canada), as applicable to a B/A (or,
as applicable, a B/A Equivalent Note) being purchased by such Lender on any
day, the average (as determined by the Canadian Administrative Agent) of
the respective percentage discount rates (expressed to two decimal places
and rounded upward, if necessary, to the nearest 0.01%) quoted by the
Schedule I Reference Banks as the percentage discount rate at which the
Schedule I Reference Banks would, in accordance with their normal
practices, at or about 10:00 a.m., Toronto time, on such date, be prepared
to purchase bankers' acceptances accepted by the Schedule I Reference Banks
having a face amount and term comparable to the face amount and term of
such B/A or B/A Equivalent Note; and
(b) with respect to any C $ Revolving Credit Lender that is not a
Schedule I chartered bank under the Bank Act (Canada), as applicable to a
B/A (or, as applicable, a B/A
<PAGE>
21
Equivalent Note) being purchased by such Lender on any day, the average (as
determined by the Canadian Administrative Agent) of the respective
percentage discount rates (expressed to two decimal places and rounded
upward, if necessary, to the nearest 0.01%) quoted by the Schedule II
Reference Banks as the percentage discount rates at which the Schedule II
Reference Banks would, in accordance with their normal practices, at or
about 10:00 a.m., Toronto time, on such date, be prepared to purchase
bankers' acceptances accepted by the Schedule II Reference Banks having a
face amount and term comparable to the face amount and term of such B/A;
provided, however, that no Discount Rate calculated pursuant to this clause
(b) shall exceed the Discount Rate calculated pursuant to clause (a) above
in respect of the same issue of Bankers' Acceptances plus 7 basis points
(0.07%) per annum.
"Dollar Equivalent" shall mean, with respect to an amount of any
Alternative Currency on any date, the amount of Dollars that may be purchased
with such amount of such Alternative Currency at the Spot Exchange Rate with
respect to such Alternative Currency on such date.
"Dollars" or "$" shall mean lawful money of the United States of America.
"Domestic" shall mean, with respect to any Subsidiary, that such Subsidiary
is (a) organized in the United States or (b) UK Newco.
"Domestic Subsidiary Guarantee Agreement" shall mean the Domestic
Subsidiary Guarantee Agreement, substantially in the form of Exhibit I-1, made
by the Domestic Subsidiary Guarantors in favor of the Collateral Agent for the
benefit of the Secured Parties.
"Domestic Subsidiary Guarantor" shall mean each Domestic Subsidiary, unless
less than 90% of the Capital Stock of such Domestic Subsidiary is owned by the
Parent Borrower and the Subsidiaries.
"EBITDA" shall mean, with respect to the Parent Borrower and the
Subsidiaries on a consolidated basis for any period, the consolidated net income
of the Parent Borrower and
<PAGE>
22
the Subsidiaries for such period plus, to the extent deducted in computing such
consolidated net income, without duplication, the sum of (a) (i) income tax
expense or, if imposed by any relevant jurisdiction in lieu of an income tax,
franchise and/or gross receipts tax expense and (ii) withholding tax expense
incurred in connection with cross-border transactions, (b) gross Interest
Expense, (c) depreciation and amortization expense (excluding amortization of
sample book and design and engraving costs and including amortization of
cylinder bases), (d) any special charges (including any fees, expenses or
charges incurred in connection with the Recapitalization/Acquisition and related
borrowings) and any extraordinary or nonrecurring losses or charges (including
(i) stock compensation expense for the settlement of options in an amount not to
exceed $1,500,000 and (ii) for any period ending on or prior to December 31,
1999, Restructuring Charges in an aggregate amount not to exceed during 1998 and
1999 the excess of (A) $25,000,000 over (B) the amount of Restructuring Charges
for any such period that do not reduce consolidated net income of the Parent
Borrower and the Subsidiaries for 1998), (e) monitoring and management fees paid
to the Fund and/or any of its Affiliates, (f) other non-cash items reducing
consolidated net income (including any non-cash items resulting from purchase
accounting adjustments and excluding any charge which requires an accrual of a
cash reserve for anticipated cash charges for any future period) and (g)
non-cash exchange, translation or performance losses relating to any foreign
currency hedging transactions or currency fluctuations, minus, to the extent
added in computing such consolidated net income, without duplication, (i)
interest income on Permitted Investments, (ii) extraordinary or nonrecurring
gains, (iii) other non-cash items increasing consolidated net income (excluding
any items that represent the reversal of any accrual of, or cash reserve for,
anticipated cash charges in any prior period) and (iv) non-cash exchange,
translation or performance gains relating to any foreign currency hedging
transactions or currency fluctuations, provided that all effects, if any, of the
transactions forming a part of the Transactions shall be eliminated in computing
EBITDA.
"environment" shall mean ambient air, surface water and groundwater
(including potable water, navigable water and wetlands), the land surface or
subsurface strata, the workplace or as otherwise defined in any Environmental
Law.
<PAGE>
23
"Environmental Claim" shall mean any written accusation, allegation, notice
of violation, claim, demand, order, directive, cost recovery action or other
cause of action by, or on behalf of, any Governmental Authority or any person
for damages, injunctive or equitable relief, personal injury (including
sickness, disease or death), Remedial Action costs, tangible or intangible
property damage, natural resource damages, nuisance, pollution, any adverse
effect on the environment caused by any Hazardous Material, or for fines,
penalties or restrictions, resulting from or based upon: (a) the threat, the
existence, or the continuation of the existence of a Release (including sudden
or non-sudden, accidental or non-accidental Releases); (b) exposure to any
Hazardous Material; (c) the presence, use, handling, transportation, storage,
treatment or disposal of any Hazardous Material; or (d) the violation or alleged
violation of any Environmental Law or Environmental Permit.
"Environmental Law" shall mean any and all applicable current and future
treaties, laws, rules, regulations, codes, ordinances, orders, decrees,
judgments, injunctions, notices or binding agreements issued, promulgated or
entered into by any Governmental Authority, relating in any way to the
environment, preservation or reclamation of natural resources, the treatment,
storage, disposal, Release or threatened Release of any Hazardous Material or to
human health or safety, including the Hazardous Materials Transportation Act, 49
U.S.C. ss.ss. 1801 et seq., the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss.ss. 9601 et
seq. ("CERCLA"), the Solid Waste Disposal Act, as amended, 42 U.S.C. ss.ss.
6901, et seq., the Federal Water Pollution Control Act, as amended, 33 U.S.C.
ss.ss. 1251 et seq., the Clean Air Act of 1970, as amended, 42 U.S.C. ss.ss.
7401 et seq., the Toxic Substances Control Act of 1976, 15 U.S.C. ss.ss. 2601 et
seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
ss.ss. 11001 et seq., the National Environmental Policy Act of 1975, 42 U.S.C.
ss.ss. 4321 et seq., the Safe Drinking Water Act of 1974, as amended, 42 U.S.C.
ss.ss. 300(f) et seq., and any similar or implementing state, local or foreign
law, and all amendments or regulations promulgated under any of the foregoing.
"Environmental Permit" shall mean any permit, approval, authorization,
certificate, license, variance, filing or
<PAGE>
24
permission required by or from any Governmental Authority pursuant to any
Environmental Law.
"Equity Contribution" shall have the meaning given such term in the
preamble to this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that, together with the Parent Borrower, is treated as a single
employer under Section 414(b) or (c) of the Code, or, solely for purposes of
Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Loan" shall mean any Eurodollar Term Loan or Eurodollar
Revolving Credit Loan.
"Eurodollar Revolving Credit Loan" shall mean any Revolving Credit Loan
bearing interest at a rate determined by reference to the Adjusted LIBO Rate in
accordance with the provisions of Article II.
"Eurodollar Term Borrowing" shall mean a Borrowing comprised of Eurodollar
Term Loans.
"Eurodollar Term Loan" shall mean any Term Loan bearing interest at a rate
determined by reference to the Adjusted LIBO Rate in accordance with the
provisions of Article II.
"Event of Default" shall have the meaning given such term in Article VII.
"Excess Cash Flow" shall mean, with respect to the Parent Borrower and the
Subsidiaries on a consolidated basis for any fiscal year, EBITDA of the Parent
Borrower and the Subsidiaries on a consolidated basis for such fiscal year,
minus, without duplication, (a) Debt Service for such fiscal year, (b) permitted
Capital Expenditures by the Parent Borrower and the
<PAGE>
25
Subsidiaries on a consolidated basis during such fiscal year that are paid in
cash and, to the extent not included in Capital Expenditures, the aggregate
consideration paid in cash during such fiscal year in respect of Permitted
Business Acquisitions (in each case except to the extent made using Excess Cash
Flow from any prior fiscal year available for such purpose under Section
6.04(l)), (c) Capital Expenditures that the Parent Borrower or any Subsidiary
shall, during such fiscal year, become obligated to make but that are not made
during such fiscal year, provided that the Parent Borrower shall deliver a
certificate to the U.S. Administrative Agent not later than 90 days after the
end of such fiscal year of the Parent Borrower, signed by a Responsible Officer
of the Parent Borrower and certifying that such Capital Expenditures and the
delivery of the related equipment or other asset will be made in the following
fiscal year, (d) taxes and Restructuring Charges paid in cash by any of the
Parent Borrower and the Subsidiaries during such fiscal year, or which are
payable or will be paid within six months after the close of such fiscal year
and for which reserves have been established, including income tax expense or,
if imposed by any relevant jurisdiction in lieu of an income tax, franchise
and/or gross receipts tax expense and withholding tax expense incurred in
connection with cross-border transactions (other than in connection with any
transaction that is part of the Transactions), (e) an amount equal to any
increase in Working Capital of the Parent Borrower and the Subsidiaries for such
fiscal year, (f) to the extent not deducted in determining EBITDA, monitoring
and management fees paid to the Fund and/or any of its Affiliates during such
fiscal year, (g) cash expenditures made in respect of Interest/Exchange Rate
Protection Agreements during such fiscal year, to the extent not reflected in
the computation of EBITDA or Interest Expense, (h) permitted dividends or
repurchases of its Capital Stock paid in cash by the Parent Borrower during such
fiscal year and permitted dividends paid by any Subsidiary to any person other
than the Parent Borrower or any of the other Subsidiaries during such fiscal
year, in each case in accordance with Section 6.06, (i) amounts paid in cash
during such fiscal year on account of items that were accounted for as non-cash
reductions of consolidated net income of the Parent Borrower and the
Subsidiaries in the current or a prior period, (j) special charges or any
extraordinary or nonrecurring losses paid in cash during such fiscal year, (k)
to the extent not deducted in the computation of Net Proceeds in respect of any
asset disposition or condemnation giving rise
<PAGE>
26
thereto, mandatory prepayments of Indebtedness (other than Indebtedness created
hereunder or under any other Loan Document), (l) to the extent included in
determining EBITDA, all items that did not result from a cash payment to the
Parent Borrower and the Subsidiaries on a consolidated basis during such fiscal
year, (m) the amount of cash payments made by the Parent Borrower and the
Subsidiaries in respect of purchase price adjustments in connection with the
Recapitalization or the Imperial Acquisition and (n) the amount, if any, by
which the consolidated deferred revenues of the Parent Borrower and the
Subsidiaries decreased during such fiscal year plus, without duplication, (i) an
amount equal to any decrease in Working Capital for such fiscal year, (ii) all
cash proceeds received during such fiscal year of Capital Lease Obligations,
purchase money Indebtedness, Sale and Lease-Back Transactions pursuant to
Section 6.03(a) and any other Indebtedness, in each case to the extent used to
finance any Capital Expenditure (other than Indebtedness under this Agreement to
the extent there is no corresponding deduction to Excess Cash Flow above in
respect of the use of such Borrowings) and all cash proceeds received during
such fiscal year of Sale and Lease-Back Transactions pursuant to Section
6.03(b), (iii) all amounts referred to in (b) above to the extent funded with
(x) the cash proceeds of the issuance of Capital Stock of the Parent Borrower
after the Closing Date (to the extent not previously used to prepay Indebtedness
(other than Revolving Credit Loans or Swingline Loans), make any investment or
capital expenditure or otherwise for any purpose resulting in a deduction to
Excess Cash Flow in any fiscal year, (y) any amount that would have constituted
Net Proceeds under clause (a) of the definition of the term "Net Proceeds" if
not so spent or (z) the portion of the Excess Vernon Proceeds not required to be
applied to prepay Term Loans pursuant to Section 2.12(e), in each case to the
extent there is a corresponding deduction to Excess Cash Flow above, (iv) to the
extent any permitted Capital Expenditures and the corresponding delivery of
equipment or other asset referred to in clause (c) above do not occur in the
fiscal year of the Parent Borrower specified in the certificate of the Parent
Borrower provided pursuant to clause (c) above, such amounts of Capital
Expenditures that were not so made in the fiscal year of the Parent Borrower
specified in such certificate, (v) cash payments received in respect of
Interest/Exchange Rate Protection Agreements during such fiscal year to the
extent not (A) included in the computation of EBITDA or (B) reducing Interest
Expense, (vi) any extraordinary or nonrecurring gain realized in cash
<PAGE>
27
during such fiscal year (except to the extent such gain is subject to Section
2.12(c)), (vii) to the extent deducted in the computation of EBITDA, interest
income, (viii) to the extent subtracted in determining EBITDA, all items that
did not result from a cash payment by the Parent Borrower and the Subsidiaries
on a consolidated basis during such fiscal year and (ix) the amount, if any, by
which the consolidated deferred revenues of the Parent Borrower and the
Subsidiaries increased during such fiscal year.
"Excess Vernon Proceeds" shall mean the net cash proceeds (net of any
applicable fees, taxes and expenses described as permitted deductions from cash
proceeds in the definition of the term "Net Proceeds") in excess of $30,000,000
received by the Parent Borrower or any Subsidiary in respect of any sale or
disposition of the Capital Stock or assets of Vernon (including any net cash
proceeds resulting from the realization of cash in respect of any non-cash
consideration received by the Parent Borrower or any Subsidiary) made pursuant
to Section 6.05(h).
"Existing Indebtedness" shall mean the Indebtedness of the Parent Borrower
and the Subsidiaries in existence immediately prior to the
Recapitalization/Acquisition in an aggregate principal amount not to exceed
$1,000,000.
"Facility Fee" shall have the meaning given such term in Section 2.05(a).
"Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the average
of the quotations for the day of such transactions received by the U.S.
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
"Fees" shall mean the Commitment Fees, the Facility Fees, the L/C
Participation Fees, the Fronting Bank Fees and the U.S. Administrative Agent
Fees.
<PAGE>
28
"Financial Officer" of any person shall mean the chief financial officer,
principal accounting officer, Treasurer, Assistant Treasurer or Controller of
such person.
"Fronting Bank" shall mean Chase Manhattan Bank Delaware or any Affiliate
thereof.
"Fronting Bank Fees" shall have the meaning given to such term in Section
2.05(b).
"Fund" shall mean Blackstone Capital Partners III Merchant Banking Fund
L.P., a Delaware limited partnership.
"Fund Affiliates" shall mean each Affiliate of the Fund that is not an
operating company or Controlled by an operating company and each general partner
of the Fund or any Fund Affiliate who is a partner or employee of The Blackstone
Group L.P.
"GAAP" shall mean generally accepted accounting principles in effect from
time to time in the United States applied on a consistent basis, except as set
forth on Schedule D.
"Gallery Concept Roll-out" shall mean, with respect to any individual
store, investments constituting Capital Expenditures in property and leasehold
improvements and other improvements to property made in respect of such store in
order to showcase a selection of collection books and in-stock residential
wallcoverings products using a dedicated space within such store.
"Governmental Authority" shall mean any Federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body or,
in the case of references to "Governmental Authority" in Article II and Sections
10.04 and 10.17, the National Association of Insurance Commissioners.
"Guarantee" of or by any person shall mean (a) any obligation, contingent
or otherwise, of such person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other person (the "primary obligor") in any
manner, whether directly or indirectly, and including any obligation of such
person, direct or indirect, (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness
<PAGE>
29
(whether arising by virtue of partnership arrangements, by agreement to keep
well, to purchase assets, goods, securities or services, to take-or-pay or
otherwise) or to purchase (or to advance or supply funds for the purchase of)
any security for the payment of such Indebtedness, (ii) to purchase or lease
property, securities or services for the purpose of assuring the owner of such
Indebtedness of the payment of such Indebtedness, (iii) to maintain working
capital, equity capital or any other financial statement condition or liquidity
of the primary obligor so as to enable the primary obligor to pay such
Indebtedness or (iv) entered into for the purpose of assuring in any other
manner the holders of such Indebtedness of the payment thereof or to protect
such holders against loss in respect thereof (in whole or in part), or (b) any
Lien on any assets of such person securing any Indebtedness of any other person,
whether or not such Indebtedness is assumed by such person; provided, however,
that the term "Guarantee" shall not include endorsements for collection or
deposit, in either case in the ordinary course of business, or customary and
reasonable indemnity obligations in effect on the Closing Date or entered into
in connection with any acquisition or disposition of assets permitted under this
Agreement.
"Guarantee Agreements" shall mean the Domestic Subsidiary Guarantee
Agreement, the U.K. Subsidiary Guarantee, the UK Newco Guarantee, the Parent
Borrower Guarantee Agreement and the Canadian Subsidiary Guarantee Agreement.
"Guarantors" shall mean the Domestic Subsidiary Guarantors, the U.K.
Subsidiary Guarantors, the Canadian Subsidiary Guarantors and the Parent
Borrower.
"Hazardous Materials" shall mean any material meeting the definition of a
"hazardous substance" in CERCLA 42 U.S.C. ss.9601(14) and all explosive or
radioactive substances or wastes; hazardous or toxic substances or wastes;
pollutants; solid, liquid or gaseous wastes, including petroleum, petroleum
distillates or fractions or residues, asbestos or asbestos containing materials,
polychlorinated biphenyls ("PCBs") or materials or equipment containing PCBs in
excess of 50 parts per million (ppm), radon gas, infectious or medical wastes,
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law, or that reasonably could form the basis of an Environmental
Claim.
<PAGE>
30
"Holdings" shall have the meaning given such term in the preamble to this
Agreement.
"IHC" shall have the meaning given such term in the preamble to this
Agreement.
"IHC Note" shall have the meaning given such Term in the preamble to this
Agreement.
"Imperial Acquisition" shall have the meaning given such term in the
preamble to this Agreement.
"Imperial Consideration" shall have the meaning given such term in the
preamble to this Agreement.
"Imperial Merger" shall have the meaning given such term in the preamble to
this Agreement.
"Inactive U.K. Subsidiary" means any Subsidiary organized under the laws of
England and Wales that (a) has total assets not in excess of the lesser of (i)
(pound)20,000 and (ii) the minimum capital such Subsidiary is required to
maintain by applicable law, (b) has no Indebtedness and (c) conducts no
business.
"Indebtedness" of any person shall mean, without duplication, (a) all
obligations of such person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such person
upon which interest charges are customarily paid (other than trade payables
incurred in the ordinary course of business), (d) all obligations of such person
under conditional sale or other title retention agreements relating to property
or assets purchased by such person, (e) all obligations of such person issued or
assumed as the deferred purchase price of property or services (other than
current trade liabilities incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such person, whether or not the obligations
secured thereby have been assumed, (g) all Guarantees by such person of
Indebtedness of others, (h) all Capital Lease Obligations of such person, (i)
all
<PAGE>
31
payments that such person would have to make in the event of an early
termination, on the date Indebtedness of such person is being determined, in
respect of outstanding interest rate protection agreements, foreign currency
exchange agreements or other interest or exchange rate hedging arrangements and
(j) all obligations of such person as an account party in respect of letters of
credit and bankers' acceptances. The Indebtedness of any person shall include
the Indebtedness of any partnership in which such person is a general partner,
other than to the extent that the instrument or agreement evidencing such
Indebtedness expressly limits the liability of such person in respect thereof,
provided that, if the sole asset of such person is its general partnership
interest in such partnership, the amount of such Indebtedness shall be deemed
equal to the value of such general partnership interest and the amount of any
Indebtedness in respect of any Guarantee of such partnership Indebtedness shall
be limited to the same extent as such Guarantee may be limited.
"Indemnity, Subrogation and Contribution Agreement" shall mean the
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit D, among the Parent Borrower, the Domestic Subsidiary Guarantors and the
Collateral Agent.
"Indenture Trustee" shall mean The Bank of New York, in its capacity as
trustee for the Senior Subordinated Note Holders.
"Information Memorandum" shall have the meaning given such term in Section
3.15.
"Installment Date" shall have the meaning given such term in Section 2.11.
"Intellectual Property Security Agreement" shall mean the Intellectual
Property Security Agreement, substantially in the form of Exhibit E, among the
Parent Borrower and certain Subsidiaries and the Collateral Agent for the
benefit of the Secured Parties.
"Interest Coverage Ratio" shall have the meaning given such term in Section
6.11.
"Interest/Exchange Rate Protection Agreement" shall mean any interest rate
or currency hedging agreement or
<PAGE>
32
arrangement approved by the U.S. Administrative Agent (such approval not to be
unreasonably withheld) entered into by the Parent Borrower or a Subsidiary and
designed to protect the Parent Borrower or such Subsidiary against fluctuations
in interest rates or currency exchange rates. Notwithstanding the foregoing, the
approval of the U.S. Administrative Agent shall not be required with respect to
any interest rate hedging agreement or arrangement or currency hedging agreement
or arrangement not required pursuant to Section 5.14 and entered into in the
ordinary course of business and not for speculative purposes.
"Interest Expense" shall mean, with respect to the Parent Borrower and the
Subsidiaries on a consolidated basis for any period, the sum of (a) gross
interest expense of the Parent Borrower and the Subsidiaries for such period on
a consolidated basis, including (i) the amortization of debt discounts, (ii) the
amortization of all fees (including fees with respect to interest or exchange
rate protection agreements) payable in connection with the incurrence of
Indebtedness to the extent included in interest expense and (iii) the portion of
any payments or accruals with respect to Capital Lease Obligations allocable to
interest expense and (b) capitalized interest of the Parent Borrower and the
Subsidiaries on a consolidated basis. For purposes of the foregoing, gross
interest expense shall be determined after giving effect to any net payments
made or received by the Parent Borrower and the Subsidiaries with respect to
interest or exchange rate protection agreements.
"Interest Payment Date" shall mean, (a) with respect to any Eurodollar
Loan, the last day of the Interest Period applicable to the Borrowing of which
such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months' duration, each day that would have been an
Interest Payment Date had successive Interest Periods of three months' duration
been applicable to such Borrowing, and, in addition, the date of any refinancing
or conversion of such Borrowing with or to a Borrowing of a different Type, (b)
with respect to any ABR Loan, the last day of each calendar quarter and (c) with
respect to any Canadian Prime Rate Loan, the last day of each calendar month.
"Interest Period" shall mean as to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing or
<PAGE>
33
on the last day of the immediately preceding Interest Period applicable to such
Borrowing, as the case may be, and ending on the numerically corresponding day
(or, if there is no numerically corresponding day, on the last day) in the
calendar month that is 1, 2, 3 or 6 months thereafter (or 9 or 12 months, if at
the time of the relevant Borrowing, all U.S. $ Revolving Credit Lenders (or all
C $ Revolving Credit Lenders or U.K. (pound) Revolving Credit Lenders, as
applicable) make interest periods of such length available), as the applicable
Borrower may elect; provided, however, that if any Interest Period would end on
a day other than a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless such next succeeding Business Day would fall
in the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day. Interest shall accrue from and including the first
day of an Interest Period to but excluding the last day of such Interest Period.
"Investment" shall have the meaning given such term in Section 6.04.
"Investors" shall have the meaning given such term in the preamble to this
Agreement.
"L/C Disbursement" shall mean a payment or disbursement made by the
Fronting Bank pursuant to a Letter of Credit.
"L/C Participation Fee" shall have the meaning given such term in Section
2.05(b).
"Leasehold Mortgage" shall mean any Mortgage that is a leasehold or
subleasehold mortgage.
"Lenders" shall have the meaning given such term in the introductory
paragraph of this Agreement. Unless the context otherwise requires, the term
"Lenders" includes the Swingline Lender.
"Letter of Credit" shall mean any letter of credit issued pursuant to this
Agreement.
"Leverage Ratio" shall mean, (a) on September 30, 1998, the ratio of (i)
Total Debt as of such date to (ii) the product of (A) EBITDA for the two quarter
period ended as of such date
<PAGE>
34
and (B) two, (b) on December 31, 1998, the ratio of (i) Total Debt as of such
date to (ii) the product of (A) EBITDA for the three quarter period ended as of
such date and (B) 4/3 and (c) on any date after December 31, 1998, the ratio of
(a) Total Debt as of such date to (b) EBITDA for the period of four consecutive
fiscal quarters of the Parent Borrower most recently ended as of such date, all
determined on a consolidated basis in accordance with GAAP.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any
Interest Period, the rate (rounded upwards, if necessary, to the next 1/16 of
1%) at which deposits in the currency in which such Borrowing is denominated
approximately equal in principal amount to the U.S. Administrative Agent's
portion of such Eurodollar Borrowing (or, if the U.S. Administrative Agent is
not a Lender in respect of such Borrowing, then the portion of such Borrowing of
the Lender with the largest Loan included in such Borrowing amount) and for a
maturity comparable to such Interest Period are offered to the principal London
office of the U.S. Administrative Agent or such Lender in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period.
"LIBOR Margin" shall mean, for any day, with respect to any Eurodollar
Borrowing, the applicable LIBOR Margin set forth in Schedule A under the caption
"Revolving Credit Loans and Tranche A LIBOR Margin and L/C Participation Fee",
"Tranche B LIBOR Margin" or "Tranche C LIBOR Margin", as applicable, based upon
the Leverage Ratio in effect as of such day, as set forth in Schedule A;
provided, however, that the LIBOR Margin for any Eurodollar Borrowing that is a
C $ Revolving Credit Borrowing or a U.K. (pound) Revolving Credit Borrowing
shall be such applicable LIBOR Margin set forth on Schedule A, minus the
Facility Fee in effect at such time.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities, any
<PAGE>
35
purchase option, call or similar right of a third party with respect to such
securities.
"Loan Documents" shall mean this Agreement, the Letters of Credit, the
Guarantee Agreements, the Security Documents and the Indemnity, Subrogation and
Contribution Agreement.
"Loan Parties" shall mean Holdings, the Borrowers and the Guarantors.
"Loans" shall mean the Revolving Credit Loans, the Term Loans and the
Swingline Loans.
"Majority Lenders" shall mean, with respect to any Credit Facility on any
date, Lenders having Loans and unused Commitments representing more than 50% of
the sum of all Loans and unused Commitments under such Credit Facility on such
date. For purposes of determining the Majority Lenders, any amounts denominated
in an Alternative Currency shall be translated into Dollars at the Spot Exchange
Rates in effect on the Closing Date.
"Management Options" shall mean the options on the common stock of the
Parent Borrower issued to officers of the Parent Borrower and the Subsidiaries,
which options in the aggregate shall not at any time represent more than 12.0%
of the issued and outstanding Capital Stock of the Parent Borrower on a fully
diluted basis.
"Margin Stock" shall have the meaning given such term in Regulation U.
"Material Adverse Effect" shall mean (a) a materially adverse effect on the
assets, business, properties, financial condition or results of operations of
the Parent Borrower and its subsidiaries, the Sunworthy business, Imperial
Wallcoverings (Canada) Inc. and Imperial Wallcoverings, Inc. and its
subsidiaries, taken as a whole, (b) a material impairment of the ability of the
Parent Borrower or any Subsidiary to perform any of its material obligations
under any Loan Document to which it is or will be a party or to consummate the
Transactions or (c) an impairment of the validity or enforceability of, or a
material impairment of the material rights, remedies or benefits available to
the Lenders, the Fronting Bank, the U.S. Administrative Agent or the Collateral
Agent under, any Loan Document.
<PAGE>
36
"Merger" shall have the meaning given such term in the preamble to this
Agreement.
"MergerCo" shall have the meaning given such term in the preamble to this
Agreement.
"Mortgaged Properties" shall mean the owned real properties and leasehold
interests of the Loan Parties specified on Schedule 3.20 that are expressly
designated "Mortgaged Properties".
"Mortgages" shall mean the mortgages, deeds of trust, leasehold mortgages,
assignments of leases and rents, modifications and other security documents
delivered pursuant to clause (i) of Section 4.02(i) or pursuant to Section 5.11,
each (except in the case of any Leasehold Mortgage) substantially in the form of
Exhibit F.
"Multiemployer Plan" shall mean a multiemployer plan as defined in Section
4001(a)(3) of ERISA to which the Parent Borrower or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Code Section 414) is making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or accrued an obligation to
make contributions.
"Net Proceeds" shall mean (a) 100% of the cash proceeds actually received
by the Parent Borrower or any Subsidiary (including any cash payments received
by way of deferred payment of principal pursuant to a note or installment
receivable or purchase price adjustment receivable or otherwise and including
casualty insurance settlements and condemnation awards, but only as and when
received), net of (i) attorneys' fees, accountants' fees, investment banking
fees, survey costs, title insurance premiums, and related search and recording
charges, transfer taxes, deed or mortgage recording taxes, required debt
payments (other than pursuant hereto), other customary expenses and brokerage,
consultant and other customary fees actually incurred in connection therewith
and (ii) taxes paid or payable as a result thereof (including withholding taxes
incurred in connection with cross-border transactions, if applicable, and
including taxes estimated by the Parent Borrower to be payable as a result
thereof or as a result of such transactions), from any
<PAGE>
37
loss, damage, destruction or condemnation of, or any sale, transfer or other
disposition (including any sale and leaseback of assets and any mortgage or
lease of real property) to any person of any asset or assets of the Parent
Borrower or any Subsidiary (other than those pursuant to Sections 6.03, 6.05(a),
6.05(b), 6.05(e) and 6.05(h) (to the extent any such proceeds constitute Excess
Vernon Proceeds) or any other financing subject to clause (ii) of the definition
of the term "Excess Cash Flow"), provided that if the Parent Borrower shall
deliver a certificate of a Responsible Officer to the U.S. Administrative Agent
promptly following receipt of any such proceeds (other than any such proceeds
received in connection with the sale of all or substantially all of the assets
or the Capital Stock of Vernon pursuant to Section 6.05(h)) setting forth the
Parent Borrower's intention to use any portion of such proceeds to purchase
assets useful in the business of the Parent Borrower and the Subsidiaries within
12 months of such receipt, such portion of such proceeds shall not constitute
Net Proceeds except to the extent not so used within such 12-month period, and
provided further that (x) no proceeds realized in a single transaction or series
of related transactions shall constitute Net Proceeds unless such proceeds shall
exceed $500,000 and (y) no such proceeds shall constitute Net Proceeds in any
fiscal year until the aggregate amount of all such proceeds in such fiscal year
shall exceed $1,000,000 or the aggregate of all such proceeds received after the
Closing Date shall exceed $2,000,000 and (b) 100% of the cash proceeds from the
incurrence, issuance or sale by the Parent Borrower or any Subsidiary of any
Indebtedness (other than Indebtedness permitted pursuant to Section 6.01), net
of all taxes (including withholding taxes incurred in connection with
cross-border transactions, if applicable, and including taxes estimated by the
Parent Borrower to be payable as a result thereof or as a result of such
transactions) and fees (including investment banking fees), commissions, costs
and other expenses incurred in connection with such issuance or sale. For
purposes of calculating the amount of Net Proceeds, fees, commissions and other
costs and expenses payable to the Parent Borrower or any Affiliate of the Parent
Borrower shall be disregarded, except for financial advisory fees customary in
type and amount paid to Affiliates of The Blackstone Group L.P.
"Notes" shall mean any promissory note of any Borrower issued pursuant to
this Agreement.
<PAGE>
38
"Obligation Currency" shall have the meaning specified in Section 10.16.
"Obligations" shall mean all obligations defined as "Obligations" in the
Guarantee Agreements and the Security Documents.
"Offering Memorandum" shall mean the Offering Memorandum dated March 11,
1998, relating to the Senior Subordinated Notes, as amended, supplemented or
otherwise modified from time to time, subject to the prior written consent of
all the Lenders in the case of any amendment, supplement or other modification
in any manner adverse to the Lenders.
"Parent Borrower" shall have the meaning given such term in the preamble to
this Agreement.
"Parent Borrower Guarantee Agreement" shall mean the Parent Borrower
Guarantee Agreement, substantially in the form of Exhibit I-5, made by the
Parent Borrower in favor of the Collateral Agent for the benefit of the Secured
Parties.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and
defined in ERISA.
"Permitted Business Acquisition" shall mean any acquisition as a going
concern of all or substantially all the assets of, or shares or other equity
interests in, a person or division or line of business of a person (or any
subsequent investment made in a previously acquired Permitted Business
Acquisition) if immediately after giving effect thereto: (a) no Default or Event
of Default shall have occurred and be continuing or would result therefrom, (b)
all transactions related thereto shall be consummated in accordance with
applicable laws, (c) at least 90% of the Capital Stock of any acquired or newly
formed corporation, partnership, association or other business entity are owned
directly by the Parent Borrower or a Domestic Wholly Owned Subsidiary (other
than UK Newco) (unless there is a material tax or legal or other economic
disadvantage in not having a non-Domestic Subsidiary or UK Newco hold such
Capital Stock, in which case such Capital Stock may be held directly by a
non-Domestic Subsidiary or UK Newco) and all actions required to be taken, if
any, with respect to such acquired or newly formed subsidiary under Section 5.11
shall have been taken and (d)(i) the Parent Borrower and the Subsidiaries shall
be in
<PAGE>
39
compliance, on a pro forma basis after giving effect to such acquisition or
formation, with the covenants contained in Sections 6.11 and 6.12 recomputed as
at the last day of the most recently ended fiscal quarter of the Parent Borrower
and the Subsidiaries as if such acquisition had occurred on the first day of
each relevant period for testing such compliance, and the Parent Borrower shall
have delivered to the U.S. Administrative Agent an officers' certificate to such
effect, together with all relevant financial information for such subsidiary or
assets, and (ii) any acquired or newly formed subsidiary shall not be liable for
any Indebtedness (except for Indebtedness permitted by Section 6.01). Pro forma
calculations made pursuant to clause (d)(i) of the immediately preceding
sentence may include adjustments (a) to reflect operating expense reductions
reasonably expected to result during the 12-month period following the date of
the applicable acquisition from any acquisition that occurred during the
relevant period for testing compliance or (b) to eliminate the effect of any
extraordinary accounting event with respect to any acquired person or assets on
EBITDA, in each case as determined reasonably and in good faith by the Chief
Financial Officer of the Parent Borrower and approved by the Board of Directors
of the Parent Borrower, as set forth in an officer's certificate delivered to
the U.S. Administrative Agent.
"Permitted Foreign Transfer" shall mean (a) the transfer (other than the
Sunworthy Transfer) by means of Indebtedness, investment or otherwise (provided
that each transfer of cash shall be made by means of intercompany Indebtedness
(which shall be pledged to the extent required under the Pledge Agreement if, in
the reasonable judgment of the senior management of the Parent Borrower, no
material tax disadvantage to the Parent Borrower or any Subsidiary shall result
therefrom) unless, in the reasonable judgment of the senior management of the
Parent Borrower, there is a material tax or other material economic or legal
disadvantage to the Parent Borrower or any Subsidiary in structuring the
transfer as Indebtedness instead of as an equity investment, it being agreed by
the parties hereto that such a material tax disadvantage would result from the
transfer, directly or indirectly, of cash by UK Newco to any of its direct or
indirect subsidiaries by means of intercompany Indebtedness) from the Parent
Borrower or any Domestic Subsidiary to any non-Domestic Wholly Owned Subsidiary
organized under the laws of the United Kingdom or Canada, of (i) inventory and
equipment in the ordinary course of business consistent with past practice; and
(ii) cash in an aggregate net amount (giving effect to, without duplication, all
returns of cash to the Parent Borrower or any
<PAGE>
40
Domestic Subsidiary (other than UK Newco) by way of dividends, capital
distributions, repurchase of equity interests, payments in respect of
reimbursements of drawings under Letters of Credit or repayment of principal of
any intercompany Indebtedness created pursuant thereto, in each case to the
extent permitted by the terms of this Agreement) not to exceed (A) $40,000,000
minus (B) the Foreign L/C Investment Amount (as defined below) at the time to
fund (x) working capital needs and capital expenditures, in each case in the
ordinary course of business consistent with the respective past practices of
Borden or C&A, and (y) debt service on Indebtedness permitted under this
Agreement paid in the ordinary course of business, and, in the case of any
transaction under clause (x) or clause (y), solely to the extent internally
generated funds and funds available as U.K. (pound) Revolving Credit Borrowings
or C $ Revolving Credit Borrowings, as applicable, of the applicable transferee
and permitted to be applied for such purposes are insufficient for such purposes
and the Parent Borrower shall have delivered to the U.S. Administrative Agent a
certificate to such effect and (b) the issuance for the account of the Parent
Borrower of Letters of Credit in support of working capital needs of
non-Domestic Wholly Owned Subsidiaries organized under the laws of the United
Kingdom or Canada in the ordinary course of business, and the reimbursement by
the Parent Borrower (including by means of Revolving Credit Borrowings) of
disbursements made by the Fronting Bank in respect of such Letters of Credit,
provided that the aggregate amount (the "Foreign L/C Investment Amount") of
reimbursement payments (including by means of Revolving Credit Borrowings) in
respect of such Letters of Credit made by the Parent Borrower to the Fronting
Bank at or prior to such time that have not been reimbursed by the applicable
non-Domestic Subsidiary in cash within three Business Days after the date on
which the Parent Borrower made the applicable reimbursement payments (net,
without duplication of reductions in the net amount referred to in clause
(a)(ii) above, of returns of cash referred to in the parenthetical to clause
(a)(ii) above) shall not exceed (A) $40,000,000 minus (B) the aggregate net
amount of transfers made pursuant to clause (a) above.
"Permitted Investments" shall mean: (a) with respect to investments
denominated in Dollars, (i) direct obligations of the United States of America
or any agency thereof or obligations guaranteed by the United States of America
or any agency thereof; (ii) time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, Canada,
<PAGE>
41
any state or province thereof or any foreign country recognized by the United
States of America or Canada having capital, surplus and undivided profits
aggregating in excess of $250,000,000 (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated A (or such similar equivalent rating or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act of 1933, as amended)); (iii) repurchase obligations
with a term of not more than 30 days for underlying securities of the types
described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above; (iv) commercial paper, maturing
not more than 180 days after the date of acquisition, issued by a corporation
(other than an Affiliate of any Borrower) organized and in existence under the
laws of the United States of America, Canada or any foreign country recognized
by the United States of America or Canada with a rating at the time as of which
any investment therein is made of P-1 (or higher) according to Moody's Investors
Service, Inc., or A-1 (or higher) according to Standard & Poor's Ratings Group;
(v) securities with maturities of six months or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States of America, or by any political subdivision or taxing
authority thereof, and rated at least A by Standard & Poor's Ratings Group or A
by Moody's Investors Service, Inc.; (vi) in the case of any Subsidiary organized
in a jurisdiction outside the United States: (A) direct obligations of the
sovereign nation (or any agency thereof) in which such Subsidiary is organized
and is conducting business or in obligations fully and unconditionally
guaranteed by such sovereign nation (or any agency thereof), (B) investments of
the type and maturity described in clauses (i) through (v) above of foreign
obligors, which investments or obligors (or the parents of such obligors) have
ratings described in such clauses or equivalent ratings from comparable foreign
rating agencies or (C) investments of the type and maturity described in clauses
(i) through (v) above of foreign obligors (or the parents of such obligors),
which investments or obligors (or the parents of such obligors) are not rated as
provided in such clauses or in clause (B) above but which are, in the reasonable
judgment of the Parent Borrower, comparable in investment quality to such
investments and obligors (or the parents of such obligors), provided that the
aggregate face amount outstanding at any time of such investments of all
non-Domestic Subsidiaries made pursuant to clause (C) does not exceed
$5,000,000; (viii) shares of mutual funds whose investment guidelines restrict
such funds' investments to those satisfying the provisions of clauses (i)
through (v) above; and (ix) time
<PAGE>
42
deposit accounts, certificates of deposit and money market deposits in an
aggregate face amount not in excess of 1/2 of 1% of total assets of the Parent
Borrower and the Subsidiaries, on a consolidated basis, as of the end of the
Parent Borrower's most recently completed fiscal year; and
(b) with respect to investments denominated in Canadian Dollars, (i) direct
obligations of Canada or any agency thereof or obligations guaranteed by Canada
or any agency thereof; (ii) time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by (A) any bank described in clause (a)(ii) above, (B) any bank
listed under Schedule I to the Bank Act (Canada) or (C) any other bank which is
organized under the laws of Canada or any province thereof whose long-term debt,
or whose parent holding company's long-term debt, is rated at least A by
Canadian Bond Rating Service, Inc. and the Dominion Bond Rating Service Limited;
and (iii) commercial paper, maturing not more than 180 days after the date of
acquisition, issued by a corporation (other than an Affiliate of any Loan Party)
organized and in existence under the laws of the United States of America,
Canada, any state or province thereof or any foreign country recognized by the
United States of America or Canada with a rating at the time as of which an
investment therein is made of A1 (or higher) according to Canadian Bond Rating
Service, Inc. and R1 (high) according to Dominion Bond Rating Service Limited.
"person" shall mean any natural person, corporation, business trust, joint
venture, association, company, partnership, limited liability company or
government, or any agency or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code and in respect of which the Parent Borrower or any ERISA
Affiliate is (or, if such plan were terminated, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Pledge Agreement" shall mean the Pledge Agreement, substantially in the
form of Exhibit G-1, among Holdings, the Parent Borrower, certain Subsidiaries
and the Collateral Agent for the benefit of the Secured Parties.
"Pledge Agreements" shall mean the Pledge Agreement, the Canadian Pledge
Agreement, the UK Newco Pledge Agreement and the U.K. Borrower Pledge Agreement.
<PAGE>
43
"Prime Rate" shall mean (a) in respect of ABR Loans provided by the U.S. $
Revolving Credit Lenders, the rate of interest per annum publicly announced from
time to time by the U.S. Administrative Agent as its prime rate in effect at its
principal office in New York City and (b) in respect of ABR Loans provided by C
$ Revolving Credit Lenders, the rate per annum announced from time to time by
the Canadian Administrative Agent as its U.S. base rate in effect at its office
in Toronto for determining interest rates on Dollar denominated commercial loans
in Canada; each change in the Prime Rate shall be effective on the date such
change is publicly announced as being effective.
"Product Development Costs" shall mean costs incurred for sample books,
studio strike offs, design acquisition and development, printing cylinders,
engraving and analogous items.
"Properties" shall have the meaning given such term in Section 3.17(a).
"Recapitalization" shall have the meaning given such term in the preamble
to this Agreement.
"Recapitalization/Acquisition" shall have the meaning given such term in
the preamble to this Agreement.
"Recapitalization Agreement" shall mean the Recapitalization Agreement
dated as of October 14, 1997, among Borden, Borden Decorative Products Holdings,
Inc. and MergerCo.
"Recapitalization Consideration" shall have the meaning given such term in
the preamble to this Agreement.
"Refinancing Note Indenture" shall mean one or more indentures pursuant to
which the Refinancing Notes are issued.
"Refinancing Notes" shall mean one or more series of subordinated
debentures or notes issued by the Parent Borrower, the Net Proceeds of which are
used by the Parent Borrower to redeem Senior Subordinated Exchange Notes or
Senior Subordinated Notes.
"Register" shall have the meaning given such term in Section 10.04(d).
<PAGE>
44
"Regulation G" shall mean Regulation G of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Related Claims" shall mean (a) in respect of any Borrower, all obligations
of such Borrower in respect of any Loans and L/C Disbursements that comprise a
single Credit Facility and are denominated in the same currency and (b) in
respect of any other Loan Party, all obligations of such Loan Party in respect
of any Loans and L/C Disbursements that are denominated in the same currency.
"Related Lenders" shall mean all Lenders holding Related Claims.
"Release" shall have the meaning given such term in CERCLA, 42 U.S.C.
ss.9601(22).
"Remedial Action" shall mean (a) "remedial action" as such term is defined
in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions, including
studies and investigations, required by any Governmental Authority or
voluntarily undertaken to (i) clean up, remove, treat, abate or in any other way
respond to any Hazardous Material in the environment or (ii) prevent the Release
or threatened Release, or minimize the further Release of any Hazardous
Material.
"Reportable Event" shall mean any reportable event as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than a Plan maintained by an ERISA Affiliate that is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Code Section 414).
"Required Lenders" shall mean, at any time, Lenders having Loans (excluding
Swingline Loans), Revolving L/C Exposure, Swingline Exposure and unused
Commitments (excluding commitments to issue Letters of Credit or make Swingline
Loans) representing more than 50% of the sum of all Loans (excluding Swingline
<PAGE>
45
Loans), Revolving L/C Exposure, Swingline Exposure and unused Commitments
(excluding commitments to issue Letters of Credit or make Swingline Loans) at
such time. For purposes of determining the Required Lenders, any amounts
denominated in an Alternative Currency shall be translated into Dollars at the
Spot Exchange Rates in effect on the Closing Date.
"Reset Date" shall have the meaning given such term in Section 2.22(a).
"Responsible Officer" of any person shall mean any executive officer or
Financial Officer of such person and any other officer or similar official
thereof responsible for the administration of the obligations of such person in
respect of this Agreement.
"Restructuring Charges" shall mean employee severance and termination,
restructuring, consolidation and business discontinuation costs.
"Revolving Credit Borrowing" shall mean a Borrowing comprised of U.S. $
Revolving Credit Loans, U.K. (pound) Revolving Credit Loans or C $ Revolving
Credit Loans.
"Revolving Credit Commitments" shall mean the U.S. $ Revolving Credit
Commitments, the U.K. (pound) Revolving Credit Commitments and the C $ Revolving
Credit Commitments.
"Revolving Credit Exposures" shall mean the U.S. $ Revolving Credit
Exposures, the U.K. (pound) Revolving Credit Exposures and the C $ Revolving
Credit Exposures.
"Revolving Credit Lenders" shall mean the U.S. $ Revolving Credit Lenders,
the U.K. (pound) Revolving Credit Lenders and the C $ Revolving Credit Lenders.
"Revolving Credit Loan" shall mean any U.S. $ Revolving Credit Loan, U.K.
(pound) Revolving Credit Loan or C $ Revolving Credit Loan.
"Revolving Credit Maturity Date" shall mean March 13, 2004.
"Revolving L/C Commitment" shall mean, with respect to the Fronting Bank,
the commitment of the Fronting Bank to issue Letters of Credit pursuant to
Section 2.20(a).
<PAGE>
46
"Revolving L/C Exposure" shall mean, at any time, the sum of (a) the
aggregate undrawn amount of all outstanding Letters of Credit at such time, plus
(b) the aggregate principal amount of all L/C Disbursements that have not yet
been reimbursed at such time. The Revolving L/C Exposure of any U.S. $ Revolving
Credit Lender at any time shall mean its Applicable Percentage of the aggregate
Revolving L/C Exposure at such time. U.K. (pound) Revolving Credit Lenders and C
$ Revolving Credit Lenders, in their capacity as such, shall not have any
Revolving L/C Exposure.
"Sale and Lease-Back Transaction" shall have the meaning given such term in
Section 6.03.
"Schedule I Reference Banks" shall mean such Schedule I chartered banks
under the Bank Act (Canada) as are mutually agreed upon by the Canadian
Administrative Agent and the Canadian Borrower.
"Schedule II Reference Banks" shall mean such Schedule II chartered banks
under the Bank Act (Canada) as are mutually agreed upon by the Canadian
Administrative Agent and the Canadian Borrower.
"Secured Parties" shall have the meaning given such term in the Security
Agreement.
"Security Agreement" shall mean the Security Agreement, substantially in
the form of Exhibit H, among the Parent Borrower, certain Subsidiaries and the
Collateral Agent for the benefit of the Secured Parties.
"Security Documents" shall mean the Mortgages (including any Leasehold
Mortgages), the Security Agreement, the Intellectual Property Security
Agreement, the Pledge Agreements and each of the security agreements, mortgages
and other instruments and documents executed and delivered pursuant to any of
the foregoing or pursuant to Section 5.11.
"Senior Subordinated Exchange Indenture" shall mean the indenture pursuant
to which the Senior Subordinated Exchange Notes are issued.
"Senior Subordinated Exchange Notes" shall mean senior subordinated notes
of the Parent Borrower issued in exchange for
<PAGE>
47
Senior Subordinated Notes on terms substantially identical to the terms of the
Senior Subordinated Notes.
"Senior Subordinated Indenture" shall mean the indenture dated as of March
, 1998, among the Parent Borrower, as issuer, the Subsidiaries parties thereto,
as guarantors, and the Indenture Trustee, as amended from time to time in
accordance with the terms hereof and thereof.
"Senior Subordinated Note Holders" shall mean the holders of the Senior
Subordinated Notes.
"Senior Subordinated Notes" shall mean up to $125,000,000 aggregate
principal amount of Senior Subordinated Notes of the Parent Borrower issued
pursuant to the Senior Subordinated Indenture.
"Spot Exchange Rate" shall mean, on any day, (a) with respect to Sterling,
the spot rate at which Dollars are offered on such day by The Chase Manhattan
Bank in London for Sterling at approximately 11:00 a.m. (London time) and (b)
with respect to Canadian Dollars, the spot rate at which Dollars are offered on
such day by the Canadian Administrative Agent in Toronto for Canadian Dollars at
approximately 11:00 a.m. (Toronto time).
"Statutory Reserves" shall mean with respect to any currency, a fraction
(expressed as a decimal), the numerator of which is the number one and the
denominator of which is the number one minus the aggregate of the maximum
reserve, liquid asset or similar percentages (including any marginal, special,
emergency or supplemental reserves) expressed as a decimal established by any
Governmental Authority of the United States or of the jurisdiction of such
currency or in which any subject Loans in such currency are made to which banks
in such jurisdiction are subject for any category of deposits or liabilities
customarily used to fund loans in such currency or by reference to which
interest rates applicable to Loans in such currency are determined. Such
reserve, liquid asset or similar percentages shall, in the case of Dollars,
include those imposed pursuant to Regulation D (and for purposes of Regulation
D, Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities).
Loans shall be deemed to be subject to such reserve requirements without benefit
of or credit for proration, exemptions or offsets that may be available from
time to time to any Lender under Regulation D or any other applicable law, rule
or regulation. Statutory Reserves shall be adjusted
<PAGE>
48
automatically on and as of the effective date of any change in any reserve
percentage.
"Sterling" or "(pound)" shall mean lawful money of the United Kingdom.
"subsidiary" shall mean, with respect to any person (herein referred to as
the "parent"), any corporation, partnership, association or other business
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general partnership interests are, at the time any determination
is being made, directly or indirectly, owned, controlled or held, or (b) that
is, at the time any determination is made, otherwise Controlled, by the parent
or one or more subsidiaries of the parent or by the parent and one or more
subsidiaries of the parent.
"Subsidiary" shall mean each subsidiary of the Parent Borrower. For
purposes of the representations and warranties made herein on the Closing Date,
the term "Subsidiary" includes each of Imperial Wallcoverings, Inc. and Borden's
Sunworthy business and, where applicable, the assets and liabilities to be
transferred to Sunworthy pursuant to the Recapitalization Agreement.
"Subsidiary Borrowers" shall mean the U.K. Borrower and the Canadian
Borrower.
"Sunworthy Assets" shall have the meaning given such term in the preamble
to this Agreement.
"Sunworthy Transfer" shall mean the transfer on or following the Closing
Date by the Parent Borrower or any of its Domestic Subsidiaries of any
beneficial or other ownership interest any of them may have in the Sunworthy
Assets to the Canadian Borrower.
"Swingline Exposure" shall mean at any time the aggregate principal amount
at such time of all outstanding Swingline Loans. The Swingline Exposure of any
U.S. $ Revolving Credit Lender at any time shall mean its Applicable Percentage
of the aggregate Swingline Exposure at such time.
"Swingline Lender" shall mean The Chase Manhattan Bank in its capacity as
Swingline Lender hereunder.
<PAGE>
49
"Swingline Loan Commitment" shall mean the commitment of the Swingline
Lender to make Swingline Loans as set forth in Section 2.01(e).
"Swingline Loans" shall mean the swingline loans made by the Swingline
Lender to the Parent Borrower pursuant to Section 2.01(e).
"Term Borrowing" shall mean a Borrowing comprised of Term Loans.
"Term Commitments" shall mean the Tranche A Term Loan Commitments, the
Tranche B Term Loan Commitments and the Tranche C Term Loan Commitments.
"Term Lender" shall mean a Lender with a Term Commitment.
"Term Loans" shall mean the term loans made by the Lenders to the Parent
Borrower pursuant to Section 2.01(a). Each Term Loan shall be a Eurodollar Term
Loan or an ABR Term Loan.
"Total C $ Revolving Credit Commitment" shall mean, at any time, the
aggregate amount of the C $ Revolving Credit Commitments, as in effect at such
time. The Total C $ Revolving Credit Commitment on the Closing Date is U.S.
$20,000,000.
"Total Debt" shall mean, with respect to the Parent Borrower and the
Subsidiaries on a consolidated basis at any time (without duplication), all
Indebtedness consisting of Capital Lease Obligations, Indebtedness for borrowed
money and Indebtedness in respect of the deferred purchase price of property or
services of the Parent Borrower and the Subsidiaries on a consolidated basis at
such time.
"Total Net Debt" shall mean, at any time, (a) Total Debt at such time minus
(b) the aggregate amount of cash and cash equivalents in excess of $2,500,000
set forth on the consolidated balance sheet of the Parent Borrower and the
Subsidiaries prepared as of such time in accordance with GAAP, and located in
the United States or, if located outside the United States, the net amount (net
of any applicable taxes, fees or transaction costs) that may be transferred to
the United States within two Business Days, as certified by a Financial Officer
of the Parent Borrower as of the date of any determination of Total Net Debt.
<PAGE>
50
"Total U.K. (pound) Revolving Credit Commitment" shall mean, at any time,
the aggregate amount of the U.K. (pound) Revolving Credit Commitments, as in
effect at such time. The Total U.K. (pound) Revolving Credit Commitment on the
Closing Date is U.S. $10,000,000.
"Total U.S. $ Revolving Credit Commitment" shall mean, at any time, the
aggregate amount of the U.S. $ Revolving Credit Commitments, as in effect at
such time. The Total U.S. $ Revolving Credit Commitment on the Closing Date is
$45,000,000.
"Tranche A Lender" shall mean a Lender with a Tranche A Term Loan
Commitment.
"Tranche A Maturity Date" shall mean March 13, 2004.
"Tranche A Term Borrowing" shall mean a Borrowing comprised of Tranche A
Term Loans.
"Tranche A Term Loan Closing Date" shall mean each date on which Tranche A
Term Loans are made.
"Tranche A Term Loan Commitment" shall mean with respect to each Lender,
the commitment of such Lender to make Tranche A Term Loans hereunder as set
forth in Section 2.01(a)(i), as the same may be reduced from time to time
pursuant to Section 2.09.
"Tranche A Term Loans" shall mean the term loans made by the Lenders to the
Parent Borrower pursuant to Section 2.01(a)(i).
"Tranche B Maturity Date" shall mean March 13, 2005.
"Tranche B Term Borrowing" shall mean a Borrowing comprised of Tranche B
Term Loans.
"Tranche B Term Loan Commitment" shall mean with respect to each Lender,
the commitment of such Lender to make Tranche B Term Loans hereunder as set
forth in Section 2.01(a)(ii), as the same may be reduced from time to time
pursuant to Section 2.09.
<PAGE>
51
"Tranche B Term Loans" shall mean the term loans made by the Lenders to the
Parent Borrower pursuant to Section 2.01(a)(ii).
"Tranche C Maturity Date" shall mean March 13, 2006.
"Tranche C Term Borrowing" shall mean a Borrowing comprised of Tranche C
Term Loans.
"Tranche C Term Loan Commitment" shall mean with respect to each Lender,
the commitment of such Lender to make Tranche C Term Loans hereunder as set
forth in Section 2.01(a)(iii), as the same may be reduced from time to time
pursuant to Section 2.09.
"Tranche C Term Loans" shall mean the term loans made by the Lenders to the
Parent Borrower pursuant to Section 2.01(a)(iii).
"Transaction Costs" shall have the meaning given such term in the preamble
to this Agreement.
"Transactions" shall have the meaning given such term in the preamble to
this Agreement.
"Type", when used in respect of any Loan or Borrowing, shall refer to the
Rate by reference to which interest on such Loan or on the Loans comprising such
Borrowing is determined. For purposes hereof, the term "Rate" shall include the
Adjusted LIBO Rate, the Alternate Base Rate, the Canadian Prime Rate and the
Discount Rate Applicable to B/As or B/A Equivalent Notes.
"U.K. (pound) Revolving Credit Borrowing" shall mean a Borrowing comprised
of U.K. (pound) Revolving Credit Loans.
"U.K. (pound) Revolving Credit Commitment" shall mean, with respect to any
Lender at any time, the commitment (if any) of such Lender to make loans
pursuant to Section 2.01(c) or in the Assignment and Acceptance pursuant to
which such Lender assumed its U.K. (pound) Revolving Credit Commitment, as
applicable. Subject to Section 10.04, the amount of each Lender's U.K. (pound)
Revolving Credit Commitment is the amount set forth opposite such Lender's name
in Schedule 2.01 under the caption "U.K. (pound) Revolving Credit Commitment",
as such amount may be permanently terminated or from time to time permanently or
temporarily reduced or increased pursuant to Section 2.09.
<PAGE>
52
"U.K. (pound) Revolving Credit Exposure" shall mean, with respect to any
Lender at any time, the sum of (a) the aggregate principal amount at such time
of all outstanding U.K. (pound) Revolving Credit Loans of such Lender
denominated in Dollars, plus (b) the Assigned Dollar Value at such time of the
aggregate principal amount at such time of all outstanding U.K. (pound)
Revolving Credit Loans of such Lender that are Alternative Currency Loans.
"U.K. (pound) Revolving Credit Lender" shall mean a Lender with a U.K.
(pound) Revolving Credit Commitment.
"U.K. (pound) Revolving Credit Loan" shall mean any loan made by a Lender
pursuant to its U.K. (pound) Revolving Credit Commitment.
"U.K. Borrower" shall have the meaning given such term in the preamble to
this Agreement.
"U.K. Borrower Pledge Agreement" shall mean the Mortgage of Shares of
Imperial Home Decor Group Holdings II Limited, substantially in the form of
Exhibit G-3, among UK Newco, IHC and the Collateral Agent for the benefit of the
Secured Parties.
"U.K. Guaranteed Parties" shall have the meaning given such term in the
U.K. Subsidiary Guarantee Agreement.
"UK Newco" shall mean Imperial Home Decor Group Holdings I Limited, a
limited company incorporated under the laws of England and Wales that is a
Wholly Owned Subsidiary, which, after the consummation of the Transactions, for
United States federal income tax purposes will be classified and treated as a
division of the Parent Borrower and for tax purposes of the United Kingdom will
be treated as a company incorporated under the laws of England and Wales. For
purposes of this Agreement and the other Loan Documents, UK Newco shall be
deemed to be a Domestic Subsidiary.
"UK Newco Guarantee" shall mean the UK Newco Guarantee, substantially in
the form of Exhibit I-4, made by UK Newco in favor of the Collateral Agreement
for the benefit of the Secured Parties.
"UK Newco Pledge Agreement" shall mean the Mortgage of Shares of UK Newco,
substantially in the form of Exhibit G-2, between the Parent Borrower and the
Collateral Agent for the benefit of the Secured Parties.
<PAGE>
53
"U.K. Subsidiary Guarantee" shall mean the Subsidiary Guarantee,
substantially in the form of Exhibit I-3, made by the U.K. Subsidiary Guarantors
in favor of the Collateral Agent for the benefit of the U.K. Guaranteed Parties.
"U.K. Subsidiary Guarantor" shall mean each Subsidiary organized under the
laws of the United Kingdom other than (a) the U.K. Borrower, (b) UK Newco, (c)
Imperial Pension Trustees Limited and (d) Inactive U.K. Subsidiaries.
"U.S. $ Revolving Credit Borrowing" shall mean a Borrowing comprised of
U.S. $ Revolving Credit Loans.
"U.S. $ Revolving Credit Commitment" shall mean, with respect to any
Lender, the commitment (if any) of such Lender to make loans pursuant to Section
2.01(b) or in the Assignment and Acceptance pursuant to which such Lender
assumed its U.S. $ Revolving Credit Commitment, as applicable, and to acquire
participations in Letters of Credit pursuant to Section 2.20 and Swingline Loans
pursuant to Section 2.01(f). Subject to Section 10.04, the amount of each
Lender's U.S. $ Revolving Credit Commitment is the amount set forth opposite
such Lender's name in Schedule 2.01 under the caption "U.S. $ Revolving Credit
Commitment", as such amount may be permanently terminated or from time to time
permanently or temporarily reduced or increased pursuant to Section 2.09.
"U.S. $ Revolving Credit Exposure" shall mean, with respect to any Lender
at any time, the sum of (a) the aggregate principal amount at such time of all
outstanding U.S. $ Revolving Credit Loans of such Lender, plus (b) the aggregate
amount at such time of such Lender's Revolving L/C Exposure, plus (c) the
aggregate amount at such time of such Lender's Swingline Exposure.
"U.S. $ Revolving Credit Lender" shall mean a Lender with a U.S. $
Revolving Credit Commitment.
"U.S. $ Revolving Credit Loan" shall mean any loan made by a Lender
pursuant to its U.S. $ Revolving Credit Commitment.
"U.S. Administrative Agent" shall have the meaning given such term in the
introductory paragraph of this Agreement.
"U.S. Administrative Agent Fees" shall have the meaning given such term in
Section 2.05(c).
<PAGE>
54
"Vernon" shall have the meaning given such term in the preamble to this
Agreement.
"Vernon Note" shall have the meaning given such term in the preamble to
this Agreement.
"Wholly Owned Subsidiary" means a Subsidiary, at least 99% of the Capital
Stock of which (other than directors' qualifying shares) is owned by the Parent
Borrower or another Wholly Owned Subsidiary.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
"Working Capital" shall mean, with respect to the Parent Borrower and the
Subsidiaries on a consolidated basis at any date of determination, Current
Assets at such date of determination minus Current Liabilities at such date of
determination.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". All references
herein to Articles, Sections, Exhibits and Schedules shall be deemed references
to Articles and Sections of, and Exhibits and Schedules to, this Agreement
unless the context shall otherwise require. Except as otherwise expressly
provided herein, (a) any reference in this Agreement to any Loan Document shall
mean such document as amended, restated, supplemented or otherwise modified from
time to time and (b) all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided,
however, that for purposes of determining compliance with the covenants
contained in Section 2.12(d) and Article VI all accounting terms herein shall be
interpreted and all accounting determinations hereunder (in each case, unless
otherwise provided for or defined herein) shall be made in accordance with GAAP
(i) as in effect on the date of this Agreement and (ii) applied on a basis
consistent with the application used in the financial statements referred to in
Section 3.05, except that, to the extent permitted under clause (i) above, the
Parent Borrower may
<PAGE>
55
elect to expense certain Product Development Costs and similar costs that have
been capitalized historically and, whether or not such election is made, for
purposes of determining compliance with any such covenants, Product Development
Costs shall be treated as if expensed; and provided further that if the Parent
Borrower notifies the U.S. Administrative Agent that the Parent Borrower wishes
to amend any covenant in Section 2.12(d) or Article VI or any related definition
to eliminate the effect of any change in GAAP occurring after the date of this
Agreement on the operation of such covenant (or if the U.S. Administrative Agent
notifies the Parent Borrower that the Required Lenders wish to amend Section
2.12(d) or Article VI or any related definition for such purpose), then (i) the
Parent Borrower and the U.S. Administrative Agent shall negotiate in good faith
to agree upon an appropriate amendment to such covenant and (ii) the Parent
Borrower's compliance with such covenant shall be determined on the basis of
GAAP in effect immediately before the relevant change in GAAP became effective
until such covenant is amended in a manner satisfactory to the Parent Borrower
and the Required Lenders. For the purposes of determining compliance under
Sections 6.01, 6.02, 6.03, 6.04, 6.05, 6.06, 6.07 and 6.10 with respect to any
amount in a currency other than Dollars, such amount shall be deemed to equal
the Dollar equivalent thereof at the time such amount was incurred or expended,
as the case may be.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. (a) Subject to the terms and conditions and
relying upon the representations and warranties of the Borrowers herein set
forth, each Lender agrees, severally and not jointly:
(i) to make a Tranche A Term Loan in Dollars to the Parent Borrower
(A) on the Closing Date in a principal amount not to exceed an amount equal
to the Tranche A Term Loan Commitment set forth opposite its name on
Schedule 2.01 and (B) at any time and from time to time after the Closing
Date and until the earlier of the date that is 18 months after the Closing
Date and the termination of the Tranche A Term Loan Commitment of such
Lender in accordance with the terms hereof, in an aggregate principal
amount not to exceed an amount equal to the Tranche A Term Loan Commitment
set forth opposite its name on Schedule 2.01 less the amount of Tranche A
Term Loans made by such Lender on the Closing Date, as such amount may be
reduced from time to time
<PAGE>
56
pursuant to Section 2.09, provided that the Parent Borrower shall not be
permitted to make more than 5 Tranche A Term Borrowings after the Closing
Date that increase the aggregate principal amount of Tranche A Term
Borrowings outstanding;
(ii) to make a Tranche B Term Loan in Dollars to the Parent Borrower
on the Closing Date in a principal amount not to exceed the Tranche B Term
Loan Commitment set forth opposite its name on Schedule 2.01, as the same
may be reduced from time to time pursuant to Section 2.09; and
(iii) to make a Tranche C Term Loan in Dollars to the Parent Borrower
on the Closing Date in a principal amount not to exceed the Tranche C Term
Loan Commitment set forth opposite its name on Schedule 2.01, as the same
may be reduced from time to time pursuant to Section 2.09.
(b) Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, each U.S. $ Revolving Credit
Lender agrees, severally and not jointly, to make U.S. $ Revolving Credit Loans
to the Parent Borrower, at any time and from time to time on or after the date
hereof and until the earlier of the Revolving Credit Maturity Date and the
termination of the U.S. $ Revolving Credit Commitment of such Lender in
accordance with the terms hereof, in Dollars, in an aggregate principal amount
at any time outstanding that will not result in such Lender's U.S. $ Revolving
Credit Exposure at such time exceeding the U.S. $ Revolving Credit Commitment
set forth opposite its name on Schedule 2.01, as the same may be reduced or
increased from time to time pursuant to Section 2.09, provided that U.S. $
Revolving Credit Loans made on the Closing Date shall not exceed $15,000,000 in
aggregate principal amount.
(c) Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, each U.K. (pound) Revolving
Credit Lender agrees, severally and not jointly, to make loans to the Parent
Borrower or the U.K. Borrower (as specified in the Borrowing Requests with
respect thereto), at any time and from time to time on and after the date that
is the fourth Business Day after the Closing Date and until the earlier of the
Revolving Credit Maturity Date and the termination of the U.K. (pound) Revolving
Credit Commitment of such Lender in accordance with the terms hereof, in Dollars
or Sterling (as specified in the Borrowing Requests with respect thereto), in an
aggregate principal amount at any time outstanding that will not result in such
Lender's U.K. (pound) Revolving Credit Exposure at such time
<PAGE>
57
exceeding the U.K. (pound) Revolving Credit Commitment set forth opposite its
name on Schedule 2.01, as the same may be reduced or increased from time to time
pursuant to Section 2.09.
(d) Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, each C $ Revolving Credit
Lender agrees, severally and not jointly, to make loans, including by means of a
B/A or B/A Equivalent Note, to the Parent Borrower or the Canadian Borrower (as
specified in the Borrowing Requests with respect thereto), at any time and from
time to time on and after the date hereof and until the earlier of the Revolving
Credit Maturity Date and the termination of the C $ Revolving Credit Commitment
of such Lender in accordance with the terms hereof, in Dollars or Canadian
Dollars (as specified in the Borrowing Requests with respect thereto), in an
aggregate principal amount at any time outstanding that will not result in such
Lender's C $ Revolving Credit Exposure at such time exceeding the C $ Revolving
Credit Commitment set forth opposite its name on Schedule 2.01, as the same may
be reduced or increased from time to time pursuant to Section 2.09.
(e) (i) The Swingline Lender hereby agrees, subject to the terms and
conditions and relying upon the representations and warranties herein set forth,
and subject to the limitations set forth below with respect to the maximum
amount of Swingline Loans permitted to be outstanding from time to time, to make
a portion of the U.S. $ Revolving Credit Commitments available to the Parent
Borrower from time to time during the period from the Closing Date through and
excluding the earlier of the Revolving Credit Maturity Date and the termination
of the U.S. $ Revolving Credit Commitments in an aggregate principal amount not
to exceed the Swingline Loan Commitment, by making Swingline Loans to the Parent
Borrower. Swingline Loans may be made notwithstanding the fact that such
Swingline Loans, when aggregated with the Swingline Lender's outstanding U.S. $
Revolving Credit Loans, Revolving L/C Exposure and outstanding Swingline Loans,
may exceed the Swingline Lender's U.S. $ Revolving Credit Commitment. The
original amount of the Swingline Loan Commitment is $10,000,000. The Swingline
Loan Commitment shall expire on the date the U.S. $ Revolving Credit Commitments
are terminated, and all Swingline Loans and all other amounts owed hereunder
with respect to Swingline Loans shall be paid in full no later than that date.
The Parent Borrower shall give the Swingline Lender telephonic, written or
telecopy notice (in the case of telephonic notice, such notice shall be promptly
confirmed in writing or by telecopy) not later than 12:00 (noon), New York City
time, on the day of a proposed borrowing. Such notice shall be delivered on a
<PAGE>
58
Business Day, shall be irrevocable and shall refer to this Agreement and shall
specify the requested date (which shall be a Business Day) and amount of such
Swingline Loan. The Swingline Lender shall give the U.S. Administrative Agent,
which shall in turn give to each Lender, prompt written or telecopy advice of
any notice received from the Parent Borrower pursuant to this paragraph.
(ii) In no event shall (A) the aggregate principal amount of Swingline
Loans outstanding at any time exceed the aggregate Swingline Loan Commitment in
effect at such time, (B) the Aggregate U.S. $ Revolving Credit Exposure at any
time exceed the Total U.S. $ Revolving Credit Commitment at such time or (C) the
aggregate Swingline Loan Commitment exceed at any time the aggregate U.S. $
Revolving Credit Commitments in effect at such time. Swingline Loans may only be
made as ABR Loans.
(iii) With respect to any Swingline Loans that have not been voluntarily
prepaid by the Parent Borrower, the Swingline Lender (by request to the U.S.
Administrative Agent) or U.S. Administrative Agent at any time may, and shall at
any time Swingline Loans in an amount not less than $5,000,000 shall have been
outstanding for more than 10 days, on one Business Day's notice, require each
U.S. $ Revolving Credit Lender, including the Swingline Lender, and each U.S. $
Revolving Credit Lender hereby agrees, subject to the provisions of this Section
2.01(e), to make a U.S. $ Revolving Credit Loan (which shall be funded as an ABR
Loan) in an amount equal to such Lender's Applicable Percentage of the amount of
the Swingline Loans ("Refunded Swingline Loans") outstanding that the Swingline
Lender has designated for prepayment by the Lenders.
(iv) In the case of U.S. $ Revolving Credit Loans made by Lenders other
than the Swingline Lender under the immediately preceding paragraph (iii), each
such Lender shall make the amount of its U.S. $ Revolving Credit Loan available
to the U.S. Administrative Agent, in same day funds, at the office of the U.S.
Administrative Agent, Loan and Agency Services Group located at One Chase
Manhattan Plaza, 8th Floor, New York, New York 10081, not later than 1:00 p.m.,
New York City time, on the Business Day next succeeding the date such notice is
given. The proceeds of such U.S. $ Revolving Credit Loans shall be immediately
delivered to the Swingline Lender (and not to the Parent Borrower) and applied
to repay the Refunded Swingline Loans. On the day such U.S. $ Revolving Credit
Loans are made, the Swingline Lender's Applicable Percentage of the Refunded
Swingline Loans shall be deemed to be paid with the proceeds of a
<PAGE>
59
U.S. $ Revolving Credit Loan made by the Swingline Lender and such portion of
the Swingline Loans deemed to be so paid shall no longer be outstanding as
Swingline Loans and shall be outstanding as U.S. $ Revolving Credit Loans of
Lenders. The Parent Borrower authorizes the U.S. Administrative Agent and the
Swingline Lender to charge the Parent Borrower's account with the U.S.
Administrative Agent (up to the amount available in such account) in order to
pay immediately to the Swingline Lender the amount of such Refunded Swingline
Loans to the extent amounts received from Lenders, including amounts deemed to
be received from the Swingline Lender, are not sufficient to repay in full such
Refunded Swingline Loans. If any portion of any such amount paid (or deemed to
be paid) to the Swingline Lender should be recovered by or on behalf of the
Parent Borrower from the Swingline Lender in bankruptcy, by assignment for the
benefit of creditors or otherwise, the loss of the amount so recovered shall be
ratably shared among all Lenders in the manner contemplated by Section 2.17.
Subject to the compliance by the Swingline Lender with the provisions of
subparagraph (vii) below, and subject to subparagraph (vi) below, each Lender's
obligation to make the U.S. $ Revolving Credit Loans referred to in this
paragraph shall be absolute and unconditional and shall not be affected by any
circumstance, including (A) any setoff, counterclaim, recoupment, defense or
other right that such Lender may have against the Swingline Lender, the Parent
Borrower or any other person for any reason whatsoever; (B) the occurrence or
continuance of an Event of Default or a Default; (C) any adverse change in the
condition (financial or otherwise) of the Parent Borrower or any of the
Subsidiaries; (D) any breach of this Agreement by the Parent Borrower or any
other Lender; or (E) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing. Nothing in this Section 2.01(e)
shall be deemed to relieve any Lender from its obligation to fulfill its
Commitments hereunder or to prejudice any rights that the Parent Borrower may
have against any Lender as a result of any default by such Lender hereunder.
(v) A copy of each notice given by the Swingline Lender or the U.S.
Administrative Agent pursuant to this Section 2.01(e) shall be promptly
delivered by the Swingline Lender to the U.S. Administrative Agent and the
Parent Borrower. Upon the making of a U.S. $ Revolving Credit Loan by a Lender
pursuant to this Section 2.01(e), the amount so funded shall no longer be owed
in respect of Swingline Loans.
(vi) If as a result of any bankruptcy or similar proceeding, U.S. $
Revolving Credit Loans are not made pursuant
<PAGE>
60
to this Section 2.01(e) sufficient to repay any amounts owed to the Swingline
Lender as a result of a nonpayment of outstanding Swingline Loans, each U.S. $
Revolving Credit Lender agrees to purchase, and shall be deemed to have
purchased, a participation in such outstanding Swingline Loans in an amount
equal to its Applicable Percentage of the unpaid amount together with accrued
interest thereon. Upon one Business Day's notice from the Swingline Lender, each
U.S. $ Revolving Credit Lender shall deliver to the Swingline Lender an amount
equal to its respective participation in same day funds at the office of the
Swingline Lender in New York, New York. In order to evidence such participation
each U.S. $ Revolving Credit Lender agrees to enter into a participation
agreement at the request of the Swingline Lender in form and substance
reasonably satisfactory to all parties. In the event any U.S. $ Revolving Credit
Lender fails to make available to the Swingline Lender the amount of such U.S. $
Revolving Credit Lender's participation as provided in this Section 2.01(e), the
Swingline Lender shall be entitled to recover such amount on demand from such
U.S. $ Revolving Credit Lender together with interest at the customary rate set
by the Swingline Lender for correction of errors among banks in New York City
for one Business Day and thereafter at the Alternate Base Rate plus the ABR
Margin.
(vii) Notwithstanding anything herein to the contrary, the Swingline Lender
shall not make any Swingline Loans at any time the Swingline Lender is aware
that the conditions to the making of such Swingline Loan set forth in Section
4.01 have not been satisfied unless such conditions shall have been waived in
accordance with this Agreement.
(f) Within the limits set forth in paragraphs (b), (c), (d) and (e) above,
the Borrowers may borrow, pay or prepay (including pursuant to a refinancing
permitted by Section 2.02(f)) and reborrow U.S. $ Revolving Credit Loans, U.K.
(pound) Revolving Credit Loans, C $ Revolving Credit Loans and Swingline Loans
on or after the Closing Date and prior to the Revolving Credit Maturity Date,
subject to the terms, conditions and limitations set forth herein. Amounts paid
or prepaid in respect of Term Loans may not be reborrowed.
SECTION 2.02. Loans. (a) Each Loan shall be made as part of a Borrowing
consisting of Loans made by the applicable Lenders ratably in accordance with
their applicable Commitments; provided, however, that the failure of any Lender
to make any Loan shall not relieve any other Lender of its obligation to lend
hereunder (it being understood, however, that no Lender shall be
<PAGE>
61
responsible for the failure of any other Lender to make any Loan required to be
made by such other Lender). The Loans comprising any Borrowing shall, subject to
Section 2.21 in the case of B/A Borrowings, be in an aggregate principal amount
which is (i) an integral multiple of $1,000,000 (or, in the case of Swingline
Loans, $500,000) and not less than $5,000,000 (or, in the case of Swingline
Loans, $500,000) or (ii) equal to the remaining available balance of the
applicable Commitments, provided that Revolving Credit Loans used to pay
Refunded Swingline Loans may be in the amount of such Refunded Swingline Loans.
The Loans comprising each Alternative Currency Borrowing shall be made in the
Alternative Currency specified in the applicable Borrowing Request in an amount
the Dollar Equivalent of which is the Dollar amount specified in such Borrowing
Request, as determined by the U.S. Administrative Agent (or, in the case of
Loans denominated in Canadian Dollars, the Canadian Administrative Agent) as of
the Denomination Date for such Borrowing (which determination shall be
conclusive absent manifest error); provided, however, that (A) for purposes of
clause (i) above, each Alternative Currency Borrowing shall be deemed to be in
an aggregate principal amount equal to the Dollar amount specified in the
applicable Borrowing Request for such Borrowing and (B) (x) if the Dollar
Equivalent of an outstanding U.K. (pound) Revolving Credit Borrowing denominated
in an Alternative Currency that is a Eurodollar Borrowing, determined based upon
the applicable Spot Exchange Rate as of the date that is three Business Days
before the end of the Interest Period with respect to such Borrowing, does not
exceed by more than 5% the Assigned Dollar Value of such Borrowing, and if the
entire amount of such Borrowing is to be refinanced with a new U.K. (pound)
Revolving Credit Borrowing that is a Eurodollar Borrowing of equivalent amount
in the same currency and by the same Borrower, then such U.K. (pound) Revolving
Credit Borrowing may be refinanced without regard to compliance with clause (i)
above and, if so refinanced, shall continue to have the same Assigned Dollar
Value as in effect prior to such refinancing and (y) if such Dollar Equivalent
does exceed by more than 5% the Assigned Dollar Value of such Borrowing, then
only a portion of such Borrowing with a Dollar Equivalent determined based on
the applicable Spot Exchange Rate as of the date that is three Business Days
before the end of the Interest Period with respect to such Borrowing equal to an
amount that is in compliance with clause (i) above may be refinanced with a new
U.K. (pound) Revolving Credit Borrowing that is a Eurodollar Borrowing, in the
same currency and by the same Borrower, and any amount not so
<PAGE>
62
refinanced shall be repaid by such Borrower on the Interest Payment Date
coinciding with the end of such Interest Period. The U.S. Administrative Agent
shall determine the applicable Spot Exchange Rate as of the date three Business
Days before the end of an Interest Period with respect to a U.K. (pound)
Revolving Credit Borrowing denominated in an Alternative Currency that is a
Eurodollar Borrowing and shall promptly notify the applicable Borrower and the
U.K. (pound) Revolving Credit Lenders whether the Dollar Equivalent of such
Borrowing exceeds by more than 5% the Assigned Dollar Value thereof.
(b) Subject to Sections 2.08 and 2.14, (i) each Term Borrowing and U.S. $
Revolving Credit Borrowing shall be comprised entirely of ABR Loans or (except
in the case of Swingline Loans) Eurodollar Loans, (ii) each U.K. (pound)
Revolving Credit Borrowing shall be comprised entirely of Eurodollar Loans and
(iii) each C $ Revolving Credit Borrowing, in the case of such a Borrowing
denominated in Canadian Dollars, shall be comprised entirely of B/A Borrowings
or Canadian Prime Borrowings, and in the case of such a Borrowing denominated in
Dollars, shall be comprised entirely of ABR Loans or Eurodollar Loans, as the
applicable Borrower may request pursuant to Section 2.03. Each Lender may at its
option make any Eurodollar Loan or any Alternative Currency Loan by causing any
domestic or foreign branch or Affiliate of such Lender to make such Loan,
provided that any exercise of such option shall not affect the obligation of the
applicable Borrower to repay such Loan in accordance with the terms of this
Agreement and such Lender shall not be entitled to any amounts payable under
Section 2.13 or Section 2.19 in respect of increased costs arising as a result
of such exercise. Borrowings of more than one Type may be outstanding at the
same time; provided, however, that none of the Borrowers shall be entitled to
request any Borrowing that, if made, would result in more than twelve Eurodollar
Borrowings or six B/A Borrowings outstanding hereunder at any time. For purposes
of the foregoing, Borrowings having different Interest Periods or maturity dates
(in the case of B/A Borrowings) or denominated in different currencies,
regardless of whether they commence on the same date, shall be considered
separate Borrowings.
(c) Subject to paragraph (f) below, (i) each Term Lender, U.S. $ Revolving
Credit Lender and U.K. (pound) Revolving Credit Lender shall make each Loan to
be made by it hereunder on the proposed date thereof by wire transfer to such
account as the U.S. Administrative Agent may designate in federal funds (in the
<PAGE>
63
case of any Loan denominated in Dollars) or such other immediately available
funds as may then be customary for the settlement of international transactions
in the relevant currency not later than 11:00 a.m., New York City time, in the
case of fundings to an account in New York City, or 11:00 a.m., local time, in
the case of fundings to an account in another jurisdiction, and (ii) each C $
Revolving Credit Lender shall make each Loan to be made by it hereunder on the
proposed date thereof by wire transfer to such account as the Canadian
Administrative Agent may designate in immediately available funds not later than
11:00 a.m., Toronto time, and, with respect to each of clauses (i) and (ii), the
U.S. Administrative Agent or the Canadian Administrative Agent, as the case may
be, shall by 12:00 (noon), New York City time, in the case of fundings to an
account in New York City, or 12:00 (noon), local time, in the case of fundings
to an account in another jurisdiction, (A) in the case of any Loan the proceeds
of which are to be received by any Borrower, credit the amounts so received to
an account designated by such Borrower in the applicable Borrowing Request,
which account must be in the name of such Borrower and, unless otherwise agreed
to by the applicable Administrative Agent, in the financial center of the
country of such Loan (except that, in the case of Loans denominated in Dollars
and in the case of all Loans made on the Closing Date, such account shall be in
New York and/or London) and (B) in the case of any Loan made to reimburse any
L/C Disbursement or to refund any Swingline Loan, apply the amounts so received
to effect such reimbursement or refund as contemplated by Section 2.20 or
Section 2.01(e); provided, however, that if a Borrowing shall not occur on such
date because any condition precedent herein specified shall not have been met,
the U.S. Administrative Agent or the Canadian Administrative Agent, as the case
may be, shall return the amounts so received to the respective Lenders.
(d) Unless the U.S. Administrative Agent, or the Canadian Administrative
Agent, as applicable, shall have received notice from a Lender prior to the date
of any Borrowing that such Lender will not make available to such Administrative
Agent such Lender's portion of such Borrowing, such Administrative Agent may
assume that such Lender has made such portion available to such Administrative
Agent on the date of such Borrowing in accordance with paragraph (c) above and
may, in reliance upon such assumption, make available to the applicable Borrower
on such date a corresponding amount in the required currency. If either
Administrative Agent shall have so made funds available then, to
<PAGE>
64
the extent that such Lender shall not have made such portion available to such
Administrative Agent, such Lender and the applicable Borrower severally agree to
repay to such Administrative Agent forthwith on demand such corresponding amount
together with interest thereon in such currency, for each day from the date such
amount is made available to the applicable Borrower until the date such amount
is repaid to such Administrative Agent, at (i) in the case of a Borrower, the
interest rate applicable at the time to the Loans comprising such Borrowing and
(ii) in the case of such Lender, a rate determined by such Administrative Agent
to represent its cost of overnight or short-term funds in the relevant currency
(which determination shall be conclusive absent manifest error). If such Lender
shall repay to such Administrative Agent such corresponding amount, such amount
shall constitute such Lender's Loan as part of such Borrowing for purposes of
this Agreement.
(e) Notwithstanding any other provision of this Agreement, no Borrower
shall be entitled to request any Borrowing if the Interest Period or maturity
date (in the case of a B/A Borrowing) requested with respect thereto would end
after the Revolving Credit Maturity Date, Tranche A Maturity Date, Tranche B
Maturity Date or Tranche C Maturity Date, as applicable.
(f) Subject to clause (B) of the proviso to the third sentence of Section
2.02(a), a Borrower may refinance all or any part of a Revolving Credit
Borrowing with another Revolving Credit Borrowing by such Borrower in the same
currency and of the same Type, subject to the conditions and limitations set
forth in this Agreement (including (i) the condition that the Aggregate U.S. $
Revolving Credit Exposure, the Aggregate C $ Revolving Credit Exposure or the
Aggregate U.K. (pound) Revolving Credit Exposure, as applicable, after giving
effect thereto will not exceed the Total U.S. $ Revolving Credit Commitment, the
Total C $ Revolving Credit Commitment or the Total U.K. (pound) Revolving Credit
Commitment, as applicable and (ii) the provisions of Section 2.12(g)). Any
Revolving Credit Borrowing or part thereof so refinanced shall be deemed to be
repaid or prepaid in accordance with the applicable provisions of this Agreement
with the proceeds of the new Revolving Credit Borrowing and the proceeds of such
new Borrowing, to the extent they do not exceed the principal amount of the
Borrowing being refinanced, shall not be paid by the applicable Revolving Credit
Lenders to the applicable Administrative Agent or by the applicable
Administrative Agent to the applicable Borrower pursuant to paragraph (c) above.
<PAGE>
65
(g) The U.S. Administrative Agent or the Canadian Administrative Agent (in
the case of clause (iii) below) shall notify (i) the Parent Borrower and the
U.S. $ Revolving Credit Lenders of the amount of the Aggregate U.S. $ Revolving
Credit Exposure, (ii) the Parent Borrower, the U.K. Borrower and the U.K.
(pound) Revolving Credit Lenders of the amount of the Aggregate U.K. (pound)
Revolving Credit Exposure and (iii) the Parent Borrower, the Canadian Borrower
and the C $ Revolving Credit Lenders of the amount of the Aggregate C $
Revolving Credit Exposure, promptly following the last day of each March, June,
September and December.
SECTION 2.03. Borrowing Procedure. Subject to Section 2.21, in order to
request a Borrowing (other than a Swingline Loan), a Borrower shall hand deliver
or telecopy to the U.S. Administrative Agent or, in the case of any C $
Revolving Credit Borrowing, the Canadian Administrative Agent, a duly completed
Borrowing Request substantially in the form of Exhibit C-1, C-2, or C-3, as
applicable, (a) in the case of a Eurodollar Borrowing (other than a U.K. (pound)
Revolving Credit Borrowing described in clause (c) below), not later than 12:00
(noon), New York City time (unless (i) the Borrowing Request relates to a U.K.
(pound) Revolving Credit Borrowing (other than a U.K. (pound) Revolving Credit
Borrowing described in clause (c) below), in which case it shall be delivered or
telecopied to the U.S. Administrative Agent in London, not later than 1:00 p.m.,
London time or (ii) the Borrowing Request relates to a C $ Revolving Credit
Borrowing, in which case it shall be delivered to the Canadian Administrative
Agent not later than 12:00 (noon), Toronto time), three Business Days before
such proposed Borrowing, (b) in the case of an ABR Borrowing, not later than
12:00 (noon), New York City time (unless the Borrowing Request relates to a C $
Revolving Credit Borrowing, in which case it shall be delivered to the Canadian
Administrative Agent not later than 12:00 (noon), Toronto time), one Business
Day before such proposed Borrowing, (c) in the case of a Eurodollar Borrowing
requested by the U.K. Borrower and denominated in Sterling, in London, not later
than 1:00 p.m., London time, three Business Days before such proposed Borrowing,
(d) in the case of a B/A Borrowing, not later than 10:00 a.m., Toronto time, one
Business Day before such proposed Borrowing, and (e) in the case of a Canadian
Prime Borrowing, not later than 12:00 (noon), Toronto time, one Business Day
before such proposed Borrowing; provided, however, that Borrowing Requests with
respect to Borrowings to be made on the Closing Date may, at the discretion of
the U.S. Administrative Agent, be delivered later than the times specified
above. Each Borrowing Request shall be
<PAGE>
66
irrevocable, shall be signed by or on behalf of the applicable Borrower and
shall specify the following information: (i) the Borrower requesting such
Borrowing, (ii) whether the Borrowing then being requested is to be a Term
Borrowing, a U.S. $ Revolving Credit Borrowing, a U.K. (pound) Revolving Credit
Borrowing or a C $ Revolving Credit Borrowing (and in the case of a Term
Borrowing the Commitments pursuant to which the Loans comprising such Borrowing
are to be made), and whether such Borrowing is to be a Eurodollar Borrowing, an
ABR Borrowing, a B/A Borrowing or a Canadian Prime Borrowing; (iii) the date of
such Borrowing (which shall be a Business Day), (iv) in the case of a Borrowing
the proceeds of which are to be received by a Borrower, the number and location
of the account to which funds are to be disbursed (which shall be an account
that complies with the requirements of Section 2.02(c)); (v) the amount of such
Borrowing (which shall be expressed in Dollars, regardless of whether such
Borrowing is an Alternative Currency Borrowing) or the face amount of the
Bankers' Acceptance being requested, in the case of a B/A Borrowing; (vi) the
currency of such Borrowing (which (A) shall be Dollars, in the case of any U.S.
$ Revolving Credit Borrowing or ABR Borrowing, (B) subject to clause (A) above,
shall be Dollars or Canadian Dollars, in the case of any C $ Revolving Credit
Borrowing, and (C) shall be in Dollars or Sterling, in the case of any U.K.
(pound) Revolving Credit Borrowing; (vii) if such Borrowing is to be a
Eurodollar Borrowing, the Interest Period with respect thereto; and (viii) if
such Borrowing is to be a B/A Borrowing, the Contract Period and maturity date
thereof; provided, however, that, notwithstanding any contrary specification in
any Borrowing Request, each requested Borrowing shall comply with the
requirements set forth in Section 2.02. If no election as to the currency of (A)
a U.S. $ Revolving Credit Borrowing is specified in any such notice, then the
requested Borrowing shall be denominated in Dollars, (B) a U.K. (pound)
Revolving Credit Borrowing is specified in any such notice, then the requested
Borrowing shall be denominated in Sterling and (C) a C $ Revolving Credit
Borrowing is specified in any such notice, then the Requested Borrowing shall be
denominated in Canadian Dollars. If no election as to the Type of Borrowing is
specified in any such notice, then the requested Borrowing shall be an ABR
Borrowing if denominated in Dollars, a Eurodollar Borrowing if denominated in
Sterling and a Canadian Prime Borrowing, if denominated in Canadian Dollars. If
no election as to the Credit Facility to which such Borrowing relates is
specified in any such notice, then the requested Borrowing shall be (x) in the
case of a request made to the U.S. Administrative Agent in New York, a U.S. $
Revolving Credit Borrowing, (y) in the case of a request made to the U.S.
Administrative Agent in London, a
<PAGE>
67
U.K. (pound) Revolving Credit Borrowing and (z) in the case of a request to the
Canadian Administrative Agent, a C $ Revolving Credit Borrowing. If no Interest
Period with respect to any Eurodollar Borrowing is specified in any such notice,
then the Borrower shall be deemed to have selected an Interest Period of one
month's duration. If no maturity date or Contract Period with respect to a B/A
Borrowing is specified in any such notice, then the applicable Borrower shall be
deemed to have selected a maturity date which is 30 days following the date of
such B/A Borrowing. The U.S. Administrative Agent or the Canadian Administrative
Agent, as the case may be, shall promptly (and in any event on the same day that
such Administrative Agent receives such notice, if received by 1:00 p.m., local
time, on such day) advise the applicable Lenders of any notice given pursuant to
this Section 2.03 and of each Lender's portion of the requested Borrowing and,
in the case of an Alternative Currency Borrowing, of the Alternative Currency
amount of such Borrowing and the Spot Exchange Rate utilized to determine such
amount.
If the applicable Borrower shall not have delivered a Borrowing Request in
accordance with this Section 2.03 prior to the end of the Interest Period then
in effect for any Revolving Credit Borrowing that is a Eurodollar Borrowing
requesting that such Borrowing be refinanced, then such Borrower shall (unless
such Borrower has notified the U.S. Administrative Agent (and, in the case of
any Eurodollar Borrowing that is a C $ Revolving Credit Borrowing, the Canadian
Administrative Agent), not less than three Business Days prior to the end of
such Interest Period, that such Borrowing is to be repaid at the end of such
Interest Period) be deemed to have delivered a Borrowing Request requesting that
such Borrowing be refinanced with a new Borrowing of equivalent amount in the
same currency, and such new Borrowing shall be an ABR Borrowing if denominated
in Dollars or a Eurodollar Borrowing with an Interest Period of one month's
duration if denominated in Sterling. If the applicable Borrower shall not have
delivered a Borrowing Request in accordance with this Section 2.03 prior to the
maturity date then in effect for any B/A Borrowing requesting that such
Borrowing be refinanced with another B/A Borrowing or with a Canadian Prime
Borrowing, then such Borrower shall (unless such Borrower has notified the
Canadian Administrative Agent, before 10:00 a.m., Toronto time, not less than
one Business Day prior to such maturity date, that such Borrowing is to be
repaid on such maturity date) be deemed to have delivered a Borrowing Request
requesting that such Borrowing be refinanced with a new Borrowing of equivalent
amount in the same currency, and such new Borrowing shall be a Canadian Prime
Borrowing.
<PAGE>
68
SECTION 2.04. Evidence of Debt; Repayment of Loans. (a) The outstanding
principal balance of each Loan shall be payable (i) in the case of a Revolving
Credit Loan or a Swingline Loan, on the Revolving Credit Maturity Date and (ii)
in the case of a Term Loan, as provided in Section 2.11. Each Loan shall bear
interest from the date of the first Borrowing hereunder on the outstanding
principal balance thereof as set forth in Section 2.06.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness to such Lender resulting from
each Loan made by such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time under
this Agreement.
(c) Each of the Administrative Agents shall maintain accounts in which it
will record (i) the applicable Borrower with respect to each Term Loan,
Swingline Loan, U.S. $ Revolving Credit Loan and U.K. (pound) Revolving Credit
Loan (in the case of the U.S. Administrative Agent) or C $ Revolving Credit Loan
(in the case of the Canadian Administrative Agent) made hereunder, the amount of
each Loan made and the Credit Facility under which each Loan is made hereunder,
the Type of each Loan made and the Interest Period (if a Eurodollar Borrowing)
or maturity date and Contract Period (if a B/A Borrowing) applicable thereto,
(ii) the currency in which each Loan is denominated, and, if such currency is an
Alternative Currency, (x) the Denomination Date for such Loan, (y) the Assigned
Dollar Value for such Loan and (z) the Spot Exchange Rate used to calculate such
Assigned Dollar Value, (iii) the amount of any principal or interest due and
payable or to become due and payable from the applicable Borrower to each Lender
hereunder and (iv) the amount of any sum received by such Administrative Agent
hereunder from the applicable Borrower and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraphs (b)
and (c) of this Section 2.04 shall be prima facie evidence of the existence and
amounts of the obligations therein recorded; provided, however, that the failure
of any Lender or either Administrative Agent to maintain such accounts or any
error therein shall not in any manner affect the obligations of the applicable
Borrower to repay the Loans in accordance with their terms.
(e) Notwithstanding any other provision of this Agreement, in the event any
Lender shall request and receive a
<PAGE>
69
Note as provided in Section 10.04(h) or otherwise the interests represented by
that Note shall at all times (including after any assignment of all or part of
such interests pursuant to Section 10.04) be represented by one or more Notes
payable to the payee named therein or its registered assigns.
SECTION 2.05. Fees. (a) The Parent Borrower agrees to pay, or to cause the
applicable Borrower (with respect to the Credit Facility under which it may
request Borrowings) to pay, (i) to each Term Lender and U.S. $ Revolving Credit
Lender, through the U.S. Administrative Agent, on the last day of March, June,
September and December in each year, and on the date on which the Commitments of
all the Lenders shall be terminated as provided herein, a commitment fee (a
"Commitment Fee") on the average daily unused amount of the Commitments of such
Lender during the preceding quarter (or other period commencing with the Closing
Date or ending with the date on which the last of the Commitments of such Lender
shall be terminated), (ii) to each C $ Revolving Credit Lender through the
Canadian Administrative Agent, on the last day of March, June, September and
December in each year, and on the date on which the C $ Revolving Credit
Commitments of all the Lenders shall be terminated as provided herein, a
facility fee (the "Canadian Facility Fee") on the C $ Revolving Credit
Commitments of such Lender outstanding on each day (whether used or unused)
during the preceding quarter (or other period commencing with the Closing Date
or ending with the date on which the last of the C $ Revolving Credit
Commitments of such Lender shall be terminated) and (iii) to each U.K. (pound)
Revolving Credit Lender through the U.S. Administrative Agent, on the last day
of March, June, September and December in each year, and on the date on which
the U.K. (pound) Revolving Credit Commitments of all the Lenders shall be
terminated as provided herein, a facility fee (the "U.K. Facility Fee" and,
together with the Canadian Facility Fee, the "Facility Fees") on the U.K.
(pound) Revolving Credit Commitments of such Lender outstanding on each day
(whether used or unused) during the preceding quarter (or other period
commencing with the Closing Date or ending with the date on which the last of
the U.K. (pound) Revolving Credit Commitments of such Lender shall be
terminated), in the case of each of clauses (i), (ii) and (iii) at either (A) a
rate equal to 0.50% per annum or (B) for any day on or after the date of the
Parent Borrower's delivery to the U.S. Administrative Agent of the Parent
Borrower's consolidated financial statements for the fiscal quarter of the
Parent Borrower ending September 30, 1998, at the rate per annum effective for
each day in such period as set forth on Schedule A. All Commitment Fees and
Facility Fees shall be computed on the basis of the actual number of days
<PAGE>
70
elapsed in a year of 365 or 366 days, as applicable. For the purpose of
calculating any Lender's Commitment Fee, the outstanding Swingline Loans during
the period for which such Lender's Commitment Fee is calculated shall be deemed
to be zero. The Commitment Fee and/or Facility Fee due to each Lender shall
commence to accrue on the Closing Date and shall cease to accrue on the date on
which the last of the Commitments of such Lender shall be terminated as provided
herein.
(b) The Parent Borrower from time to time agrees to pay (i) to each U.S. $
Revolving Credit Lender, through the U.S. Administrative Agent, on the last day
of March, June, September and December of each year and on the date on which the
U.S. $ Revolving Credit Commitment of such Lender shall be terminated as
provided herein, a fee (an "L/C Participation Fee") on such U.S. $ Revolving
Credit Lender's Applicable Percentage of the average daily aggregate Revolving
L/C Exposure (excluding the portion thereof attributable to unreimbursed L/C
Disbursements), during the preceding quarter (or shorter period commencing with
the date hereof or ending with the Revolving Credit Maturity Date or any date on
which the U.S. $ Revolving Credit Commitment of such Lender shall be terminated)
at the rate per annum equal to (A) 2.50% or (B) for any day on or after the date
of the Parent Borrower's delivery to the U.S. Administrative Agent of the Parent
Borrower's consolidated financial statements for the fiscal quarter of the
Parent Borrower ending September 30, 1998, the LIBOR Margin effective for each
day in such period for U.S. $ Revolving Credit Loans as set forth on Schedule A
and (ii) to the Fronting Bank, the fees separately agreed upon by the Parent
Borrower and the Fronting Bank plus, in connection with the issuance, amendment
or transfer of any such Letter of Credit or any L/C Disbursement thereunder, the
Fronting Bank's customary documentary and processing charges (collectively, the
"Fronting Bank Fees"). All L/C Participation Fees and Fronting Bank Fees that
are payable on a per annum basis shall be computed on the basis of the actual
number of days elapsed in a year of 360 days.
(c) The Parent Borrower agrees to pay to the U.S. Administrative Agent, for
its own account, the fees set forth in the Fee Letter dated as of October 14,
1997, at the times specified therein (the "U.S. Administrative Agent Fees").
(d) All Fees shall be paid on the dates due, in immediately available
funds, to the U.S. Administrative Agent or the Canadian Administrative Agent, as
the case may be, for distribution, if and as appropriate, among the Lenders,
except that the Fronting Bank Fees shall be paid directly to the
<PAGE>
71
Fronting Bank. All Fees payable to the U.S. Administrative Agent, the Fronting
Bank, the Term Lenders, the U.S. $ Revolving Credit Lenders and the U.K. (pound)
Revolving Credit Lenders shall be payable in Dollars, and all Fees payable to
the Canadian Administrative Agent and the C $ Revolving Credit Lenders shall be
payable in Canadian Dollars. Once paid, none of the Fees shall be refundable
under any circumstances.
SECTION 2.06. Interest on Loans. (a) Subject to the provisions of paragraph
(d) below and Section 2.07, the Loans comprising each ABR Borrowing shall bear
interest (computed on the basis of the actual number of days elapsed over a year
of 365 or 366 days, as the case may be, when determined by reference to the
Prime Rate and over a year of 360 days at all other times) at a rate per annum
equal to the Alternate Base Rate plus, in the case of (i) Tranche A Term Loans,
U.S. $ Revolving Credit Loans, C $ Revolving Credit Loans or Swingline Loans,
1.50%, (ii) Tranche B Term Loans, 1.75% or (iii) Tranche C Term Loans, 2.00%.
(b) Subject to the provisions of paragraph (d) below and Section 2.07, the
Loans comprising each Eurodollar Borrowing shall bear interest (computed on the
basis of the actual number of days elapsed over a year of 360 days) at a rate
per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for
such Borrowing plus, in the case of (i) Tranche A Term Loans, U.S. $ Revolving
Credit Loans, C $ Revolving Credit Loans or U.K. (pound) Revolving Credit Loans,
2.50%, (ii) Tranche B Term Loans, 2.75% or (iii) Tranche C Term Loans, 3.00%.
(c) Subject to the provisions of paragraph (d) below and Section 2.07, the
Loans comprising any Canadian Prime Borrowing shall bear interest (computed on
the basis of the actual number of days elapsed over a year of 365 days) at a
rate per annum equal to the Canadian Prime Rate, plus 1.50%.
(d) Subject to the provisions of Section 2.07, Tranche A Term Loans,
Tranche B Term Loans, Tranche C Term Loans, Revolving Credit Loans and Swingline
Loans comprising any ABR Borrowing, Canadian Prime Borrowing or Eurodollar
Borrowing shall bear interest (computed as set forth in paragraph (a), (b) or
(c) above, as applicable) for any day on or after the date of the Parent
Borrower's delivery to the U.S. Administrative Agent of the Parent Borrower's
consolidated financial statements for the fiscal quarter of the Parent Borrower
ending September 30, 1998, at a rate per annum equal to (i) the Alternate Base
Rate or the Canadian Prime Rate, as applicable, plus the ABR Margin (which
<PAGE>
72
shall apply to both ABR Borrowings and Canadian Prime Borrowings) or (ii) the
Adjusted LIBO Rate, plus the LIBOR Margin effective for such date as set forth
on Schedule A.
(e) Interest on each Loan (other than pursuant to a B/A Borrowing) shall be
payable on the Interest Payment Dates applicable to such Loan except as
otherwise provided in this Agreement. The applicable Alternate Base Rate or
Canadian Prime Rate for each day, or Adjusted LIBO Rate for each Interest
Period, shall be determined by the U.S. Administrative Agent or the Canadian
Administrative Agent (in the case of Canadian Prime Borrowings), and such
determination shall be conclusive absent manifest error. The applicable
Administrative Agent shall give the applicable Borrower prompt notice of each
such determination.
(f) Subject to the provisions of Section 2.07, the Loans comprising each
B/A Borrowing shall be subject to an Acceptance Fee calculated and payable at a
rate per annum equal to the applicable B/A Spread from time to time in effect
and payable as set forth in Section 2.21.
(g) For the purposes of the Interest Act (Canada) and disclosure
thereunder, whenever interest to be paid hereunder or in connection herewith is
to be calculated on the basis of a year of 360 days or any other period of time
that is less than a calendar year, the yearly rate of interest to which the rate
determined pursuant to such calculation is equivalent is the rate so determined
multiplied by the actual number of days in the calendar year in which the same
is to be ascertained and divided by either 360 or such other period of time, as
the case may be. The rates of interest under this Agreement are nominal rates,
and not effective rates or yields. The principle of deemed reinvestment of
interest does not apply to any interest calculation under this Agreement.
(h) If any provision of this Agreement would oblige any Borrower to make
any payment of interest or other amount payable to any C $ Revolving Credit
Lender in respect of any C $ Revolving Credit Loan made by such Lender in an
amount or calculated at a rate which would be prohibited by law or would result
in a receipt by such Lender of "interest" at a "criminal rate" (as such terms
are construed under the Criminal Code (Canada)), then notwithstanding such
provision, such amount or rate shall be deemed to have been adjusted with
retroactive effect to the maximum amount or rate of interest, as the case may
be, as would not be so prohibited by law or so result in a
<PAGE>
73
receipt by such Lender of "interest" at a "criminal rate", such adjustment to be
effected, to the extent necessary, as follows:
(i) first, by reducing the amount or rate of interest or the amount
or rate of any Acceptance Fee required to be paid to the affected
Lender under this Section 2.06; and
(ii) thereafter, by reducing any fees, commissions, premiums and other
amounts required to be paid to the affected Lender which would
constitute interest for purposes of Section 347 of the Criminal
Code (Canada).
SECTION 2.07. Default Interest. If any Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, by acceleration or otherwise, the applicable Borrower shall on
demand from time to time pay interest, to the extent permitted by law, on such
defaulted amount for the period beginning on the date of such default up to (but
not including) the date of actual payment (after as well as before judgment) at
a rate per annum (computed on the basis of the actual number of days elapsed
over a year of 360 days) equal to (a) in the case of (i) overdue Loans, overdue
interest thereon, overdue Commitment Fees, overdue Facility Fees or other
overdue amounts owing in respect of Loans or other obligations (or the related
Commitments) under a particular Credit Facility or (ii) other overdue amounts
owing hereunder to a Lender participating in no more than one of the Credit
Facilities, the rate that would otherwise be applicable to ABR Loans under such
Credit Facility or for Eurodollar Loans in the case of the above described
overdue amounts relating to the U.K. (pound) Revolving Credit Facility, as
applicable, pursuant to Section 2.06 plus 2.0% or (b) in the case of any other
overdue amount, the Alternate Base Rate plus the ABR Margin for Tranche A Term
Loans plus 2.0%.
SECTION 2.08. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing or the Contract Period for a B/A
Borrowing the U.S. Administrative Agent (in the case of a Term Loan, U.S. $
Revolving Credit Loan or U.K. (pound) Revolving Credit Loan) or the Canadian
Administrative Agent (in the case of a C $ Revolving Credit Loan) shall have
determined that deposits in the principal amounts of the Loans comprising such
Borrowing and in the currency in which such Loans are to be denominated are not
<PAGE>
74
generally available in the London interbank market or in the Canadian market for
bankers' acceptances, as applicable, or that the rates at which such deposits
are being offered will not adequately and fairly reflect the cost to the
Majority Lenders in respect of the affected Credit Facility of making or
maintaining its Eurodollar Loan during such Interest Period or its B/A or B/A
Equivalent Note during such Contract Period, as applicable, or that reasonable
means do not exist for ascertaining the Adjusted LIBO Rate or the Discount Rate,
as applicable, such Administrative Agent shall, as soon as practicable
thereafter, give written or telecopy notice of such determination to the Parent
Borrower and any other applicable Borrower and the Lenders. In the event of any
such determination, until such Administrative Agent shall have advised the
Parent Borrower and any other applicable Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, any request by any
Borrower for a Eurodollar Borrowing or a B/A Borrowing, as applicable, pursuant
to Section 2.03 or 2.10 shall be deemed to be a request for an ABR Borrowing or
a Canadian Prime Rate Loan (if a B/A Borrowing had been requested), as
applicable, or, in the case of a request for a U.K. (pound) Revolving Credit
Borrowing shall be deemed to be void. Each determination by an Administrative
Agent hereunder shall be conclusive absent manifest error.
SECTION 2.09. Termination and Reduction of Commitments. (a) The Tranche B
Term Loan Commitments, Tranche C Term Loan Commitments and 50% of the Tranche A
Term Loan Commitments shall be automatically and permanently terminated at 5:00
p.m., New York City time, on the Closing Date. The remaining Tranche A Term Loan
Commitments shall be automatically and permanently terminated at 5:00 p.m., New
York City time, on the date that is 18 months after the Closing Date. Prior to
the termination thereof in full, the Tranche A Term Loan Commitments shall be
automatically and permanently reduced at 5:00 p.m., New York City time, on each
Tranche A Term Loan Closing Date, by an aggregate amount equal to the aggregate
principal amount of the Tranche A Term Loans made on such date. The Revolving
Credit Commitments shall be automatically and permanently terminated at 5:00
p.m., New York City time, on the Revolving Credit Maturity Date.
(b) Upon at least three Business Days' prior irrevocable written or
telecopy notice to the U.S. Administrative Agent, the Parent Borrower (on behalf
of all the applicable Borrowers) may at any time in whole permanently terminate,
or from time to time in part permanently reduce, any of the Term
<PAGE>
75
Commitments, the U.S. $ Revolving Credit Commitments, the U.K. (pound) Revolving
Credit Commitments or the C $ Revolving Credit Commitments; provided, however,
that (i) each partial reduction of any Commitments pursuant to this Section
2.09(b) shall be in an integral multiple of $1,000,000 and in a minimum
principal amount of $5,000,000 (or, if less, the remaining amount of the
applicable Commitments), (ii) the Total U.S. $ Revolving Credit Commitment shall
not be reduced to an amount that is less than the aggregate U.S. $ Revolving
Credit Exposure of the U.S. $ Revolving Credit Lenders at the time, (iii) the
Total U.K. (pound) Revolving Credit Commitment shall not be reduced to an amount
that is less than the aggregate U.K. (pound) Revolving Credit Exposure of the
U.K. (pound) Revolving Credit Lenders at the time and (iv) the Total C $
Revolving Credit Commitment shall not be reduced to an amount that is less than
the aggregate C $ Revolving Credit Exposure of the C $ Revolving Credit Lenders
at the time.
(c) Upon at least ten Business Days' prior irrevocable written or telecopy
notice to the U.S. Administrative Agent and, if applicable, the Canadian
Administrative Agent, the Parent Borrower may, from time to time, in whole or in
part, temporarily reduce the U.S. $ Revolving Credit Commitments, the C $
Revolving Credit Commitments or the U.K. (pound) Revolving Credit Commitments;
provided, however, that (x) any reduction of the U.S. $ Revolving Credit
Commitments pursuant to this Section 2.09(c), to the extent such reduction is
allocated by the Parent Borrower to increase the C $ Revolving Credit
Commitments, shall only be made on the first day of a fiscal quarter and (y)
subject to Section 2.13(c), any reduction of the C $ Revolving Credit
Commitments pursuant to this Section 2.09(c) shall be made from time to time in
accordance with such notice of the Parent Borrower, and provided, further, that
(i) each partial reduction of the U.S. $ Revolving Credit Commitments, the C $
Revolving Credit Commitments or the U.K. (pound) Revolving Credit Commitments
pursuant to this Section 2.09(c) shall be in an integral multiple of $1,000,000
and in a minimum aggregate principal amount of $5,000,000 (or, if less, the
remaining amount of the applicable Commitments), (ii) the Total U.S. $ Revolving
Credit Commitments shall not be reduced to an amount that is less than the
aggregate U.S. $ Revolving Credit Exposure of the U.S. $ Revolving Credit
Lenders at the time, (iii) the Total C $ Revolving Credit Commitments shall not
be reduced to an amount that is less than the aggregate C $ Revolving Credit
Exposure of the C $ Revolving Credit Lenders at the time, (iv) the Total U.K.
(pound) Revolving Credit Commitments shall not be reduced to an amount that is
less than the aggregate U.K. (pound) Revolving Credit Exposure of the U.K.
(pound)
<PAGE>
76
Revolving Credit Lenders at the time, (v) the amount of any reduction of the
U.S. $ Revolving Credit Commitments pursuant to this Section 2.09(c) shall not
exceed the difference, if positive, between (A) the aggregate amount of all
prior reductions, if any, of the C $ Revolving Credit Commitments and the U.K.
(pound) Revolving Credit Commitments pursuant to this Section 2.09(c) and (B)
the aggregate amount of all prior reductions, if any, of the U.S. $ Revolving
Credit Commitments pursuant to this Section 2.09(c), (vi) the representations
and warranties set forth in each Loan Document shall be true and correct in all
material respects on and as of the date of such termination or reduction with
the same effect as though made on and as of such date, except to the extent such
representations expressly relate to an earlier date, and (vii) at the time of
and immediately after such termination or reduction no Event of Default or
Default shall have occurred and be continuing. The Parent Borrower will specify
in each notice of reduction of U.S. $ Revolving Credit Commitments given to the
Administrative Agent pursuant to this Section 2.09(c) the amount of such
reduction that will be allocated to increase the C $ Revolving Credit
Commitments and the amount of such reduction that will be allocated to increase
the U.K.(pound) Revolving Credit Commitments pursuant to Section 2.09(e) which
specified amount or amounts shall equal the full amount of the reduction of the
U.S. $ Revolving Credit Commitments; provided, however, that (i) the amount of
any such reduction that will be allocated to increase the C $ Revolving Credit
Commitments shall not exceed the difference, if positive, between (A) the
aggregate amount of all prior reductions of C $ Revolving Credit Commitments
pursuant to this Section 2.09(c) and (B) the aggregate amount of all prior
reductions of U.S. $ Revolving Credit Commitments pursuant to this Section
2.09(c) that were allocated to increases in the C $ Revolving Credit Commitments
and (ii) the amount of any such reduction that will be allocated to increase the
U.K. (pound) Revolving Credit Commitments shall not exceed the difference, if
positive, between (C) the aggregate amount of all prior reductions of U.K.
(pound) Revolving Credit Commitments pursuant to Section this 2.09(c) and (D)
the aggregate amount of all prior reductions of U.S. $ Revolving Credit
Commitments pursuant to this Section 2.09(c) that were allocated to increases in
the U.K. (pound) Revolving Credit Commitments.
(d) Each reduction in the Term Commitments and the U.S. $ Revolving Credit
Commitments pursuant to Section 2.09(b) shall be made ratably among the
applicable Term Lenders and the U.S. $ Revolving Credit Lenders, respectively,
in accordance with their respective applicable Term Commitments or U.S. $
Revolving
<PAGE>
77
Credit Commitments, as applicable. Each reduction in the U.K. (pound) Revolving
Credit Commitments pursuant to Section 2.09(b) or (c) shall be made ratably
among the U.K.(pound) Revolving Credit Lenders in accordance with their
respective U.K. (pound) Revolving Credit Commitments and each reduction in the C
$ Revolving Credit Commitments pursuant to Section 2.09(b) or (c) shall be made
ratably among the C $ Revolving Credit Lenders in accordance with their
respective C $ Revolving Credit Commitments. Each reduction of the U.S. $
Revolving Credit Commitments pursuant to Section 2.09(c) (i) that is allocated
to the increase of C $ Revolving Credit Commitments pursuant to Section 2.09(c)
shall be made ratably among the Original Reallocated C $ Lenders (as defined
below), and any other Lenders to which the applicable U.S. $ Revolving Credit
Commitments of Reallocated C $ Lenders have been assigned pursuant to Section
10.04 (such other Lenders, together with the Original Reallocated C $ Lenders,
the "Reallocated C $ Lenders"), in accordance with their respective U.S. $
Revolving Credit Commitments to the extent such Commitments arose or were
increased pursuant to Section 2.09(e) in connection with reductions in the C $
Revolving Credit Commitments pursuant to Section 2.09(c) and (ii) that is
allocated to the increase of U.K. (pound) Revolving Credit Commitments pursuant
to Section 2.09(c) shall be made ratably among the Original Reallocated U.K.
(pound) Lenders (as defined below), and any other Lenders to which the
applicable U.S. $ Revolving Credit Commitments of Reallocated U.K. (pound)
Lenders have been assigned pursuant to Section 10.04 (such other Lenders,
together with the Original Reallocated U.K. (pound) Revolving Lenders, the "U.K.
(pound) Reallocated Lenders"), in accordance with their respective U.S. $
Revolving Facility Commitments to the extent such Commitments arose or were
increased pursuant to Section 2.09(e) in connection with reductions in the U.K.
(pound) Revolving Credit Commitments pursuant to Section 2.09(c). The Parent
Borrower shall pay to the applicable Administrative Agent for the account of the
applicable Lenders, on the date of each termination or reduction, the Commitment
Fees and, to the extent applicable, L/C Participation Fees and Facility Fees on
the amount of the Commitments so terminated or reduced accrued to but excluding
the date of such termination or reduction.
(e) Upon each reduction of any Lender's C $ Revolving Credit Commitment or
U.K. (pound) Revolving Credit Commitment pursuant to Sections 2.09(c) and (d),
subject to the provisions of Sections 2.09(c)(vi) and (vii), such Lender will
automatically and without further act be deemed to have assumed a U.S. $
Revolving Credit Commitment (or, if such Lender has an existing U.S. $ Revolving
Credit Commitment, such Commitment will
<PAGE>
78
automatically and without further act be increased) in an amount equal to the
amount of such reduction and, if any payment to be made to such Lender in
respect of Loans or other amounts that will become owing to such Lender by the
Parent Borrower in connection with such Commitment would be subject to any
withholding or other Tax, such Lender will immediately assign such Commitment
pursuant to Section 10.04 to an Affiliate of such Lender that will not be
subject to such Tax. Each Lender that is deemed to have assumed a U.S. $
Revolving Credit Commitment, the U.S. $ Revolving Credit Commitment of which has
been increased or to which a U.S. $ Revolving Credit Commitment has been
assigned, in each case pursuant to this Section 2.09(e), (i) in connection with
a reduction of such Lender's C $ Revolving Credit Commitment is referred to
herein as an "Original Reallocated C $ Lender" and (ii) in connection with a
reduction of such Lender's U.K. (pound) Revolving Credit Commitment is referred
to herein as an "Original Reallocated U.K. (pound) Lender".
(f) Upon each reduction of any Reallocated C $ Lender's U.S. $ Revolving
Credit Commitment pursuant to Sections 2.09(c) and (d) that has been allocated
to the increase of the C $ Revolving Credit Commitments pursuant to Section
2.09(c), subject to the provisions of Sections 2.09(c)(vi) and (vii), the C $
Revolving Credit Commitment of such Lender (or of the C $ Revolving Credit
Lender that assigned such U.S. $ Revolving Credit Commitment to such Reallocated
C $ Lender) will automatically and without further act be increased in an amount
equal to such reduction. Upon each reduction of any Reallocated U.K. (pound)
Lender's U.S. $ Revolving Credit Commitment pursuant to Sections 2.09(c) and (d)
that has been allocated to the increase of the U.K. (pound) Revolving Credit
Commitments pursuant to Section 2.09(c), subject to the provisions of Sections
2.09(c)(vi) and (vii), the U.K. (pound) Revolving Credit Commitment of such
Lender (or of the U.K. (pound) Revolving Credit Lender that assigned such U.S. $
Revolving Credit Commitment to such Reallocated U.K. (pound) Lender) will
automatically and without further act be increased in an amount equal to such
reduction.
(g) Notwithstanding the foregoing, the Parent Borrower shall not be
entitled to request more than two reductions of Commitments pursuant to Section
2.09(c) during any fiscal year of the Parent Borrower, provided, that for this
purpose a requested reduction of the C $ Revolving Credit Commitments and a
requested reduction of the U.K. (pound) Revolving Credit Commitments will be
deemed a single reduction if made pursuant to the same reduction request. The
U.S. Administrative Agent shall promptly notify each Lender of (i) each
reduction of Commitments pursuant to
<PAGE>
79
Section 2.09(c), (ii) each corresponding increase in Commitments pursuant to
Section 2.09(e) or (f) and (iii) such Lender's share, if any, of each such
reduction or increase.
(h) Upon each increase in the Total U.S. $ Revolving Credit Commitment
pursuant to Section 2.09(e), (i) each U.S. $ Revolving Credit Lender immediately
prior to such increase will automatically and without further act be deemed to
have assigned to each Original Reallocated C $ Lender and Original Reallocated
U.K. (pound) Lender in respect of such increase, and each such Original
Reallocated C $ Lender and Original Reallocated U.K. (pound) Lender will
automatically and without further act be deemed to have assumed, a portion of
such U.S. $ Revolving Credit Lender's participations hereunder in outstanding
Letters of Credit and Swingline Loans such that, after giving effect to each
such deemed assignment and assumption of participations, the percentage of the
aggregate outstanding (A) participations hereunder in Letters of Credit and (B)
participations hereunder in Swingline Loans held by each U.S. $ Revolving Credit
Lender (including each such Original Reallocated C $ Lender and Original
Reallocated U.K. (pound) Lender) will equal such U.S. $ Revolving Credit
Lender's Applicable Percentage and (ii) if, on the date of such increase, there
are any U.S. $ Revolving Credit Loans outstanding, the Parent Borrower will
borrow from each such Original Reallocated C $ Lender and Original Reallocated
U.K. (pound) Lender U.S. $ Revolving Credit Loans such that, after giving effect
to such Loans, the percentage of the aggregate principal amount of U.S. $
Revolving Credit Loans held by each U.S. $ Revolving Credit Lender (including
each such Original Reallocated C $ Lender and Original Reallocated U.K. (pound)
Lender) will equal such U.S. $ Revolving Credit Lender's Applicable Percentage.
(i) Upon each increase in the Total C $ Revolving Credit Commitment or
Total U.K. (pound) Revolving Credit Commitment pursuant to Section 2.09(f), if,
on the date of such increase, there are any C $ Revolving Credit Loans or U.K.
(pound) Revolving Credit Loans, as applicable, outstanding, the Canadian
Borrower or U.K. Borrower, as applicable, will borrow from each Lender to which
a portion of the increase in such Commitment was allocated pursuant to Section
2.09(f) C $ Revolving Credit Loans or U.K. (pound) Revolving Credit Loans, as
applicable, such that, after giving effect to such Loans, the percentage of the
aggregate principal amount of C $ Revolving Credit Loans or U.K. (pound)
Revolving Credit Loans, as applicable, held by each C $ Revolving Credit Lender
or U.K. (pound) Revolving Credit Lender, as applicable, will equal such Lender's
Applicable Percentage.
<PAGE>
80
(j) The Administrative Agents and the Lenders hereby agree that the minimum
borrowing, pro rata borrowing and pro rata payment requirements contained
elsewhere in this Agreement shall not apply to the transactions effected
pursuant to Section 2.09(h) or (i). Each Borrower hereby agrees to use
reasonable efforts to cause, as soon as practicable after an increase in the
Total U.S. $ Revolving Credit Commitment pursuant to Section 2.09(e) or an
increase in the Total C $ Revolving Credit Commitment or Total U.K. (pound)
Revolving Credit Commitment pursuant to Section 2.09(f), the percentage of all
U.S. $ Revolving Credit Borrowings, C $ Revolving Credit Borrowings or U.K.
(pound) Revolving Credit Borrowings, as applicable, outstanding hereunder held
by each U.S. $ Revolving Credit Lender, C $ Revolving Credit Lender or U.K.
(pound) Revolving Credit Lender to equal the Applicable Percentage of such
Lender.
SECTION 2.10. Conversion and Continuation of Term Borrowings. The Parent
Borrower shall have the right at any time upon prior irrevocable notice to the
U.S. Administrative Agent (a) not later than 12:00 (noon), New York City time,
one Business Day prior to conversion, to convert any Eurodollar Term Borrowing
into an ABR Term Borrowing, (b) not later than 10:00 a.m., New York City time,
three Business Days prior to conversion or continuation, to convert any ABR Term
Borrowing into a Eurodollar Term Borrowing or to continue any Eurodollar Term
Borrowing as a Eurodollar Term Borrowing for an additional Interest Period, and
(c) not later than 10:00 a.m., New York City time, three Business Days prior to
conversion, to convert the Interest Period with respect to any Eurodollar Term
Borrowing to another permissible Interest Period, subject in each case to the
following:
(i) each conversion or continuation shall be made pro rata among the
relevant Lenders in accordance with the respective principal amounts of the
Loans comprising the converted or continued Term Borrowing;
(ii) if less than all the outstanding principal amount of any Term
Borrowing shall be converted or continued, then each resulting Term
Borrowing shall satisfy the limitations specified in Sections 2.02(a) and
(b) regarding the principal amount and maximum number of Borrowings of the
relevant Type;
(iii) each conversion shall be effected by each Lender by recording
for the account of such Lender the new Term Loan of such Lender resulting
from such conversion and reducing the Term Loan (or portion thereof) of
such Lender being
<PAGE>
81
converted by an equivalent principal amount; accrued interest on a Term
Loan (or portion thereof) being converted shall be paid by the Parent
Borrower at the time of conversion;
(iv) if any Eurodollar Term Borrowing is converted at a time other
than the end of the Interest Period applicable thereto, the Parent Borrower
shall pay, upon demand, any amounts due to the Lenders pursuant to Section
2.15;
(v) any portion of a Term Borrowing maturing or required to be repaid
in less than one month may not be converted into or continued as a
Eurodollar Term Borrowing;
(vi) any portion of a Eurodollar Term Borrowing which cannot be
converted into or continued as a Eurodollar Term Borrowing by reason of the
immediately preceding clause shall be automatically converted at the end of
the Interest Period in effect for such Borrowing into an ABR Term
Borrowing; and
(vii) no Interest Period may be selected for any Eurodollar Term
Borrowing that would end later than an Installment Date occurring on or
after the first day of such Interest Period if, after giving effect to such
selection, the aggregate outstanding amount of (A) the Eurodollar Term
Borrowings made pursuant to the same Commitments with Interest Periods
ending on or prior to such Installment Date and (B) the ABR Term Borrowings
made pursuant to the same Commitments would not be at least equal to the
principal amount of Term Borrowings made pursuant to the same Commitments
to be paid on such Installment Date.
Each notice pursuant to this Section 2.10 shall be irrevocable and shall
refer to this Agreement and specify (i) the identity and amount of the Term
Borrowing that the Parent Borrower requests be converted or continued, (ii)
whether such Term Borrowing is to be converted to or continued as a Eurodollar
Borrowing or an ABR Borrowing, (iii) if such notice requests a conversion, the
date of such conversion (which shall be a Business Day) and (iv) if such Term
Borrowing is to be converted to or continued as a Eurodollar Borrowing, the
Interest Period with respect thereto. If no Interest Period is specified in any
such notice with respect to any conversion to or continuation as a Eurodollar
Borrowing, the Parent Borrower shall be deemed to have selected an Interest
Period of one month's duration. The U.S. Administrative Agent shall advise the
other Lenders of any
<PAGE>
82
notice given pursuant to this Section 2.10 and of each Lender's portion of any
converted or continued Term Borrowing. If the Parent Borrower shall not have
given notice in accordance with this Section 2.10 to continue any Term Borrowing
into a subsequent Interest Period (and shall not otherwise have given notice in
accordance with this Section 2.10 to convert such Term Borrowing), such Term
Borrowing shall, at the end of the Interest Period applicable thereto (unless
repaid pursuant to the terms hereof), automatically be converted into an ABR
Borrowing.
SECTION 2.11. Repayment of Term Borrowings. (a) The Term Borrowings shall
be payable as to principal in the amounts and on the dates set forth below (each
such date being called an "Installment Date").
<TABLE>
<CAPTION>
Tranche A Term Tranche B Term Tranche C Term
Date Loan Amount Loan Amount Loan Amount
<S> <C> <C> <C>
September 30, 1999 $ 500,000 $ 500,000 $ 250,000
March 31, 2000 500,000 500,000 250,000
September 30, 2000 1,000,000 500,000 250,000
March 31, 2001 1,000,000 500,000 250,000
September 30, 2001 6,000,000 500,000 250,000
March 31, 2002 6,000,000 500,000 250,000
September 30, 2002 11,250,000 500,000 250,000
March 31, 2003 11,250,000 500,000 250,000
September 30, 2003 13,750,000 500,000 250,000
March 13, 2004 13,750,000
March 31, 2004 500,000 250,000
September 30, 2004 500,000 250,000
March 13, 2005 109,500,000
March 31, 2005 250,000
September 30, 2005 250,000
March 13, 2006 41,750,000
</TABLE>
<PAGE>
83
(b) Except as set forth in paragraphs (c), (d) and (e) below,
(i) all Excess Vernon Proceeds, Net Proceeds and Excess Cash Flow
(collectively, "Proceeds or Excess Cash Flow") to be applied at any time to
prepay Term Borrowings and, if applicable, to reduce Tranche A Term Loan
Commitments pursuant to Sections 2.12(c), (d) and (e), respectively, shall
be applied as follows: (A) a portion of such Proceeds or Excess Cash Flow
equal to (x) the amount of such Proceeds or Excess Cash Flow multiplied by
(y) a fraction, the numerator of which is the outstanding principal amount
of Tranche B Term Borrowings at such time and the denominator of which is
the sum of the outstanding principal amount of Term Borrowings at such time
and the unused Tranche A Term Loan Commitments at such time shall be
applied to prepay Tranche B Term Borrowings, (B) a portion of such Proceeds
or Excess Cash Flow equal to (x) the amount of such Proceeds or Excess Cash
Flow multiplied by (y) a fraction, the numerator of which is the
outstanding principal amount of Tranche C Term Borrowings at such time and
the denominator of which is the sum of the outstanding principal amount of
Term Borrowings at such time and the unused Tranche A Term Loan Commitments
at such time shall be applied to prepay Tranche C Term Borrowings and (C) a
portion of such Proceeds or Excess Cash Flow equal to (x) the amount of
such Proceeds or Excess Cash Flow multiplied by (y) a fraction, the
numerator of which is the sum of the outstanding principal amount of
Tranche A Term Borrowings at such time and the unused Tranche A Term Loan
Commitments at such time and the denominator of which is the sum of the
outstanding principal amount of Term Borrowings at such time and the unused
Tranche A Term Loan Commitments at such time shall be applied, first, to
prepay Tranche A Term Borrowings and, after all outstanding Tranche A Term
Borrowings have been prepaid, to reduce Tranche A Term Loan Commitments and
(ii) each prepayment of principal of the Term Borrowings pursuant to
Section 2.12(a) shall be applied to the Tranche A Term Borrowings, the
Tranche B Term Borrowings and the Tranche C Term Borrowings ratably in
accordance with the respective outstanding amounts thereof.
<PAGE>
84
Such prepayments made pursuant to Section 2.12(a) and prepayments or
reductions in the Tranche A Term Loan Commitments made pursuant to Section
2.12(d) shall reduce scheduled payments required under paragraph (a) above after
the date of such prepayment in the scheduled order of maturity and such
prepayments and reductions in the Tranche A Term Loan Commitments made pursuant
to Sections 2.12(c) and 2.12(e) shall reduce scheduled payments required under
paragraph (a) above after the date of such prepayment on a pro rata basis. To
the extent not previously paid, all Tranche A Term Borrowings shall be due and
payable on the Tranche A Maturity Date, all Tranche B Term Borrowings shall be
due and payable on the Tranche B Maturity Date and all Tranche C Term Borrowings
shall be due and payable on the Tranche C Maturity Date. Each payment of
Borrowings pursuant to this Section 2.11 shall be accompanied by accrued
interest on the principal amount paid to but excluding the date of payment.
(c) In the event and on each occasion Tranche A Term Loan Commitments shall
be reduced or shall expire or terminate other than as a result of the making of
Tranche A Term Loans or as a result of (i) the making of any mandatory or
optional prepayment or (ii) the reduction of the Tranche A Term Loan
Commitments, in the case of clauses (i) and (ii), pursuant to Section 2.12(a),
(c), (d) or (e), the installments payable on each Installment Date in respect of
Tranche A Term Loans shall be reduced pro rata by an aggregate amount equal to
the amount of such reduction, expiration or termination.
(d) Notwithstanding the provisions of paragraph (b) above, at the election
of the Parent Borrower, the first $10,000,000 in aggregate (i) mandatory
prepayments that would otherwise be made pursuant to Section 2.12(d) to Lenders
holding Tranche B Term Loans or Tranche C Term Loans, or (ii) optional
prepayments that would otherwise be made pursuant to Section 2.12(a) to Lenders
holding Tranche B Term Loans or Tranche C Term Loans, in either case shall be
applied, until the Tranche A Term Borrowings shall have been paid in full and,
in the case of mandatory prepayments, the Tranche A Term Loan Commitments have
been reduced to zero, to prepay Tranche A Term Borrowings and, in the case of
mandatory prepayments, after all outstanding Tranche A Term Borrowings have been
prepaid, to reduced Tranche A Term Loan Commitments, and shall reduce scheduled
payments in respect of such Tranche A Term Borrowings
<PAGE>
85
under Section 2.11(a) after the date of any such prepayment in the scheduled
order of maturity (it being understood that the Parent Borrower shall be
entitled to retain mandatory prepayment amounts referred to in this Section
2.11(d) to the extent such amounts have been applied to reduce Tranche A Term
Loan Commitments as aforesaid).
(e) Any Lender holding Tranche B Term Loans or Tranche C Term Loans may, to
the extent Tranche A Term Borrowings are outstanding or, in the case of any
mandatory prepayment referred to in clause (ii) below, the Tranche A Term Loan
Commitments are greater than zero, elect on not less than one Business Day's
prior written notice to the U.S. Administrative Agent with respect to (i) any
optional prepayment made pursuant to Section 2.12(a), if the Parent Borrower
shall have consented to the availability of such election pursuant to this
Section 2.11(e), or (ii) any mandatory prepayment made pursuant to Section
2.12(d), not to have such prepayment applied to such Lender's Tranche B Term
Loans and/or Tranche C Term Loans until all Tranche A Term Borrowings shall have
been paid in full and , in the case of any such mandatory prepayment, the
Tranche A Term Loan Commitments have been reduced to zero, in which case the
amount not so applied shall be applied to prepay Tranche A Term Borrowings and,
in the case of any such mandatory prepayment, after all outstanding Tranche A
Term Borrowings have been prepaid, to reduce Tranche A Term Loan Commitments,
and shall reduce scheduled payments of Tranche A Term Borrowings under Section
2.11(a) after the date of any prepayment in the scheduled order of maturity (it
being understood that the Parent Borrower shall be entitled to retain mandatory
prepayment amounts referred to in this Section 2.11(e) to the extent such
amounts have been applied to reduce Tranche A Term Loan Commitments as
aforesaid).
SECTION 2.12. Prepayment. (a) Each Borrower shall, subject to Section
2.12(h), have the right at any time and from time to time to prepay any
Borrowing, in whole or in part, upon at least three Business Days' prior written
or telecopy notice (or telephone notice promptly confirmed by written or
telecopy notice) to the applicable Administrative Agent (or in the case of
Swingline Loans, same day telecopy notice (or telephone notice promptly
confirmed by telecopy notice)), before 11:00 a.m., New York City time or Toronto
time, as the case may be (or, in the case of prepayment of a U.K. (pound)
Revolving Credit Borrowing in respect of which previous notices have been
delivered to the U.S.
<PAGE>
86
Administrative Agent in London, then to the U.S. Administrative Agent in London
before 1:00 p.m., London time); provided, however, that (i) each partial
prepayment under this Section 2.12(a) (other than of a Swingline Loan) shall be
in an aggregate amount that is an integral multiple of $1,000,000 (or the
equivalent based upon Assigned Dollar Values) and not less than $5,000,000 (or
the equivalent based upon Assigned Dollar Values) (or, if less, the aggregate
outstanding amount under the applicable Credit Facility), and (ii) a partial
prepayment of a Eurodollar Borrowing under this paragraph shall not be made if
it would result in the remaining aggregate outstanding principal amount thereof
being less than the minimum principal amount that would be required pursuant to
Section 2.02(a) in respect of a Eurodollar Borrowing made on the date of such
prepayment (determined based upon Assigned Dollar Values in the case of U.K.
(pound) Revolving Credit Borrowings).
(b) In the event of any termination of the U.S. $ Revolving Credit
Commitments, the Parent Borrower shall on the date of such termination repay or
prepay all its outstanding Swingline Loans and U.S. $ Revolving Credit
Borrowings, reduce the Revolving L/C Exposure to zero and cause all Letters of
Credit issued on behalf of it to be canceled and returned to the Fronting Bank.
In the event of any termination of the U.K. (pound) Revolving Credit Commitments
or C $ Revolving Credit Commitments, the U.K. Borrower or the Canadian Borrower,
as applicable, shall on the date of such termination repay or prepay all its
outstanding U.K. (pound) Revolving Credit Borrowings or C $ Revolving Credit
Borrowings, as applicable. In the event of any partial reduction of the U.S. $
Revolving Credit Commitments, then (i) at or prior to the effective date of such
reduction, the U.S. Administrative Agent shall notify the Parent Borrower, the
Swingline Lender and the U.S. $ Revolving Credit Lenders of the Aggregate U.S. $
Revolving Credit Exposure, and (ii) if the Aggregate U.S. $ Revolving Credit
Exposure would exceed the Total U.S. $ Revolving Credit Commitment after giving
effect to such reduction, then the Parent Borrower shall, on the date of such
reduction, repay or prepay Swingline Loans and U.S. $ Revolving Credit
Borrowings, or reduce the Revolving L/C Exposure, in an aggregate amount
sufficient to eliminate such excess. In the event of any partial reduction of
the U.K. (pound) Revolving Credit Commitments or C $ Revolving Credit
Commitments, then (i) at or prior to the effective date of such reduction, the
U.S. Administrative Agent or the Canadian Administrative Agent, as
<PAGE>
87
applicable, shall notify the Parent Borrower and the U.K. Borrower or the
Canadian Borrower, as applicable, and the U.K. (pound) Revolving Credit Lenders
or the C $ Revolving Credit Lenders, as applicable, of the Aggregate U.K.
(pound) Revolving Credit Exposure or the Aggregate C $ Revolving Credit
Exposure, and (ii) if the Aggregate U.K. (pound) Revolving Credit Exposure or
the Aggregate C $ Revolving Credit Exposure, as applicable, would exceed the
Total U.K. (pound) Revolving Credit Commitment or the Total C $ Revolving Credit
Commitment, as applicable, after giving effect to such reduction, then the
Parent Borrower, the U.K. Borrower or the Canadian Borrower, as applicable,
shall, on the date of such reduction, repay or prepay U.K. (pound) Revolving
Credit Borrowings or C $ Revolving Credit Borrowings, as applicable, in an
aggregate amount sufficient to eliminate such excess. Notwithstanding the
foregoing, on the date of any termination or reduction of the U.S. $ Revolving
Credit Commitments, the U.K. (pound) Revolving Credit Commitments or the C $
Revolving Credit Commitments pursuant to Section 2.09, the Parent Borrower shall
pay or prepay, or shall cause the applicable Subsidiary Borrower to pay or
prepay, so much of, first, in the case of any termination or reduction of the
U.S. $ Revolving Credit Commitments, the Swingline Loans and, second, the U.S. $
Revolving Credit Borrowings, the U.K. (pound) Revolving Credit Borrowings or the
C $ Revolving Credit Borrowings, as the case may be, as shall be necessary in
order that the Aggregate U.S. $ Revolving Credit Exposure will not exceed the
Total U.S. $ Revolving Credit Commitment, the Aggregate Revolving U.K. (pound)
Credit Exposure will not exceed the Total U.K. (pound) Revolving Credit
Commitment or the Aggregate C $ Revolving Credit Exposure will not exceed the
Total C $ Revolving Credit Commitment, as applicable, after giving effect to
such termination or reduction.
(c) The Parent Borrower shall apply all Net Proceeds promptly upon receipt
thereof by the Parent Borrower or any Subsidiary to prepay Term Borrowings and,
if applicable, to reduce Tranche A Term Loan Commitments in accordance with
Section 2.11(b).
(d) Not later than 90 days after the end of each fiscal year of the Parent
Borrower, commencing with the fiscal year ending December 31, 1998, the Parent
Borrower shall calculate Excess Cash Flow for such fiscal year and shall prepay
Term Borrowings and, if applicable, reduce Tranche A Term Loan Commitments in
accordance with Section 2.11(b) in an amount equal
<PAGE>
88
to (i) 75% of such Excess Cash Flow, provided that, if at the time of such
prepayment or reduction, the ABR Margin and the LIBOR Margin are determined by
reference to Level 4 as set forth on Schedule A, the Parent Borrower shall be
required to apply only 50% of such Excess Cash Flow to prepay such Borrowings
and, if applicable, to reduce such Commitments; less (ii) any voluntary
prepayments of Term Loans during the period beginning on April 1 of such fiscal
year and ending on March 31 of the immediately succeeding fiscal year and any
permanent reductions to the Revolving Credit Commitments made during the same
period to the extent that an equal amount of the Revolving Credit Loans
simultaneously is repaid, provided that, with respect to the period ending on
December 31, 1998, Excess Cash Flow shall, notwithstanding anything to the
contrary herein, be determined with respect to the period beginning on the
Closing Date and ending on December 31, 1998. Not later than the date on which
the Parent Borrower is required to deliver financial statements with respect to
the end of each fiscal year under Section 5.04(a), the Parent Borrower will
deliver to the U.S. Administrative Agent a certificate signed by a Financial
Officer of the Parent Borrower setting forth the amount, if any, of Excess Cash
Flow for such fiscal year and the calculation thereof in reasonable detail.
(e) The Parent Borrower shall apply 50% of all Excess Vernon Proceeds
promptly upon any such receipt thereof to prepay Term Borrowings and, if
applicable, to reduce Tranche A Term Loan Commitments in accordance with Section
2.11(b), and may retain the balance of such proceeds.
(f) Upon two Business Days written notice from the U.S. Administrative
Agent, the U.K. Borrower or the Parent Borrower, as applicable, shall repay U.K.
(pound) Revolving Credit Loans in accordance with the proviso to the third
sentence of Section 2.02(a).
(g) (i) If, on any Reset Date, the Aggregate C $ Revolving Credit Exposure
(expressed in Dollars) exceeds an amount equal to 105% of the Total C $
Revolving Credit Commitment, then (A) the Canadian Administrative Agent shall
give notice thereof to the C $ Revolving Credit Lenders, the Parent Borrower and
the Canadian Borrower and (B) the Parent Borrower shall, or shall cause the
Canadian Borrower to, on the next succeeding Business Day, apply an amount equal
to such excess to
<PAGE>
89
repay or prepay outstanding C $ Revolving Credit Borrowings (or cash
collateralize Bankers' Acceptances in accordance with paragraph (h) below).
(ii) If, on any Reset Date, the Aggregate U.K. (pound) Revolving Credit
Exposure (expressed in Dollars) exceeds an amount equal to 105% of the Total
U.K. (pound) Revolving Credit Commitment, then (A) the U.S. Administrative Agent
shall give notice thereof to the U.K. (pound) Revolving Credit Lenders, the
Parent Borrower and the U.K. Borrower and (B) the Parent Borrower shall, or
shall cause the U.K. Borrower to, on the next succeeding Business Day, apply an
amount equal to such excess to repay or prepay outstanding U.K. (pound)
Revolving Credit Borrowings.
(h) All repayments or prepayments of C $ Revolving Credit Borrowings under
this Section 2.12 shall be applied first, to repay or prepay outstanding C $
Revolving Credit Loans that are Canadian Prime Rate Loans or ABR Loans, and
second, to cash collateralize outstanding C $ Revolving Credit Loans that are
Eurodollar Loans in accordance with the terms of paragraph (j) below or to cash
collateralize outstanding Bankers' Acceptances or B/A Equivalent Notes, on terms
and subject to documentation satisfactory to the Canadian Administrative Agent
as security for the applicable Borrower's obligations under such Bankers'
Acceptances or B/A Equivalent Notes until the maturity and repayment of such
Bankers' Acceptances or B/A Equivalent Notes. Notwithstanding anything herein to
the contrary, no Bankers' Acceptance or B/A Equivalent Note may be prepaid prior
to the maturity date thereof, except as provided in Article VII.
(i) The applicable Borrower shall deliver to the applicable Administrative
Agent at the time of each prepayment required under this Section 2.12, a notice
of prepayment accompanied by a certificate signed by a Financial Officer of such
Borrower setting forth in reasonable detail the calculation of the amount of
such prepayment. Each notice of prepayment or reduction pursuant to this Section
2.12 shall specify the prepayment date and the principal amount of each
Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall
commit the applicable Borrower to prepay such Borrowing by the amount stated
therein on the date stated therein. Each prepayment of Term Borrowings under
this Section 2.12 shall be applied as set forth in paragraphs (b), (c), (d) and
(e) of Section 2.11. All prepayments under this Section 2.12 shall be
<PAGE>
90
subject to Section 2.15 but otherwise without premium or penalty. All
prepayments under this Section 2.12 shall be accompanied by accrued interest on
the principal amount being prepaid to but excluding the date of payment.
(j) In the event the amount of any prepayment required to be made above
shall exceed the aggregate principal amount of the ABR Loans or Canadian Prime
Rate Loans outstanding under the Credit Facilities required to be prepaid (the
amount of any such excess being called the "Excess Amount"), the Parent Borrower
shall have the right, in lieu of making such prepayment in full, to prepay or
cause a Subsidiary Borrower to prepay all the outstanding applicable ABR Loans
and Canadian Prime Rate Loans and to deposit an amount equal to the Excess
Amount with the Collateral Agent or the Canadian Administrative Agent (in the
case of a prepayment required in respect of C $ Revolving Credit Loans) in a
cash collateral account maintained (pursuant to documentation reasonably
satisfactory to the U.S. Administrative Agent) by and in the sole dominion and
control of the Collateral Agent. Any amounts so deposited shall be held by the
Collateral Agent as collateral for the Obligations and applied to the prepayment
of the applicable Eurodollar Loans, if any, at the end of the current Interest
Periods applicable thereto. On any Business Day on which (i) collected amounts
remain on deposit in or to the credit of such cash collateral account after
giving effect to the payments made on such day pursuant to this Section 2.12(j)
and (ii) the Parent Borrower shall have delivered to the Collateral Agent, or
the Canadian Administrative Agent, as applicable, a written request or a
telephonic request (which shall be promptly confirmed in writing) that such
remaining collected amounts be invested in the Permitted Investments specified
in such request, the Collateral Agent, or the Canadian Administrative Agent, if
applicable, shall use its reasonable efforts to invest such remaining collected
amounts in such Permitted Investments; provided, however, that the Collateral
Agent, or the Canadian Administrative Agent, as applicable, shall have
continuous dominion and full control over any such investments (and over any
interest that accrues thereon) to the same extent that it has dominion and
control over such cash collateral account and no Permitted Investment shall
mature after the end of the Interest Period for which it is to be applied. The
Parent Borrower shall not have the right to withdraw any amount from such cash
collateral account until the applicable
<PAGE>
91
Eurodollar Loans and accrued interest thereon are paid in full or if a Default
or Event of Default then exists or would result.
SECTION 2.13. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision herein, if after the date of this Agreement
any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender or the
Fronting Bank in respect of any Letter of Credit or of the principal of or
interest on (or discount rate applicable to) any Eurodollar Loan or Alternative
Currency Loan made by such Lender or any Fees or other amounts payable hereunder
(other than changes in respect of (i) taxes imposed on the overall net income of
such Lender or the Fronting Bank by the jurisdiction in which such Lender or the
Fronting Bank has its principal office or by any political subdivision or taxing
authority therein and (ii) any Taxes described in Section 2.19), or shall
impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets or deposits with or for the account of or credit
extended by or, in the case of the Letters of Credit, participated in by such
Lender (except any such reserve requirement which is reflected in the Adjusted
LIBO Rate the Alternate Base Rate or the Canadian Prime Rate), or the Fronting
Bank or shall impose on such Lender or the Fronting Bank or the interbank
Eurodollar market or any other relevant market any other condition affecting
this Agreement, any Letter of Credit (or any participation with respect
thereto), the Revolving L/C Exposure, any Eurodollar Loans or any Alternative
Currency Loans of such Lender or the Fronting Bank, and the result of any of the
foregoing shall be to increase the cost to such Lender or the Fronting Bank of
making or maintaining its Revolving L/C Exposure, any Eurodollar Loan or any
Alternative Currency Loan (or, in the case of the Fronting Bank, of making any
payment under any Letter of Credit) or to reduce the amount of any sum received
or receivable by such Lender or the Fronting Bank hereunder (whether of
principal, interest or otherwise) by an amount deemed by such Lender or the
Fronting Bank to be material, then from time to time the Parent Borrower will
pay, or will cause the applicable Subsidiary Borrower to pay, to such Lender or
the Fronting Bank upon demand such additional amount or amounts as will
compensate such Lender or the Fronting Bank for such additional costs incurred
or reduction suffered.
<PAGE>
92
(b) If any Lender or the Fronting Bank shall have determined that the
adoption after the date hereof of any law, rule, regulation or guideline
regarding capital adequacy, or any change after the date hereof in any of the
foregoing or in the interpretation or administration of any of the foregoing by
any Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or the Fronting Bank or any Lender's or the
Fronting Bank's holding company with any request or directive regarding capital
adequacy (whether or not having the force of law) made or issued after the date
hereof by any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on such Lender's or the Fronting
Bank's capital or on the capital of such Lender's or the Fronting Bank's holding
company, if any, as a consequence of this Agreement or its obligations pursuant
hereto to a level below that which such Lender or the Fronting Bank or such
Lender's or the Fronting Bank's holding company would have achieved but for such
adoption, change or compliance (taking into consideration such Lender's or the
Fronting Bank's policies and the policies of such Lender's or the Fronting
Bank's holding company with respect to capital adequacy) by an amount deemed by
such Lender or the Fronting Bank to be material, then from time to time the
Parent Borrower shall pay, or shall cause the applicable Subsidiary Borrower to
pay, to such Lender or the Fronting Bank upon demand such additional amount or
amounts as will compensate such Lender or the Fronting Bank or such Lender's or
the Fronting Bank's holding company for any such reduction suffered.
(c) If, as a result of (i) any Borrower's delivery of any notice pursuant
to Section 2.09(c) requesting any reduction of U.S. $ Revolving Credit
Commitments, to the extent such reduction will be allocated to increase C $
Revolving Credit Commitments pursuant to Section 2.09(c), to be effective on any
day other than the first day of a fiscal quarter and (ii) the reduction of C $
Revolving Credit Commitments in accordance with such request, any C $ Revolving
Credit Lender shall remain or become subject to any reserve, special deposit or
similar requirement for credit extended by such Lender, and the result of any of
the foregoing would have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company, if any, to
a level below that which such Lender or such Lender's holding company would have
achieved
<PAGE>
93
but for such Borrower's delivery of such request and such reduction, then from
time to time the Canadian Borrower shall pay to the Canadian Administrative
Agent on behalf of such Lender upon demand from such Lender or the Canadian
Administrative Agent such additional amount or amounts as will compensate such
Lender or such Lender's holding company for any such reduction suffered.
(d) A certificate of each Lender or the Fronting Bank setting forth such
amount or amounts as shall be necessary to compensate such Lender or the
Fronting Bank or its holding company as specified in paragraph (a), (b) or (c)
above, as the case may be, shall be delivered to the Parent Borrower through the
U.S. Administrative Agent and shall be conclusive absent manifest error. The
Parent Borrower shall pay, or shall cause the applicable Subsidiary Borrower to
pay, each Lender or the Fronting Bank the amount shown as due on any such
certificate delivered by it within 10 days after its receipt of the same.
(e) In the event any Lender or the Fronting Bank delivers a notice pursuant
to paragraph (f) below (other than any notice relating to paragraph (c) above),
the Parent Borrower may require, at the Parent Borrower's expense and subject to
Section 2.15, such Lender or the Fronting Bank to assign, at par plus accrued
interest and fees, without recourse (in accordance with Section 10.04) all its
interests, rights and obligations hereunder (including, in the case of a Lender,
all of its Commitments and the Loans at the time owing to it and participations
in Letters of Credit and Swingline Loans held by it and its obligations to
acquire such participations) to a financial institution specified by the Parent
Borrower, provided that (i) such assignment shall not conflict with or violate
any law, rule or regulation or order of any court or other Governmental
Authority, (ii) the Parent Borrower shall have received the written consent of
the U.S. Administrative Agent (which consent shall not be unreasonably withheld)
and the Fronting Bank to such assignment, (iii) the Parent Borrower shall have
paid to the assigning Lender or the Fronting Bank all monies accrued and owing
hereunder to it (including pursuant to this Section 2.13 and including all
monies owed pursuant to Section 2.15 as a result thereof) and (iv) in the case
of a required assignment by the Fronting Bank, all outstanding Letters of Credit
issued by the Fronting Bank shall be canceled and returned to the Fronting Bank.
<PAGE>
94
(f) Promptly after any Lender or the Fronting Bank has determined, in its
sole judgment, that it will make a request for increased compensation pursuant
to this Section 2.13, such Lender or the Fronting Bank will notify the Parent
Borrower thereof. Failure on the part of any Lender or the Fronting Bank so to
notify the Parent Borrower or to demand compensation for any increased costs or
reduction in amounts received or receivable or reduction in return on capital
with respect to any period shall not constitute a waiver of such Lender's or the
Fronting Bank's right to demand compensation with respect to such period or any
other period, provided that the Parent Borrower shall not be under any
obligation to compensate any Lender or the Fronting Bank under paragraph (b)
above with respect to increased costs or reductions with respect to any period
prior to the date that is six months prior to such request if such Lender or the
Fronting Bank knew or could reasonably have been expected to be aware of the
circumstances giving rise to such increased costs or reductions and of the fact
that such circumstances would in fact result in a claim for increased
compensation by reason of such increased costs or reductions and provided
further that the foregoing limitation shall not apply to any increased costs or
reductions arising out of the retroactive application of any law, regulation,
rule, guideline or directive as aforesaid within such six month period. The
protection of this Section 2.13 shall be available to each Lender and the
Fronting Bank regardless of any possible contention as to the invalidity or
inapplicability of the law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed.
SECTION 2.14. Change in Legality. (a) Notwith standing any other provision
herein, if (i) the adoption of or any change in any law or regulation or in the
interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or any Alternative Currency Loan or to
give effect to its obligations as contemplated hereby with respect to any
Eurodollar Loan or any Alternative Currency Loan, or (ii) there shall have
occurred any change in national or international financial, political or
economic conditions (including the imposition of or any change in exchange
controls) or currency exchange rates which would make it impracticable for any
Lender to make Loans denominated in any Alternative Currency (or for any C $
Revolving Credit Lender to make Loans denominated in Dollars) or to any
Borrower, then, by
<PAGE>
95
written notice to the Parent Borrower and to the applicable Administrative
Agent, such Lender may:
(i) declare that Eurodollar Loans or Alternative Currency Loans (or,
in the case of C $ Revolving Credit Lenders, Loans denominated in Dollars)
(in the affected currency or currencies or to the affected Borrower), as
the case may be, will not thereafter (for the duration of such unlawfulness
or impracticability) be made by such Lender hereunder, whereupon any
request for a Eurodollar Borrowing or Alternative Currency Borrowing (or,
in the case of C $ Revolving Credit Lenders, Loans denominated in Dollars)
(in the affected currency or currencies or to the affected Borrower), as
the case may be, shall, as to such Lender only, be deemed a request for an
ABR Loan or a Loan denominated in Dollars (or, in the case of any C $
Revolving Credit Lender, in Canadian Dollars), as the case may be, unless
such declaration shall be subsequently withdrawn (or, if a Loan to the
requesting Borrower cannot be made for the reasons specified above, such
request shall be deemed to have been withdrawn); and
(ii) require that all outstanding Eurodollar Loans or Alternative
Currency Loans (in the affected currency or currencies), as the case may
be, made by it be converted to ABR Loans or Loans denominated in Dollars
(or, in the case of any C $ Revolving Credit Lender, Canadian Dollars), as
the case may be, in which event all such Eurodollar Loans or Alternative
Currency Loans (or in the case of C $ Revolving Credit Lenders, Loans
denominated in Dollars) (in the affected currency or currencies), as the
case may be, shall be automatically converted to ABR Loans or Loans
denominated in Dollars (or, in the case of any C $ Revolving Credit Lender,
Canadian Dollars), as the case may be, as of the effective date of such
notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under subparagraphs (i) and
(ii) above, all payments and prepayments of principal that would otherwise have
been applied to repay the Eurodollar Loans or Alternative Currency Loans, as the
case may be, that would have been made by such Lender or the converted
Eurodollar Loans or Alternative Currency Loans (or in the case of C $ Revolving
Credit Lenders, Loans denominated in Dollars), as
<PAGE>
96
the case may be, of such Lender shall instead be applied to repay the ABR Loans
or Loans denominated in Dollars (or, if such Lender is a C $ Revolving Credit
Lender, Canadian Dollars), as the case may be, made by such Lender in lieu of,
or resulting from the conversion of, such Eurodollar Loans or Alternative
Currency Loans (or in the case of C $ Revolving Credit Lenders, Loans
denominated in Dollars), as the case may be.
(b) For purposes of this Section 2.14, a notice to the Parent Borrower by
any Lender shall be effective as to each Eurodollar Loan or Alternative currency
Loan, as the case may be, if lawful, on the last day of the Interest Period
currently applicable to such Eurodollar Loan; in all other cases such notice
shall be effective on the date of receipt by the Parent Borrower.
SECTION 2.15. Indemnity. Each Borrower shall indemnify each Lender against
any loss or expense (other than taxes) that such Lender may sustain or incur as
a consequence of (a) any failure by such Borrower to fulfill on the date of any
Borrowing or proposed Borrowing hereunder the applicable conditions set forth in
Article IV, (b) any failure by such Borrower to borrow or to refinance, convert
or continue any Loan hereunder after irrevocable notice of such Borrowing,
refinancing, conversion or continuation has been given pursuant to Section 2.03
or 2.10, (c) any payment, prepayment, exchange pursuant to Article IX or
conversion of a Eurodollar Loan to such Borrower or Alternative Currency Loan to
such Borrower or any portion thereof required by any other provision of this
Agreement or otherwise made or deemed made on a date other than the last day of
the Interest Period applicable thereto, or any payment, prepayment, exchange by
or in respect of such Borrower pursuant to Article IX of a B/A or B/A Equivalent
Note required by any other provision of this Agreement otherwise made or deemed
made on a date other than the maturity date thereof, (d) any default by such
Borrower in payment or prepayment of the principal amount of any Loan or any
part thereof or interest accrued thereon, as and when due and payable (at the
due date thereof, whether by scheduled maturity, acceleration, irrevocable
notice of prepayment or otherwise) or (e) in the case of the Parent Borrower,
the occurrence of any Event of Default, including, in each such case, any loss
or reasonable expense sustained or incurred or to be sustained or incurred in
liquidating or employing deposits from third parties acquired to effect or
<PAGE>
97
maintain such Loan or any part thereof as a Eurodollar Loan or Alternative
Currency Loan (including B/As). Such loss or reasonable expense shall exclude
loss of margin hereunder but shall include an amount equal to the excess, if
any, as reasonably determined by such Lender, of (i) its cost of obtaining the
funds for the Loan being paid, prepaid, converted or not borrowed, converted or
continued (assumed to be the Adjusted LIBO Rate or the Discount Rate, as
applicable, applicable thereto) for the period from the date of such payment,
prepayment, conversion or failure to borrow, convert or continue to the last day
of the Interest Period for such Loan or the maturity date of such B/A, as
applicable (or, in the case of a failure to borrow, convert or continue, the
Interest Period for such Loan which would have commenced on the date of such
failure) over (ii) the amount of interest (as reasonably determined by such
Lender) that would be realized by such Lender in reemploying the funds so paid,
prepaid, converted or not borrowed, converted or continued for such period or
Interest Period, as the case may be. A certificate of any Lender setting forth
any amount or amounts that such Lender is entitled to receive pursuant to this
Section 2.15 (and the reasons therefor) shall be delivered to the Parent
Borrower through the U.S. Administrative Agent and shall be conclusive absent
manifest error.
SECTION 2.16. Pro Rata Treatment. Except as required under Section 2.09 or
2.14 and subject to Section 2.11, each Borrowing, each payment or prepayment of
principal of any Borrowing, each payment of interest on the Loans, each
reimbursement of L/C Disbursements, each payment of the Commitment Fees or
Facility Fees in respect of any Credit Facility or L/C Participation Fees, each
reduction of the Term Commitments or the Revolving Credit Commitments and each
refinancing of any Borrowing with, conversion of any Borrowing to or
continuation of any Borrowing as a Borrowing of any Type shall be allocated
(except in the case of Swingline Loans) pro rata among the Lenders in accordance
with their respective applicable Commitments (or, if such Commitments shall have
expired or been terminated, in accordance with the respective principal amounts
of their applicable outstanding Loans or participations in L/C Disbursements and
Swingline Loans, as applicable). Each Lender agrees that in computing such
Lender's portion of any Borrowing or L/C Disbursement, the applicable
Administrative Agent may, in its discretion, round each Lender's percentage of
such Borrowing or L/C Disbursement, computed in accordance with Section 2.01, to
<PAGE>
98
the next higher or lower whole Dollar (or comparable unit of any applicable
Alternative Currency) amount.
SECTION 2.17. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
any Loan Party or pursuant to a secured claim under Section 506 of Title 11 of
the United States Code or other security or interest arising from, or in lieu
of, such secured claim, received by such Lender under any applicable bankruptcy,
insolvency or other similar law or otherwise, or by any other means, obtain
payment (voluntary or involuntary) in respect of any Loan or L/C Disbursement as
a result of which the unpaid principal portion of its Related Claims (or, after
acceleration of the Loans pursuant to Article VII, applicable to any Related
Claim) shall be proportionately less than the unpaid principal portion of the
Related Claims of any other Related Lender (or, after acceleration of the Loans
pursuant to Article VII, applicable to any Related Claim), it shall be deemed
simultaneously to have purchased from such other Related Lender at face value,
and shall promptly pay to such other Related Lender the purchase price for a
participation in the Related Claims of such other Related Lender, so that the
aggregate unpaid principal amount of the Related Claims and participations in
Related Claims held by each Related Lender shall be in the same proportion to
the aggregate unpaid principal amount of all Related Claims then outstanding as
the principal amount of its Related Claims prior to such exercise of banker's
lien, setoff or counterclaim or other event was to the principal amount of all
Related Claims outstanding prior to such exercise of banker's lien, setoff or
counterclaim or other event; provided, however, that, if any such purchase or
purchases or adjustments shall be made pursuant to this Section 2.17 and the
payment giving rise thereto shall thereafter be recovered, such purchase or
purchases or adjustments shall be rescinded to the extent of such recovery and
the purchase price or prices or adjustment restored without interest. The
Borrowers expressly consent to the foregoing arrangements and agree that any
Lender holding a participation in a Loan or L/C Disbursement deemed to have been
so purchased may exercise any and all rights of banker's lien, setoff or
counterclaim with respect to any and all moneys owing by the applicable Borrower
to such Lender by reason thereof as fully as if such Lender had made a Loan
directly to, or L/C Disbursement directly for the benefit of, such Borrower in
the amount of such participation.
<PAGE>
99
SECTION 2.18. Payments. (a) Each Borrower shall make each payment
(including principal of or interest on any Borrowing or L/C Disbursement or any
Fees or other amounts) required to be made by it hereunder and under any other
Loan Document without setoff or counterclaim not later than 12:00 noon, local
time at the place of payment, on the date when due and, unless and until
otherwise specified, all such payments payable in Dollars shall be made to the
U.S. Administrative Agent, Loan and Agency Services Group, at its offices at One
Chase Manhattan Plaza, 8th Floor, New York, New York 10081, in immediately
available funds, for credit to The Chase Manhattan Bank, ABA Number 0210 00021,
Account Number 323-518419. All such payments payable in Canadian Dollars or that
are otherwise payable to the Canadian Administrative Agent shall be made to the
Canadian Administrative Agent at its office at 1 First Canadian Place, 100 King
Street West, Suite 6900, Toronto, Ontario M5X 1A4, by 12:00 (noon), Toronto
time, on the date such payment is due. Each such payment (other than principal
of and interest on Alternative Currency Loans which shall be made in the
applicable Alternative Currency) shall be made in Dollars. Any payments received
by the U.S. Administrative Agent after the specified time shall be deemed to
have been received on the next Business Day. The U.S. Administrative Agent shall
distribute such payments to the Lenders and the Fronting Bank promptly upon
receipt in like funds as received.
(b) Whenever any payment (including principal of or interest on any
Borrowing or L/C Disbursement or any Fees or other amounts) hereunder or under
any other Loan Document shall become due, or otherwise would occur, on a day
that is not a Business Day, such payment may be made on the next succeeding
Business Day (except in the case of payment of principal of a Eurodollar
Borrowing if the effect of such extension would be to extend such payment into
the next succeeding month, in which event such payment shall be due on the
immediately preceding Business Day), and such extension of time shall in such
case be included in the computation of interest or Fees, if applicable.
SECTION 2.19. Taxes. (a) Any and all payments by any Borrower to the
applicable Administrative Agent, the Fronting Bank or the Lenders hereunder or
under the other Loan Documents shall be made, in accordance with Section 2.18,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all
<PAGE>
100
liabilities with respect thereto, excluding (i) in the case of each Lender, the
Fronting Bank and the applicable Administrative Agent, taxes, levies, imposts,
deductions, charges or withholdings that would not be imposed but for a
connection between such Lender, the Fronting Bank or the applicable
Administrative Agent (as the case may be) and the jurisdiction imposing such
tax, other than a connection arising solely by virtue of the activities of such
Lender, the Fronting Bank or the applicable Administrative Agent (as the case
may be) pursuant to or in respect of this Agreement or under any other Loan
Document, including entering into, lending money or extending credit pursuant
to, receiving payments under, or enforcing, this Agreement or any other Loan
Document, (ii) in the case of each Lender, the Fronting Bank and the applicable
Administrative Agent, taxes, levies, imposts, deductions, charges or
withholdings imposed solely as a result of the failure to assign a Commitment as
required by Section 2.09(e), and (iii) in the case of each Lender, the Fronting
Bank and the applicable Administrative Agent, any United States withholding
taxes or Canadian withholding taxes (except for withholding taxes on payments
(other than Fees) with respect to Obligations of Borrowers that are non-Domestic
Subsidiaries (other than the Canadian Borrower with respect to C $ Revolving
Credit Loans) and withholding taxes on payments with respect to Obligations of
Borrowers that are not non-Domestic Subsidiaries acquired by a Lender as a
result of the CAM Exchange) payable with respect to any payments made hereunder
or under the other Loan Documents, other than in respect of C $ Revolving Credit
Loans held by C $ Revolving Credit Lenders that are residents of Canada for
purposes of the Income Tax Act (Canada), under laws (including any statute,
treaty, ruling, determination or regulation) in effect on the Initial Date (as
hereinafter defined) applicable to such Lender, the Fronting Bank or the U.S.
Administrative Agent, as the case may be, but not excluding any United States
withholding taxes payable solely as a result of any change in such laws
occurring after the Initial Date and not excluding any withholding taxes that
would apply to such Lender solely as a result of a CAM Exchange pursuant to
Section 9.02 (for which such Lender shall be entitled to receive additional
amounts from the Borrowers regardless of whether such withholding taxes are
payable under laws in effect on the Initial Date) (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). For purposes of this Section 2.19, the term
"Initial
<PAGE>
101
Date" shall mean (i) in the case of the applicable Administrative Agent, the
Fronting Bank or any Lender, the date on which such person became a party to
this Agreement and (ii) in the case of any assignment, including any assignment
by a Lender or the Fronting Bank to a new lending office, the date of such
assignment. If any Taxes shall be required by law to be deducted from or in
respect of any sum payable hereunder or under any other Loan Document to any
Lender, the Fronting Bank or the applicable Administrative Agent, (i) the sum
payable by the applicable Borrower shall be increased as may be necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.19) such Lender, the Fronting Bank
or the Administrative Agent, as the case may be, receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the applicable
Borrower shall make such deductions and (iii) the applicable Borrower shall pay
the full amount deducted to the relevant taxation authority or other authority
in accordance with applicable law. No Borrower that makes payments from an
office located in the United States of America shall, however, be required to
pay any amounts pursuant to clause (i) of the preceding sentence to any Lender,
the Fronting Bank or the applicable Administrative Agent not organized under the
laws of the United States of America or a state thereof if such Lender, the
Fronting Bank or the U.S. Administrative Agent fails to comply with the
requirements of paragraph (f)(i) or (ii)of this Section 2.19. No Borrower that
makes payments from an office located in the United Kingdom shall, however, be
required to pay any amounts pursuant to clause (i) of the preceding sentence to
any Lender, the Fronting Bank or the applicable Administrative Agent not
organized under the laws of the United Kingdom if such Lender, the Fronting Bank
or the U.S. Administrative Agent fails to comply with the requirements of
paragraph (f)(ii) or (iii) of this Section 2.19.
(b) In addition, each Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from the execution, delivery or registration of, or otherwise
with respect to, this Agreement or any other Loan Document (hereinafter referred
to as "Other Taxes").
(c) Each Borrower will indemnify each Lender, the Fronting Bank and the
applicable Administrative Agent for the
<PAGE>
102
full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this Section 2.19) paid by such
Lender, the Fronting Bank or the applicable Administrative Agent, as the case
may be, in respect of payments with respect to the Obligations of such Borrower
and any liability (including penalties, interest and expenses including
reasonable attorney's fees and expenses) arising therefrom or with respect
thereto whether or not such Taxes or Other Taxes were correctly or legally
asserted. A certificate as to the amount of such payment or liability prepared
by a Lender (or Transferee), the Fronting Bank or the applicable Administrative
Agent, absent manifest error, shall be final, conclusive and binding for all
purposes, provided that if the applicable Borrower reasonably believes that such
Taxes were not correctly or legally asserted, such Lender, the Fronting Bank or
the applicable Administrative Agent, as the case may be shall use reasonable
efforts to cooperate with such Borrower to obtain a refund of such Taxes or
Other Taxes. Such indemnification shall be made within 10 days after the date
any Lender, the Fronting Bank or the applicable Administrative Agent, as the
case may be, makes written demand therefor. If a Lender, the Fronting Bank or
the applicable Administrative Agent shall become aware that it is entitled to
receive a refund in respect of Taxes or Other Taxes, it shall promptly notify
the applicable Borrower of the availability of such refund and shall, within 30
days after receipt of a request by such Borrower, pursue or timely claim such
refund at such Borrower's expense. If any Lender, the Fronting Bank or the
applicable Administrative Agent receives a refund in respect of any Taxes or
Other Taxes for which such Lender, the Fronting Bank or the applicable
Administrative Agent has received payment from any Borrower hereunder, it shall
promptly repay such refund (plus any interest received) to such Borrower (but
only to the extent of indemnity payments made, or additional amounts paid, by
such Borrower under this Section 2.19 with respect to the Taxes or Other Taxes
giving rise to such refund), provided that such Borrower, upon the request of
such Lender, the Fronting Bank or the applicable Administrative Agent, agrees to
return such refund (plus any penalties, interest or other charges required to be
paid) to such Lender, the Fronting Bank or the applicable Administrative Agent
in the event such Lender, such Fronting Bank or the applicable Administrative
Agent is required to repay such refund to the relevant taxing authority.
<PAGE>
103
(d) Within 30 days after the date of any payment of Taxes or Other Taxes
withheld by any Borrower in respect of any payment to any Lender, the Fronting
Bank or the U.S. Administrative Agent, such Borrower will furnish to the U.S.
Administrative Agent, at its address referred to in Section 9.01, the original
or a certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.19 shall
survive the payment in full of principal and interest hereunder, the expiration
of the Letters of Credit and the termination of the Commitments.
(f)(i) In the case of any Borrowing by, or L/C Disbursement for the benefit
of, the Parent Borrower, this paragraph (f) shall apply. Each Lender, the
Fronting Bank and the applicable Administrative Agent that is not organized
under the laws of the United States of America or a state thereof agrees that at
least 10 days prior to the first Interest Payment Date following the Initial
Date in respect of the Fronting Bank or such Lender, it will, if consistent with
applicable law and required in order to establish or take advantage of an
available exemption from Taxes and/or Other Taxes, deliver to the Parent
Borrower and the applicable Administrative Agent (if appropriate) two duly
completed copies of either (i) United States Internal Revenue Service Form 1001
or 4224 or successor applicable form, as the case may be, certifying in each
case that the Fronting Bank, such Lender or the U.S. Administrative Agent, as
the case may be, is entitled to receive payments under this Agreement and the
other Loan Documents payable to it without deduction or withholding of any
United States federal income taxes and backup withholding taxes or is entitled
to receive such payments at a reduced rate pursuant to a treaty provision, and
shall deliver to the Parent Borrower and the Administrative Agent a further copy
of such Form 1001 or 4224 or successor applicable form, as the case may be, on
or before the date that such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form previously
delivered by such Lender, the Fronting Bank or the applicable Administrative
Agent, or (ii) in the case of a Lender that is not a "bank" within the meaning
of Section 881(c)(3) of the Code, (A) deliver to the Parent Borrower and the
U.S. Administrative Agent (I) a statement under penalties of perjury that such
Lender (w) is not a "bank"
<PAGE>
104
under Section 881(c)(3)(A) of the Code, is not subject to regulatory or other
legal requirements as a bank in any jurisdiction, and has not been treated as a
bank for purposes of any tax, securities law or other filing or submission made
to any Governmental Authority, any application made to a rating agency or
qualification for any exemption from tax, securities law or other legal
requirements, (x) is not a 10-percent shareholder within the meaning of Section
881(c)(3)(B) of the Code, (y) is not a controlled foreign corporation receiving
interest from a related person within the meaning of Section 881(c)(3)(c) of the
Code and (z) is not a "conduit entity" within the meaning of U.S. Treasury
Regulations Section 1.881-3 and (II) an Internal Revenue Service Form W-8; (B)
deliver to the Parent Borrower and the U.S. Administrative Agent a further copy
of said Form W-8, or any successor applicable form or other manner of
certification on or before the date that any such Form W-8 expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form previously delivered by such Lender; and (C) obtain such extensions
of time for filing and complete such forms or certifications as may be
reasonably requested by the Parent Borrower or the applicable Administrative
Agent; unless in any such case an event (including any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders any such forms inapplicable or which would
prevent such Lender from duly completing and delivering any such form with
respect to it and such Lender so advises the Parent Borrower and the U.S.
Administrative Agent. Such Lender shall certify (i) in the case of a Form 1001
or 4224, that it is entitled to receive payments under this Agreement without
deduction or withholding of any United States Federal income taxes or is
entitled to receive such payments at a reduced rate pursuant to a treaty
provision and (ii) in the case of a Form W-8 or W-9, that it is entitled to an
exemption from United States backup withholding tax. Each Person that shall
become a participant pursuant to Section 10.04 shall, upon the effectiveness of
the related transfer, be required to provide, if consistent with applicable law,
all the forms and statements required pursuant to this paragraph (f) to the
Lender from which the related participation shall have been purchased. Unless
the Parent Borrower and the U.S. Administrative Agent have received forms,
certificates and other documents required by this Section 2.19(f) indicating
that payments hereunder or under this Agreement, any other Loan Document or the
Letters of Credit to or for the Fronting Bank or Lender not incorporated under
the laws
<PAGE>
105
of the United States or a state thereof are not subject to United States
withholding tax or are subject to such tax at a rate reduced by an applicable
tax treaty, the applicable Borrower or the U.S. Administrative Agent shall
withhold such taxes from such payments at the applicable statutory rate.
(ii) Each Lender that is managed and controlled from or incorporated under
the laws of any jurisdiction other than the United Kingdom and which is making a
Loan to the U.K. Borrower through a lending branch or lending office located
outside the United Kingdom agrees to furnish to the taxing authority of the
country in which such Lender is resident for tax purposes on or prior to the
Closing Date (or, if such Lender becomes a Lender after the Closing Date, then
at or prior to the time such Lender becomes a Lender) (with a copy to the U.S.
Administrative Agent and the U.K. Borrower), for certification and forwarding by
such taxing authority to the appropriate United Kingdom taxing authority, two
copies of Form "Claim on Behalf of a United States Domestic Corporation to
Relief from United Kingdom Income Tax on Interest and Royalties Arising in the
United Kingdom" (or its counterpart for jurisdictions other than the United
States), or any successor forms (wherein such Lender claims entitlement to
complete exemption from or reduced rate of United Kingdom withholding tax on
interest paid by such Borrower hereunder) and to provide successor forms thereto
if any previously delivered form is found to be incomplete or incorrect in any
material respect or upon the obsolescence of any previously delivered form. Each
Lender that is managed and controlled from and incorporated under the laws of
the United Kingdom or that is making all of its Loans to the U.K. Borrower
through a lending branch or lending office within the United Kingdom hereby
represents that it is a "bank" within the meaning of section 840A Income and
Corporation Taxes Act 1988, and that it is beneficially entitled to the interest
payable to it under this Agreement, undertakes to notify the U.K. Borrower and
the U.S. Administrative Agent if either representation ceases to be correct, and
further agrees to ensure that such interest is brought within the charge to
United Kingdom corporation tax by the person beneficially entitled to the
interest.
(iii) Upon the written request of any Borrower, each Lender promptly will
provide to such Borrower and to the applicable Administrative Agent, or file
with the relevant taxing authority (with a copy to the applicable Administrative
Agent)
<PAGE>
106
such form, certification or similar documentation that it is legally able to
provide (each duly completed, accurate and signed) as is required by the
relevant jurisdiction in order to obtain an exemption from, or reduced rate of
Taxes or Other Taxes to which such Lender or the applicable Administrative Agent
is entitled pursuant to an applicable tax treaty or the law of the relevant
jurisdiction; provided, however, such Lender will not be required to (i)
disclose information which in its reasonable judgment it deems confidential or
proprietary or (ii) incur a disadvantage if such disadvantage would, in its
reasonable judgment, be substantial.
(iv) A Lender shall be required to furnish a form under this paragraph (f)
only if it is entitled to claim an exemption from or a reduced rate of
withholding under applicable law. A Lender that is not entitled to claim an
exemption from or a reduced rate of withholding under applicable law, promptly
upon written request of the applicable Borrower, shall so inform the applicable
Borrower in writing.
(g) Notwithstanding anything to the contrary set forth in this Section
2.19, any and all payments by the Parent Borrower to the Canadian Administrative
Agent or a C $ Revolving Credit Lender hereunder or under the other Loan
Documents shall be made, in accordance with section 2.18, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto
("Taxes Regarding Parent Payments to Canadian Lenders"). If any Taxes Regarding
Parent Payments to Canadian Lenders shall be required by law to be deducted from
or in respect of any sum payable hereunder or under any other Loan Document to
any C $ Revolving Credit Lender or the Canadian Administrative Agent, (i) the
sum payable by the Parent Borrower shall be increased as may be necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.19(g)), such C $ Revolving Credit
Lender or the Canadian Administrative Agent, as the case may be, receives an
amount equal to the amount it would have received had no such deductions been
made, (ii) the Parent Borrower shall make such deductions, and (iii) the Parent
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
<PAGE>
107
(h) Nothing contained in this Section 2.19 shall require any Lender or the
Fronting Bank or the applicable Administrative Agent to make available any of
its tax returns (or any other information that it deems to be confidential or
proprietary).
SECTION 2.20. Letters of Credit. (a) Letters of Credit. (i) General.
Subject to the terms and conditions set forth herein, the Parent Borrower may
request the issuance of a Letter of Credit, in a form reasonably acceptable to
the U.S. Administrative Agent and the Fronting Bank, appropriately completed,
for the account of the Parent Borrower at any time and from time to time while
the U.S. $ Revolving Credit Commitments remain in effect. This Section 2.20(a)
shall not be construed to impose an obligation upon the Fronting Bank to issue
any Letter of Credit that is inconsistent with the terms and conditions of this
Agreement or that would result in there existing Letters of Credit in an
aggregate stated amount at any time outstanding in excess of the difference
between $15,000,000 and the aggregate outstanding amount of unreimbursed L/C
Disbursements.
(ii) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.
In order to request the issuance of a Letter of Credit (or to request that the
Fronting Bank amend, renew or extend an existing Letter of Credit), the Parent
Borrower shall hand deliver or telecopy to the Fronting Bank and the U.S.
Administrative Agent (reasonably in advance of the requested date of issuance,
amendment, renewal or extension) a notice requesting the issuance of such Letter
of Credit, or identifying any Letter of Credit to be amended, renewed or
extended, and specifying the date of issuance, amendment, renewal or extension,
the date on which such Letter of Credit is to expire (which shall comply with
paragraph (iii) below), the amount of such Letter of Credit to be issued,
amended, renewed or extended, the name and address of the account party (which
shall be the Parent Borrower) and the beneficiary thereof and such other
information as shall be necessary to prepare such Letter of Credit or grant such
issuance, amendment, renewal or extension. Following receipt of such notice and
prior to the issuance, amendment, renewal or extension of any Letter of Credit
the U.S. Administrative Agent shall notify the Parent Borrower and the Fronting
Bank of the amount of the Aggregate U.S. $ Revolving Credit Exposure after
giving effect to (A) the issuance, amendment, renewal or extension of such
Letter of Credit, (B) the issuance or
<PAGE>
108
expiration of any other Letter of Credit that is to be issued or will expire
prior to the requested date of issuance of such Letter of Credit and (C) the
borrowing or repayment of any U.S. $ Revolving Credit Loans and Swingline Loans
that (based upon notices delivered to the U.S. Administrative Agent by the
Parent Borrower) are to be borrowed or repaid prior to the requested date of
issuance of such Letters of Credit. Each Letter of Credit shall be issued,
amended, renewed or extended subject to the terms and conditions and relying on
the representations and warranties of the Parent Borrower set forth herein, and
in any case only if, and upon issuance, amendment, renewal or extension of each
Letter of Credit the Parent Borrower shall be deemed to represent and warrant
that, after giving effect to such issuance, amendment, renewal or extension the
Aggregate U.S. $ Revolving Credit Exposure shall not exceed the Total U.S. $
Revolving Credit Commitment in effect at such time.
(iii) Expiration Date. Each Letter of Credit shall expire at the close of
business on the earlier of the date one year after the date of the issuance of
such Letter of Credit and the date that is five Business Days prior to the
Revolving Credit Maturity Date, unless such Letter of Credit expires by its
terms on an earlier date, provided that a Letter of Credit shall not be issued
(nor shall a Letter of Credit be amended, renewed or extended) that would result
in the Aggregate U.S. $ Revolving Credit Exposure exceeding the Total Revolving
Credit Commitment in effect at such time. Compliance with the foregoing proviso
shall be determined based upon the assumption that (A) each Letter of Credit
remains outstanding and undrawn in accordance with its terms until its
expiration date (taking into account any rights of renewal or extension that do
not require written notice by or consent of the Fronting Bank, in its sole
discretion, in order to effect such renewal or extension) and (B) the U.S. $
Revolving Credit Commitments will not be reduced pursuant to Section 2.09.
(iv) Participations. By the issuance of a Letter of Credit and without any
further action on the part of the Fronting Bank or the U.S. $ Revolving Credit
Lenders, the Fronting Bank will grant to each U.S. $ Revolving Credit Lender,
and each such Lender will acquire from the Fronting Bank, a participation in
such Letter of Credit equal to such U.S. $ Revolving Credit Lender's Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit, effective upon the
<PAGE>
109
issuance of such Letter of Credit. In consideration and in furtherance of the
foregoing, each U.S. $ Revolving Credit Lender hereby absolutely and
unconditionally agrees to pay to the U.S. Administrative Agent, for the account
of the Fronting Bank, such U.S. $ Revolving Credit Lender's Applicable
Percentage of each L/C Disbursement made by the Fronting Bank under such Letter
of Credit and not reimbursed by the Parent Borrower (or, if applicable, another
party pursuant to its obligations under any other Loan Document) on or before
the next Business Day as provided in paragraph (v) below. Each Revolving Credit
Lender acknowledges and agrees that its obligation to acquire participations
pursuant to this paragraph in respect of Letters of Credit is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or an Event of Default,
and that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever, provided that nothing in this Agreement
shall be construed to excuse the Fronting Bank from liability to the U.S. $
Revolving Credit Lenders caused by the gross negligence or wilful misconduct of
the Fronting Bank.
(v) Reimbursement. If the Fronting Bank shall make any L/C Disbursement in
respect of a Letter of Credit, the Parent Borrower shall pay to the U.S.
Administrative Agent, on or before the Business Day immediately following the
date of such L/C Disbursement, an amount equal to such L/C Disbursement. If the
Parent Borrower shall fail to pay any amount required to be paid under this
paragraph on or before such Business Day (or to cause payment thereof when due
pursuant to a U.S. $ Revolving Credit Borrowing), then (A) such unpaid amount
shall bear interest, for each day from and including such Business Day to but
excluding the date of payment, at a rate per annum equal to the interest rate
applicable to overdue ABR Loans that are U.S. $ Revolving Credit Loans pursuant
to Section 2.07 (provided that the 2.00% margin referred to therein shall not be
applicable until the first Business Day after the Parent Borrower receives
notice from the U.S. Administrative Agent that such L/C Disbursement has been or
will be made), (B) the U.S. Administrative Agent shall notify the Fronting Bank
and the U.S. $ Revolving Credit Lenders thereof, (C) each Revolving Credit
Lender shall comply with its obligation under paragraph (iv) above by wire
transfer of immediately available funds, in the same manner as provided in
Section 2.02(c) with respect to Loans made by such U.S. $ Revolving Credit
Lender (and Section 2.02(d) shall apply,
<PAGE>
110
mutatis mutandis, to the payment obligations of the U.S. $ Revolving Credit
Lenders) and (D) the U.S. Administrative Agent shall promptly pay to the
Fronting Bank amounts so received by it from the U.S. $ Revolving Credit
Lenders. The U.S. Administrative Agent shall promptly pay to the Fronting Bank
on a pro rata basis with respect to outstanding L/C Disbursements any amounts
received by it from the Parent Borrower (or, if applicable, another party
pursuant to its obligations under any other Loan Document) pursuant to this
paragraph prior to the time that any U.S. $ Revolving Credit Lender makes any
payment pursuant to paragraph (iv) above; any such amounts received by the U.S.
Administrative Agent thereafter shall be promptly remitted by the U.S.
Administrative Agent to the U.S. $ Revolving Credit Lenders that shall have made
such payments and to the Fronting Bank, as their interests may appear.
(b) Obligations Absolute. The Parent Borrower's obligations to reimburse
L/C Disbursements as provided in paragraph (a) above shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement, under any and all circumstances whatsoever,
and irrespective of:
(i) any lack of validity or enforceability of any Letter of Credit or
any Loan Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to departure from all
or any of the provisions of any Letter of Credit or any Loan Document;
(iii) the existence of any claim, setoff, defense or other right that
the Parent Borrower, any other party guaranteeing, or otherwise obligated
with, the Parent Borrower or any Subsidiary or other Affiliate thereof or
any other person may at any time have against the beneficiary under any
Letter of Credit, the Fronting Bank, the U.S. Administrative Agent or any
Lender (other than the defense of payment in accordance with the terms of
this Agreement or a defense based on the gross negligence or wilful
misconduct of the Fronting Bank) or any other person, whether in connection
with this Agreement, any other Loan Document or any other related or
unrelated agreement or transaction;
<PAGE>
111
(iv) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect, provided
that payment by the applicable Fronting Bank shall not have constituted
gross negligence or wilful misconduct of the Fronting Bank;
(v) payment by the Fronting Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with the
terms of such Letter of Credit, provided that payment by the Fronting Bank
shall not have constituted gross negligence or wilful misconduct of such
Fronting Bank;
(vi) any other act or omission to act or delay of any kind of the
Fronting Bank, the Lenders, the U.S. Administrative Agent or any other
person or any other event or circumstance whatsoever, whether or not
similar to any of the foregoing, that might, but for the provisions of this
Section 2.20(b), constitute a legal or equitable discharge of the Parent
Borrower's obligations hereunder, provided that such act or omission shall
not have constituted gross negligence or wilful misconduct of such Fronting
Bank.
(c) Disbursement Procedures. The Fronting Bank shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Fronting Bank shall as promptly as
possible give telephonic notification, confirmed by telecopy, to the U.S.
Administrative Agent and the Parent Borrower of such demand for payment and
whether the Fronting Bank has made or will make an L/C Disbursement thereunder,
provided that any failure to give or delay in giving such notice shall not
relieve the Parent Borrower of its obligation to reimburse the Fronting Bank and
the Lenders with respect to any such L/C Disbursement. The U.S. Administrative
Agent shall promptly give each U.S. $ Revolving Credit Lender notice thereof.
(d) Interim Interest. If the Fronting Bank shall make any L/C Disbursement
in respect of a Letter of Credit, then, unless the Parent Borrower shall
reimburse such L/C Disbursement in full on such date, the unpaid amount thereof
shall bear interest for the account of the Fronting Bank, for each day from
<PAGE>
112
and including the date of such L/C Disbursement, to but excluding the earlier of
the date of payment or the date on which interest shall commence to accrue
thereon as provided in subparagraph (a)(v) above, at the rate per annum that
would apply to such amount if such amount were an ABR Loan.
(e) Liability of the Fronting Bank. Without limiting the generality of
paragraph (b) above, it is expressly understood and agreed that the absolute and
unconditional obligation of the Parent Borrower to reimburse L/C Disbursements
will not be excused by the gross negligence or wilful misconduct of the Fronting
Bank, except as otherwise expressly provided in said paragraph (b). However,
nothing in this Agreement shall be construed to excuse the Fronting Bank from
liability to the Parent Borrower to the extent of any direct damages (as opposed
to consequential damages, claims in respect of which are hereby waived by the
Parent Borrower to the extent permitted by applicable law) suffered by the
Parent Borrower that are caused by the Fronting Bank's gross negligence or
wilful misconduct in determining whether drafts and other documents presented
under a Letter of Credit comply with the terms thereof. It is understood that
the Fronting Bank may accept documents that appear on their face to be in order,
without responsibility for further investigation in making any payment under any
Letter of Credit and, except as otherwise expressly provided in said paragraph
(b), (i) the Fronting Bank's exclusive reliance on the documents presented to it
under such Letter of Credit as to any and all matters set forth therein,
including reliance on the amount of any draft presented under such Letter of
Credit, whether or not the amount due to the beneficiary thereunder equals the
amount of such draft and whether or not any document presented pursuant to such
Letter of Credit proves to be insufficient in any respect, if such document on
its face appears to be in order, and whether or not any other statement or any
other document presented pursuant to such Letter of Credit proves to be forged
or invalid or any statement therein proves to be inaccurate or untrue in any
respect whatsoever and (ii) any noncompliance in any immaterial respect of the
documents presented under such Letter of Credit with the terms thereof shall, in
each case, be deemed not to constitute wilful misconduct or gross negligence of
such Fronting Bank.
(f) Resignation or Removal of the Fronting Bank. The Fronting Bank may
resign at any time by giving 180 days' prior
<PAGE>
113
written notice to the U.S. Administrative Agent, the Lenders and the Parent
Borrower, and may be removed at any time by the Parent Borrower by notice to the
Fronting Bank, the U.S. Administrative Agent and the Lenders, subject in each
case to the appointment by the Parent Borrower of a replacement Fronting Bank
reasonably satisfactory to the U.S. Administrative Agent, provided that (i)
Chase Manhattan Bank Delaware shall not resign as the Fronting Bank hereunder
for any reason other than compliance with applicable legal and regulatory
requirements and (ii) no Fronting Bank may resign as to any Letter of Credit
previously issued by it. Subject to the next succeeding sentences of this
paragraph (f), upon the acceptance of any appointment as the Fronting Bank
hereunder by a successor Fronting Bank, such successor shall succeed to and
become vested with all the interests, rights and obligations of the retiring
Fronting Bank and the retiring Fronting Bank shall be discharged from its
obligations to issue additional Letters of Credit hereunder to the extent of the
commitment of the successor Fronting Bank to provide Letters of Credit. At the
time such removal or resignation shall become effective, the Parent Borrower
shall pay all accrued and unpaid fees of such Fronting Bank pursuant to Section
2.05(b)(ii). The acceptance of any appointment as Fronting Bank hereunder by a
successor Fronting Bank shall be evidenced by an agreement entered into by such
successor, in a form satisfactory to the Parent Borrower and the U.S.
Administrative Agent, and, from and after the effective date of such agreement,
(i) such successor Fronting Bank shall have all the rights and obligations of
its predecessor Fronting Bank under this Agreement and the other Loan Documents
and (ii) references herein and in the other Loan Documents to the term "Fronting
Bank" shall be deemed to refer to such successor or to such predecessor Fronting
Bank, or to such successor and all predecessor and current Fronting Banks, as
the context shall require. After the resignation or removal of a Fronting Bank
hereunder, such retiring Fronting Bank shall remain a party hereto and shall
continue to have all the rights and obligations of a Fronting Bank under this
Agreement and the other Loan Documents with respect to Letters of Credit issued
by it prior to such resignation or removal, but shall not be required to issue
additional Letters of Credit.
(g) Cash Collateralization. If any Event of Default shall occur and be
continuing, the Parent Borrower shall, on the Business Day the Parent Borrower
receives notice from the U.S. Administrative Agent or U.S. $ Revolving Credit
Lenders with
<PAGE>
114
combined U.S. $ Revolving Credit Commitments representing a majority of the
aggregate U.S. $ Revolving Credit Commitments (or, if the maturity of the Loans
has been accelerated, Revolving Credit Lenders holding participations in
outstanding Letters of Credit representing a majority of the aggregate undrawn
amount of all outstanding Letters of Credit) thereof and of the amount to be
deposited, deposit in an account with the Collateral Agent, for the benefit of
the U.S. $ Revolving Credit Lenders an aggregate amount in cash equal to the
Revolving L/C Exposure as of such date. Such deposit shall be held by the
Collateral Agent as collateral for the payment and performance of the
Obligations. The Collateral Agent shall have exclusive dominion and control,
including the exclusive right of withdrawal, over such account. Other than any
interest earned on the investment of such deposits in Permitted Investments,
which investments shall be made at the option and sole discretion of the
Collateral Agent (provided that the Collateral Agent shall use reasonable
efforts to make such investments), such deposits shall not bear interest.
Interest or profits, if any, on such investments shall accumulate in such
account. Moneys in such account shall (a) automatically be applied by the U.S.
Administrative Agent to reimburse the Fronting Bank for L/C Disbursements that
have not been reimbursed, (b) be held for the satisfaction of the reimbursement
obligations of the Parent Borrower for the Revolving L/C Exposure and (c) if the
maturity of the Loans has been accelerated (but subject to the consent of U.S. $
Revolving Credit Lenders holding participations in outstanding Letters of Credit
representing greater than 50% of the aggregate undrawn amount of all outstanding
Letters of Credit), be applied to satisfy the Obligations. If the Parent
Borrower is required to provide an amount of cash collateral hereunder as a
result of the occurrence of an Event of Default, such amount (to the extent not
applied as aforesaid) shall be returned to the Parent Borrower within three
Business Days after all Events of Default have been cured or waived.
(h) Additional Fronting Banks. From time to time, the Parent Borrower may
by notice to the U.S. Administrative Agent designate additional Fronting Banks
reasonably satisfactory to the U.S. Administrative Agent. Such additional
Fronting Banks shall execute a counterpart of this Agreement upon approval of
the U.S. Administrative Agent (which shall not be unreasonably withheld) and
shall thereafter be Fronting Banks hereunder for all purposes and shall have the
Revolving L/C Commitment noted
<PAGE>
115
under their signature and, if applicable, the Revolving L/C Commitment of any
other Fronting Bank shall be reduced by the amount or amounts specified to the
U.S. Administrative Agent and each affected Fronting Bank and delivered
concurrently with any notice of designation of an additional Fronting Bank.
SECTION 2.21. Bankers' Acceptances. (a) Subject to the terms and conditions
of this Agreement, the Canadian Borrower and the Parent Borrower (for purposes
of this Section 2.21 only, such Borrowers shall collectively be referred to as
the "Borrower") may request a C $ Revolving Credit Borrowing by presenting
drafts for acceptance and purchase as B/As by the C $ Revolving Credit Lenders.
(b) To facilitate availment of B/A Borrowings, the Borrower hereby appoints
each C $ Revolving Credit Lender as its attorney to sign and endorse on its
behalf, in handwriting or by facsimile or mechanical signature as and when
deemed necessary by such Lender, blank forms of B/As in the form requested by
such Lender. In this respect, it is each C $ Revolving Credit Lender's
responsibility to maintain an adequate supply of blank forms of B/As for
acceptance under this Agreement. The Borrower recognizes and agrees that all
B/As signed and/or endorsed on its behalf by a C $ Revolving Credit Lender shall
bind the Borrower as fully and effectually as if signed in the handwriting of
and duly issued by the proper signing officers of the Borrower. Each C $
Revolving Credit Lender is hereby authorized to issue such B/As endorsed in
blank in such face amounts as may be determined by such Lender, provided that
the aggregate amount thereof is equal to the aggregate amount of B/As required
to be accepted and purchased by such Lender. No C $ Revolving Credit Lender
shall be liable for any damage, loss or other claim arising by reason of any
loss or improper use of any such instrument except the gross negligence or
wilful misconduct of such Lender or its officers, employees, agents or
representatives. Each C $ Revolving Credit Lender shall maintain a record with
respect to B/As (i) received by it in blank hereunder, (ii) voided by it for any
reason, (iii) accepted and purchased by it hereunder and (iv) canceled at their
respective maturities. Each C $ Revolving Credit Lender further agrees to retain
such records in the manner and for the statutory periods provided in the various
provincial or federal statutes and regulations which apply to such Lender. Each
C $ Revolving Credit Lender agrees to provide a copy of such records to the
Borrower at the Borrower's expense upon request.
<PAGE>
116
On request by or on behalf of the Borrower, a C $ Revolving Credit Lender shall
cancel all forms of B/A which have been pre-signed or pre-endorsed on behalf of
the Borrower and which are held by such Lender and are not required to be issued
in accordance with the Borrower's irrevocable notice.
(c) Drafts of the Borrower to be accepted as B/As hereunder shall be signed
as set forth in this Section 2.21. Notwithstanding that any person whose
signature appears on any B/A may no longer be an authorized signatory for any C
$ Revolving Credit Lender or the Borrower at the date of issuance of a B/A, such
signature shall nevertheless be valid and sufficient for all purposes as if such
authority had remained in force at the time of such issuance and any such B/A so
signed shall be binding on the Borrower.
(d) Promptly following receipt of a Borrowing Request or notice of rollover
pursuant to Section 2.03 by way of B/As, the Canadian Administrative Agent shall
so advise the C $ Revolving Credit Lenders and shall advise each C $ Revolving
Credit Lender of the aggregate face amount of the B/As to be accepted by it and
the applicable Contract Period (which shall be identical for all C $ Revolving
Credit Lenders). The aggregate face amount of the B/As to be accepted by a C $
Revolving Credit Lender shall be a whole multiple of $100,000, and such face
amount shall be in the C $ Revolving Credit Lenders' pro rata portions of such C
$ Revolving Credit Borrowing, provided that the Canadian Administrative Agent
may in its sole discretion increase or reduce any C $ Revolving Credit Lender's
portion of such B/A Borrowing to the nearest $100,000.
(e) Upon acceptance of a B/A by a C $ Revolving Credit Lender, such Lender
shall purchase, or arrange the purchase of, each B/A from the Borrower at the
Discount Rate for such Lender applicable to such B/A accepted by it and provide
to the Canadian Administrative Agent the Discount Proceeds for the account of
the Borrower. The Acceptance Fee payable by the Borrower to a C $ Revolving
Credit Lender under Section 2.06 in respect of each B/A accepted by such Lender
shall be set off against the Discount Proceeds payable by such Lender under this
Section 2.21.
(f) Each C $ Revolving Credit Lender may at any time and from time to time
hold, sell, rediscount or otherwise dispose of any or all B/As accepted and
purchased by it.
<PAGE>
117
(g) If a C $ Revolving Credit Lender is not a chartered bank under the Bank
Act (Canada) or if a C $ Revolving Credit Lender notifies the Canadian
Administrative Agent in writing that it is otherwise unable to accept Bankers'
Acceptances, such Lender will, instead of accepting and purchasing Bankers'
Acceptances, purchase from the Borrower a non-interest bearing note (a "B/A
Equivalent Note"), in the form of Exhibit 2.21(g), issued by the Borrower in the
amount and for the same term as the draft which such Lender would otherwise have
been required to accept and purchase hereunder, at a purchase price calculated
on the same basis as Bankers' Acceptances are discounted pursuant to this
Agreement. Each such Lender will provide to the Canadian Administrative Agent
the proceeds of such purchase for the account of the Borrower. The Borrower
will, upon purchase of a B/A Equivalent Note, pay to the Canadian Administrative
Agent on behalf of the C $ Revolving Credit Lender which purchased from the
Borrower the B/A Equivalent Note an Acceptance Fee in respect of such B/A
Equivalent Note. The Acceptance Fee payable by the Borrower to a C $ Revolving
Credit Lender under this Section 2.21(g) in respect of each B/A Equivalent Note
purchased by such Lender shall be set off against the Discount Proceeds payable
by such Lender under this Section 2.21(g).
(h) With respect to each B/A Borrowing, at or before 10:00 a.m., Toronto
time, one Business Day before the maturity date of such B/As, the Borrower shall
notify the Canadian Administrative Agent at the Canadian Administrative Agent's
address set forth in Section 10.01 by irrevocable telephone notice, followed by
a notice of rollover on the same day, if the Borrower intends to issue B/As on
such maturity date to provide for the payment of such maturing B/As. If the
Borrower fails to notify the Canadian Administrative Agent of its intention to
issue B/As on such maturity date, the Borrower shall provide payment to the
Canadian Administrative Agent on behalf of the C $ Revolving Credit Lenders of
an amount equal to the aggregate face amount of such B/As on the maturity date
of such B/As. If the Borrower fails to make such payment, such maturing B/As
shall be deemed to have been converted on their maturity date into a Canadian
Prime Rate Loan in an amount equal to the face amount of such B/A as provided in
Section 2.03 and the Borrower shall on demand pay any losses, costs or penalties
that may have been incurred by the Canadian Administrative Agent or any C $
<PAGE>
118
Revolving Credit Lender due to the failure of the Borrower to make such payment.
(i) The Borrower waives presentment for payment and any other defense to
payment of any amounts due to a C $ Revolving Credit Lender in respect of a B/A
accepted and purchased by it pursuant to this Agreement which might exist solely
by reason of such B/A being held, at the maturity thereof, by such Lender in its
own right and the Borrower agrees not to claim any days of grace if such Lender
as holder sues the Borrower on the B/A for payment of the amount payable by the
Borrower thereunder. On the specified maturity date of a B/A, or such earlier
date as may be required or permitted pursuant to the provisions of this
Agreement, the Borrower shall pay, through the Canadian Administrative Agent,
the C $ Revolving Credit Lender that has accepted and purchased such B/A the
full face amount of such B/A and after such payment, the Borrower shall have no
further liability in respect of such B/A and such Lender shall be entitled to
all benefits of, and be responsible for all payments due to third parties under,
such B/A.
(j) If a C $ Revolving Credit Lender grants a participation in a portion of
its rights under this Agreement to a participant under Section 10.04(f), then in
respect of any B/A Borrowing, a portion thereof may, at the option of such
Lender, be by way of Bankers' Acceptance accepted by such participant. In such
event, the Borrower shall upon request of the Canadian Administrative Agent or
the C $ Revolving Credit Lender granting the participation execute and deliver a
form of Bankers' Acceptance undertaking in favor of such participant for
delivery to such participant.
SECTION 2.22. Spot Exchange Rate Calculations. (a)(i) Not later than 2:00
p.m., Toronto time, on each Calculation Date, the Canadian Administrative Agent
shall (A) determine the Spot Exchange Rate as of such Calculation Date with
respect to Canadian Dollars if at such time C $ Revolving Credit Loans
denominated in Canadian Dollars are then outstanding and (B) give notice thereof
to the Parent Borrower, the Canadian Borrower and the C $ Revolving Credit
Lenders.
(ii) Not later than 1:00 p.m., New York City time, on each Calculation
Date, the U.S. Administrative Agent shall (A) determine the Spot Exchange Rate
as of such Calculation Date with
<PAGE>
119
respect to Sterling if at such time U.K. (pound) Revolving Credit Loans
denominated in Sterling are then outstanding and (B) give notice thereof to the
Parent Borrower, the U.K. Borrower, and the U.K. (pound) Revolving Credit
Lenders.
(iii) The Spot Exchange Rates determined pursuant to this Section 2.22(a)
shall become effective on the second Business Day immediately following the
relevant Calculation Date (a "Reset Date") and shall remain effective until the
next succeeding Reset Date.
(b)(i) Not later than 2:00 p.m., Toronto time, on the Business Day
immediately following the delivery of any notice pursuant to Section 2.09(b) or
2.12(g) in connection with the repayment of C $ Revolving Credit Loans, the
Canadian Administrative Agent shall (A) determine as of such date the Assigned
Dollar Value, based on the Spot Exchange Rate then in effect, of each C $
Revolving Credit Loan then outstanding denominated in Canadian Dollars (after
giving effect to any C $ Revolving Credit Loan repaid in connection therewith)
and (B) notify the Parent Borrower, the Canadian Borrower and the C $ Revolving
Credit Lenders of the results of such determination.
(ii) Not later than 1:00 p.m., New York City time, on the Business Day
immediately following the delivery of any notice pursuant to Section 2.09(b),
2.12(f) or 2.12(g) in connection with the repayment of U.K. (pound) Revolving
Credit Loans, the U.S. Administrative Agent shall (A) determine as of such date
the Assigned Dollar Value, based on the Spot Exchange Rate then in effect, of
each U.K. (pound) Revolving Credit Loan then outstanding denominated in Sterling
(after giving effect to any U.K. (pound) Revolving Credit Loan repaid in
connection therewith) and (B) notify the Parent Borrower, the U.K. Borrower and
the U.K. (pound) Revolving Credit Lenders of the results of such determination.
SECTION 2.23. Mitigation Obligations; Replacement of Lenders. (a) If any
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.19,
then such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender, such
<PAGE>
120
designation or assignment (i) would eliminate or reduce amounts payable pursuant
to Section 2.19 in the future and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such
Lender in such Lender's sole judgment. The Parent Borrower hereby agrees to pay,
or to cause the applicable Subsidiary Borrower to pay, all reasonable costs and
expenses incurred by any Lender in connection with any such designation or
assignment.
(b) If (i) any Borrower is required to pay any additional amount to any
Lender or any Governmental Authority for the account of any Lender pursuant to
Section 2.19 or (ii) any Lender defaults in its obligation to fund Loans
hereunder or becomes subject to an order, judgment or decree of any Governmental
Authority that purports to enjoin or restrain such Lender from making Loans
hereunder, then the Parent Borrower may, at its sole expense and effort and
subject to Section 2.15, upon notice to such Lender and the U.S. Administrative
Agent, require such Lender to assign and delegate, at par plus accrued interest
and fees, without recourse (in accordance with and subject to the restrictions
contained in Section 10.04), all its interests, rights and obligations under
this Agreement (including all of its Commitments and the Loans at the time owing
to it and participations in L/C Disbursements and Swingline Loans held by it and
its obligations to acquire such participations) to a financial institution
specified by the Parent Borrower that shall assume such obligations (which
assignee may be another Lender, if a Lender accepts such assignment), provided
that (i) the Parent Borrower shall have received the prior written consent of
the U.S. Administrative Agent (and, if a Revolving Commitment is being assigned,
the Fronting Bank and Swingline Lender), which consent shall not unreasonably be
withheld, (ii) such Lender shall have received payment of an amount equal to the
outstanding principal of its Loans and participations in L/C Disbursements and
Swingline Loans, accrued interest thereon, accrued fees and all other amounts
payable to it hereunder, from the assignee (to the extent of such outstanding
principal and accrued interest and fees) or the Parent Borrower or any other
applicable Borrower (in the case of all other amounts), (iii) in the case of any
such assignment resulting from payments required to be made pursuant to Section
2.19, such assignment will result in a reduction in such payments and (iv) such
assignment shall not conflict with or violate any law, rule or regulation or
order of any court or other Governmental Authority. A Lender shall not be
required to
<PAGE>
121
make any such assignment and delegation if, prior thereto, as a result of a
waiver by such Lender or otherwise, the circumstances entitling the Parent
Borrower to require such assignment and delegation cease to apply.
SECTION 2.24. European Monetary Union. If, as a result of the
implementation of European monetary union, (i) any currency that is an
Alternative Currency ceases to be lawful currency of the nation issuing the same
and is replaced by a European common currency, or (ii) any currency that is an
Alternative Currency and a European common currency are at the same time
recognized by the central bank or comparable authority of the nation issuing
such currency as lawful currency of such nation and the Administrative Agent or
the Majority Lenders shall so request in a notice delivered to the Parent
Borrower, then any amount payable hereunder by any party hereto in such currency
shall instead be payable in the European common currency and the amount so
payable shall be determined by translating the amount payable in such currency
to such European common currency at the exchange rate recognized by the European
Central Bank for the purpose of implementing European monetary union. Prior to
the occurrence of the event or events described in clause (i) or (ii) of the
preceding sentence, each amount payable hereunder in any currency will, subject
to Section 9.03, continue to be payable only in that currency. Each of the
Borrowers agrees, at the request of the Majority Lenders, at the time of or at
any time following the implementation of European monetary union, to enter into
an agreement amending this Agreement in such manner as the Majority Lenders
shall reasonably request in order to reflect the implementation of such monetary
union and to place the parties hereto in the position they would have been in
had such monetary union not been implemented.
<PAGE>
122
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Parent Borrower represents and warrants to each of the Lenders that,
and the U.K. Borrower represents and warrants with respect to itself and its
subsidiaries that, and the Canadian Borrower represents and warrants with
respect to itself and its subsidiaries, if any, that:
SECTION 3.01. Organization; Powers. Each of MergerCo, Holdings, the Parent
Borrower and the Subsidiaries (a) is a corporation unlimited liability company,
limited liability company or limited company, as the case may be, duly
organized, validly existing and in good standing (or, if applicable in a foreign
jurisdiction, enjoys the equivalent status under the laws of any jurisdiction of
organization outside the United States) under the laws of the jurisdiction of
its organization, (b) has all requisite power and authority to own its property
and assets and to carry on its business as now conducted, (c) is qualified to do
business in every jurisdiction where such qualification is required, except
where the failure so to qualify could not reasonably be expected to result in a
Material Adverse Effect, and (d) has the corporate power and authority to
execute, deliver and perform its obligations under each of the Loan Documents
and each other agreement or instrument contemplated thereby to which it is or
will be a party and, in the case of each Borrower, to borrow and otherwise
obtain credit hereunder.
SECTION 3.02. Authorization. The execution, delivery and performance by
MergerCo of the Recapitalization Agreement and Acquisition Agreement and the
Transactions and the execution, delivery and performance by the Parent Borrower
and each of the Subsidiaries of each of the Loan Documents to which it is a
party and the borrowings hereunder and the Transactions (a) have been duly
authorized by all corporate and stockholders analogous action required to be
obtained by the Investors, MergerCo, the Parent Borrower and the Subsidiaries
and (b) will not (i) violate (A) any provision of law, statute, rule or
regulation, or of the certificate or articles of incorporation or other
constitutive documents or by-laws of MergerCo, the Parent Borrower or any
Subsidiary, (B) any applicable order of any court or any rule, regulation or
order of any Governmental Authority or (C) any provision of any indenture,
certificate of designation for preferred stock, agreement or other instrument to
which MergerCo, the Parent Borrower or any Subsidiary is a party or by which any
<PAGE>
123
of them or any of their property is or may be bound, (ii) be in conflict with,
result in a breach of or constitute (alone or with notice or lapse of time or
both) a default under any such indenture, certificate of designation for
preferred stock, agreement or other instrument, where any such conflict,
violation, breach or default referred to in clause (i) or (ii) of this Section
3.02, individually or in the aggregate could reasonably be expected to have a
Material Adverse Effect, or (iii) result in the creation or imposition of any
Lien upon or with respect to any property or assets now owned or hereafter
acquired by MergerCo, the Parent Borrower or any Subsidiary, other than the
Liens created by the Loan Documents.
SECTION 3.03. Enforceability. This Agreement has been duly executed and
delivered by each Borrower and constitutes, and each other Loan Document when
executed and delivered by the Parent Borrower and each other Loan Party that is
party thereto will constitute, a legal, valid and binding obligation of such
Borrower and such Loan Party enforceable against such Borrower and such Loan
Party in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting creditors' rights generally and except as enforceability may be
limited by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 3.04. Governmental Approvals. No action, consent or approval of,
registration or filing with or any other action by any Governmental Authority is
or will be required in connection with the Transactions, except for (a) the
filing of Uniform Commercial Code financing statements and filings with the
United States Patent and Trademark Office and the United States Copyright Office
and comparable offices in foreign jurisdictions and equivalent filings in
foreign jurisdictions, (b) recordation of the Mortgages, (c) such as have been
made or obtained and are in full force and effect and (d) such actions, consents
and approvals the failure to obtain or make which could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 3.05. Financial Statements. The Parent Borrower has heretofore
furnished to the Lenders (a) separate combined balance sheets and combined
statements of operations, cash flows and shareholders' equity and owners
investment for
<PAGE>
124
each of the two businesses of the Parent Borrower that were, prior to the
consummation of the Transactions, owned, directly or indirectly, by Borden as of
and for the fiscal years ended December 31, 1995, and December 31, 1996, and by
C&A as of and for the fiscal years ended January 27, 1996, and December 28,
1996, and the fiscal year and the nine-month period ended September 27, 1997,
audited by and accompanied by the reports of Deloitte & Touche, LLP, in the case
of the business owned by Borden, and Arthur Andersen LLP, in the case of the
business owned by C&A, in each case independent public accountants, and (ii) as
of and for the portion of the fiscal year ended September 27, 1997, certified by
its chief financial officer. Such financial statements present fairly, in all
material respects, the financial position and results of operations of the
Parent Borrower and its combined subsidiaries as of such dates and for such
periods. None of the Parent Borrower and its combined subsidiaries has or shall
have as of the Closing Date any material Guarantee, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including any interest rate or foreign currency hedging transaction,
which is not reflected in the foregoing statements or the notes thereto, other
than pursuant to the Loan Documents. Such financial statements were prepared in
accordance with GAAP applied on a consistent basis, except as disclosed therein.
SECTION 3.06. No Material Adverse Change. There has been no material
adverse change in the business, financial condition or results of operations of
the Parent Borrower and its subsidiaries, the Sunworthy business, Imperial
Wallcoverings (Canada) Inc., and Imperial Wallcoverings, Inc. and its
subsidiaries, taken as a whole, since September 27, 1997.
SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each of the
Parent Borrower and the Subsidiaries has good and marketable title to, or valid
leasehold interests in, or easements or other limited property interests in, all
its material properties and assets (including all Mortgaged Properties), except
for minor defects in title that do not interfere with its ability to conduct its
business as currently conducted or to utilize such properties and assets for
their intended purposes. All such material properties and assets are free and
clear of Liens, other than Liens expressly permitted by Section 6.02.
<PAGE>
125
(b) Each of the Parent Borrower and the Subsidiaries has complied with all
obligations under all material leases to which it is a party, except where the
failure to comply would not have a Material Adverse Effect, and all such leases
are in full force and effect, except leases in respect of which the failure to
be in full force and effect could not reasonably be expected to have a Material
Adverse Effect. Each of the Parent Borrower and the Subsidiaries enjoys peaceful
and undisturbed possession under all such material leases, other than leases
which, individually or in the aggregate, are not material to the Parent Borrower
and the Subsidiaries, taken as a whole, and in respect of which the failure to
enjoy peaceful and undisturbed possession could not reasonably be expected to,
individually or in the aggregate, result in a Material Adverse Effect.
(c) Each of the Parent Borrower and the Subsidiaries owns or has rights to
use, or could obtain ownership or rights to use, on terms not materially adverse
to it, all patents, trademarks, service marks, trade names, copyrights, licenses
and rights with respect thereto necessary for the present conduct of its
business, without any known conflict with the rights of others, and free from
any burdensome restrictions, except where such failure to own or have rights to
use, and such conflicts and restrictions, could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(d) Except as set forth on Schedule 3.07(d), as of the Closing Date, none
of the Parent Borrower and the Subsidiaries has received any notice of, or has
any knowledge of, any pending or contemplated condemnation proceeding affecting
any of the Mortgaged Properties or any sale or disposition thereof in lieu of
condemnation that continues to be pending or contemplated as of the Closing
Date.
(e) None of the Borrowers and the Subsidiaries is obligated under any right
of first refusal, option or other contractual right to sell, assign or otherwise
dispose of any Mortgaged Property or any interest therein, except as permitted
under Section 6.05.
SECTION 3.08. Subsidiaries. (a) Schedule 3.08 (i) sets forth as of the
Closing Date the name and jurisdiction of incorporation of each Subsidiary and,
as to each such Subsidiary, the percentage of each class of Capital Stock owned
<PAGE>
126
by the Parent Borrower or by any Subsidiary and (ii) identifies each Subsidiary
that is an Inactive U.K. Subsidiary as of the Closing Date.
(b) As of the Closing Date, there are no outstanding subscriptions,
options, warrants, calls, rights or other agreements or commitments (other than
stock options granted to employees or directors and directors' qualifying
shares) of any nature relating to any Capital Stock of the Parent Borrower or
any Subsidiary, except under the Loan Documents and except the C&A Option and
the Management Options issued on or before the Closing Date.
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as set forth in
Schedule 3.09, there are not any material actions, suits or proceedings at law
or in equity or by or before any Governmental Authority now pending or, to the
knowledge of any Borrower, threatened against or affecting such Borrower or any
Subsidiary or any business, property or rights of any such person (i) which
involve any Loan Document or, as of the Closing Date, the Transactions or (ii)
as to which there is a reasonable possibility of an adverse determination and
which, if adversely determined, could, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect or materially
adversely affect the Transactions.
(b) None of the Borrowers, the Subsidiaries and their respective material
properties or assets is in violation of (nor will the continued operation of
their material properties and assets as currently conducted violate) any law,
rule or regulation (including any zoning, building, Environmental Law,
ordinance, code or approval or any building permit) or any restriction of record
or agreement affecting any Mortgaged Property, or is in default with respect to
any judgment, writ, injunction or decree of any Governmental Authority, where
such violation or default could reasonably be expected to result in a Material
Adverse Effect.
(c) Certificates of occupancy, to the extent required by applicable law,
and all material permits are in effect for each Mortgaged Property as currently
constructed, and true and complete copies of such certificates of occupancy have
been delivered to the Collateral Agent as mortgagee with respect to each
Mortgaged Property.
<PAGE>
127
SECTION 3.10. Agreements. (a) None of the Parent Borrower and the
Subsidiaries is a party to any agreement or instrument or subject to any
corporate restriction that has resulted or could reasonably be expected to
result in a Material Adverse Effect.
(b) None of the Parent Borrower and the Subsidiaries is in default in any
manner under any provision of any indenture or other agreement or instrument
evidencing Indebtedness, or any other material agreement or instrument to which
it is a party or by which it or any of its properties or assets are or may be
bound, in either case where such default could reasonably be expected to result
in a Material Adverse Effect. Immediately after giving effect to the
Transactions, no Default or Event of Default shall have occurred and be
continuing.
SECTION 3.11. Federal Reserve Regulations. (a) None of the Parent Borrower
and the Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, (i) to purchase
or carry Margin Stock or to extend credit to others for the purpose of
purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose, or (ii) for any purpose which entails a violation of,
or which is inconsistent with, the provisions of the Regulations of the Board,
including Regulation G, U or X.
SECTION 3.12. Investment Company Act; Public Utility Holding Company Act.
None of the Parent Borrower and the Subsidiaries is (a) an "investment company"
as defined in, or subject to regulation under, the Investment Company Act of
1940 or (b) a "holding company" as defined in, or subject to regulation under,
the Public Utility Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. Each Borrower will use the proceeds of the
Loans and will request the issuance of Letters of Credit only for the purposes
specified in the preamble to this Agreement.
<PAGE>
128
SECTION 3.14. Tax Returns. Each of the Parent Borrower and the Subsidiaries
has timely filed or caused to be timely filed all Federal, and all material
state and local, tax returns required to have been filed by it and has paid or
caused to be paid all taxes shown thereon to be due and payable by it and all
assessments in excess of $1,000,000 in the aggregate received by it, except
taxes or assessments that are being contested in good faith by appropriate
proceedings in accordance with Section 5.03 and for which the Parent Borrower
has set aside on its books adequate reserves in accordance with GAAP and taxes,
assessments, charges, levies or claims in respect of property taxes for property
that the Parent Borrower or a Subsidiary has determined to abandon where the
sole recourse for such tax, assessment, charge, levy or claim is to such
property. Each of the Parent Borrower and the Subsidiaries has paid in full or
made adequate provision (in accordance with GAAP) for the payment of all taxes
due with respect to all periods ending on or before the Closing Date, which
taxes, if not paid or adequately provided for, could reasonably be expected to
have a Material Adverse Effect. Except as set forth on Schedule 3.14, as of the
Closing Date, with respect to each of the Parent Borrower and the Subsidiaries,
(a) no material claims are being asserted in writing with respect to any taxes,
(b) no presently effective waivers or extensions of statutes of limitation with
respect to taxes have been given or requested, (c) no tax returns are being
examined by, and no written notification of intention to examine has been
received from, the Internal Revenue Service or, with respect to any material
potential tax liability, any other taxing authority and (d) no currently pending
issues have been raised in writing by the Internal Revenue Service or, with
respect to any material potential tax liability, any other taxing authority. For
purposes hereof, "taxes" shall mean any present or future tax, levy, impost,
duty, charge, assessment or fee of any nature (including interest, penalties and
additions thereto) that is imposed by any Governmental Authority.
SECTION 3.15. No Material Misstatements. (a) The written information,
reports, financial statements, exhibits and schedules furnished by or on behalf
of the Parent Borrower or any of the Subsidiaries to the U.S. Administrative
Agent or any Lender in connection with the negotiation of any Loan Document or
included therein or delivered pursuant thereto (including the Confidential
Information Memorandum dated February 1998 relating to the Parent Borrower (the
"Information Memorandum") but
<PAGE>
129
excluding the financial projections referred to in Section 3.15(b)), when taken
as a whole, did not contain, and as they may be amended, supplemented or
modified from time to time, will not contain, as of the Closing Date any
material misstatement of fact and did not omit, and as they may be amended,
supplemented or modified from time to time, will not omit, to state as of the
Closing Date any material fact necessary to make the statements therein, in the
light of the circumstances under which they were, are or will be made, not
materially misleading in their presentation of the Transactions or of the Parent
Borrower and the Subsidiaries taken as a whole.
(b) All financial projections concerning the Parent Borrower and the
Subsidiaries that are or have been made available to the U.S. Administrative
Agent or any Lender by the Parent Borrower or any Subsidiary have been or will
be prepared in good faith based upon assumptions believed by the Parent Borrower
to be reasonable on the Closing Date.
SECTION 3.16. Employee Benefit Plans. Each of the Parent Borrower and the
ERISA Affiliates is in compliance with the applicable provisions of ERISA and
the provisions of the Code relating to ERISA and the regulations and published
interpretations thereunder and any similar applicable non-U.S. law except for
such noncompliance which could not reasonably be expected to result in a
Material Adverse Effect. No Reportable Event has occurred as to which the Parent
Borrower or any ERISA Affiliate was required to file a report with the PBGC,
other than reports for which the 30 day notice requirement is waived, reports
that have been filed and reports the failure of which to file could not
reasonably be expected to result in a Material Adverse Effect. As of the Closing
Date, the present value of all benefit liabilities under each Plan of the Parent
Borrower and the ERISA Affiliates (on a termination basis and based on those
assumptions used to fund such Plan) did not, as of the last annual valuation
date applicable thereto for which a valuation is available, exceed by more than
$10,000 the value of the assets of such Plan, and the present value of all
benefit liabilities of all underfunded Plans (based on those assumptions used to
fund each such Plan) did not, as of the last annual valuation dates applicable
thereto for which valuations are available, exceed by more than $10,000 the
value of the assets of all such underfunded Plans. None of the Parent Borrower
and the ERISA Affiliates has incurred or could reasonably be expected to incur
any Withdrawal
<PAGE>
130
Liability that could reasonably be expected to result in a Material Adverse
Effect. None of the Parent Borrower and the ERISA Affiliates have received any
written notification that any Multiemployer Plan is in reorganization or has
been terminated within the meaning of Title IV of ERISA, and no Multiemployer
Plan is reasonably expected to be in reorganization or to be terminated, where
such reorganization or termination has resulted or could reasonably be expected
to result, through increases in the contributions required to be made to such
Plan or otherwise, in a Material Adverse Effect.
SECTION 3.17. Environmental Matters. Except as set forth in Schedule 3.17:
(a) There has not been a Release or threatened Release of Hazardous
Materials at, on, under or around the properties currently or formerly owned,
operated or leased by the Parent Borrower and the Subsidiaries (the
"Properties") in amounts or concentrations which (i) constitute or constituted a
violation of Environmental Laws, except as could not reasonably be expected to
have a Material Adverse Effect; (ii) would reasonably be expected to give rise
to an Environmental Claim that, in any such case or in the aggregate, is
reasonably likely to result in a Material Adverse Effect; or (iii) could
reasonably be expected to impair materially the fair saleable value of any
material Property;
(b) The Properties and all operations of the Parent Borrower and the
Subsidiaries are in compliance, and in all prior periods have been in
compliance, with all Environmental Laws, and all necessary Environmental Permits
have been obtained and are in effect, except to the extent that such
non-compliance or failure to obtain any necessary permits, in the aggregate, are
not reasonably likely to result in a Material Adverse Effect;
(c) None of the Parent Borrower and the Subsidiaries has received any
notice of an Environmental Claim in connection with the Properties or the
operations of the Parent Borrower or the Subsidiaries or with regard to any
person whose liabilities for environmental matters the Parent Borrower or the
Subsidiaries has retained or assumed, in whole or in part, contractually, by
operation of law or otherwise, which, in either such case or in the aggregate,
is reasonably likely to result in a Material Adverse Effect, nor does senior
management of the Parent Borrower
<PAGE>
131
or the Subsidiaries have reason to believe that any such notice will be received
or is being threatened;
(d) Hazardous Materials have not been transported from the Properties, nor
have Hazardous Materials been generated, treated, stored or disposed of at, on,
under or around any of the Properties in a manner that could reasonably give
rise to liability under any Environmental Law, nor have any of the Parent
Borrower and the Subsidiaries retained or assumed any liability, contractually,
by operation of law or otherwise, with respect to the generation, treatment,
storage or disposal of Hazardous Materials, which, in each case, individually or
in the aggregate, is reasonably likely to result in a Material Adverse Effect;
(e) No Lien in favor of any Governmental Authority for (i) any liability
under any Environmental Law or (ii) damages arising from or costs incurred by
such Governmental Authority in response to a Release or threatened Release of
Hazardous Materials into the environment has been recorded with respect to the
Properties except for Liens permitted by Section 6.02.
SECTION 3.18. Capitalization of the Borrowers. The authorized Capital
Stock, the par value thereof and the amount of such authorized Capital Stock
issued and outstanding for the Parent Borrower is set forth on Schedule 3.18 as
of the Closing Date (after giving effect to the Transactions). All outstanding
shares of Capital Stock of the Parent Borrower are fully paid and nonassessable
and, on and immediately after the Closing Date, not less than 82.0% of such
shares of Capital Stock on a fully diluted basis will be owned beneficially and
of record by Holdings free and clear of all Liens and encumbrances whatsoever
other than the Liens created by the Loan Documents, the C&A Option and the
Management Options issued on or before the Closing Date. The Parent Borrower
owns, directly or indirectly, 100% of the authorized Capital Stock of each of
the Subsidiary Borrowers.
SECTION 3.19. Security Documents. (a) The Pledge Agreements (and/or as
applicable in the case of Subsidiaries not organized in the United States, the
making of requisite filings or registrations) are effective to create in favor
of the Collateral Agent, for the ratable benefit of the Secured Parties, a
legal, valid and enforceable security interest in the Collateral (as defined in
the applicable Pledge Agreement) and, when the Capital Stock pledged pursuant to
the Pledge Agreements
<PAGE>
132
is delivered to the Collateral Agent (and/or, as applicable in the case of
Capital Stock of non-Domestic Subsidiaries and UK Newco, the requisite filings
or registrations are made), the Pledge Agreements will constitute fully
perfected and, in the case of the Pledged Stock of Domestic Subsidiaries other
than UK Newco, first priority Liens on, and security interest in, all right,
title and interest of the pledgors thereunder in such pledged Capital Stock, in
each case prior and superior in right to any other person.
(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable security interest in all right, title and interest of the
grantors thereunder in the Collateral (as defined in the Security Agreement)
and, when financing statements in appropriate form are filed in the offices
specified on the schedules to the Security Agreement, the Security Agreement
will constitute a fully perfected Lien on, and security interest in, all right,
title and interest of the grantors thereunder in such Collateral and, to the
extent contemplated therein and subject to ss. 9-306 of the Uniform Commercial
Code, the proceeds thereof, in each case prior and superior in right to any
other person, other than with respect to the rights of persons pursuant to Liens
expressly permitted by Section 6.02.
(c) The Mortgages are effective to create in favor of the Collateral Agent,
for the ratable benefit of the Secured Parties, a legal, valid and enforceable
Lien on all of the right, title and interest of the Loan Parties signatory
thereto in and to the Mortgaged Properties thereunder and, to the extent
contemplated therein and subject to ss. 9-306 of the Uniform Commercial Code,
the proceeds thereof, and when the Mortgages are filed in the offices specified
on the schedules thereto and when financing statements in appropriate form are
filed in the offices specified on the schedules thereto, each Mortgage will
constitute an enforceable mortgage Lien on, and fully perfected security
interest in, all right, title and interest of such Loan Parties in the Mortgaged
Property subject thereto and, to the extent contemplated therein and subject to
ss. 9-306 of the Uniform Commercial Code, the proceeds thereof, in each case
prior and superior in right to any other person, other than with respect to the
rights of persons pursuant to Liens expressly permitted by Section 6.02.
<PAGE>
133
(d) The Intellectual Property Security Agreement is effective to create in
favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a
legal, valid and enforceable security interest in all right, title and interest
of the Loan Parties party thereto in the U.S. Collateral (as defined in the
Intellectual Property Security Agreement), and when financing statements in
appropriate form are filed in the offices specified on Schedule 3.19 and the
Intellectual Property Security Agreement is filed in the United States Patent
and Trademark Office and the United States Copyright Office, such security
interest under the Intellectual Property Security Agreement will constitute a
perfected security interest in such U.S. Collateral (i) that is identified in
Schedules I, II and III to the Intellectual Property Security Agreement and is
issued or registered in the United States (the "Scheduled Registered U.S.
Collateral") and, to the extent contemplated in the Intellectual Property
Security Agreement and subject to ss. 9-306 of the Uniform Commercial Code, the
proceeds thereof, and (ii) that is not Scheduled Registered U.S. Collateral, in
each case in this clause (ii) to the extent perfection of a security interest
therein can be obtained by the making of filings under the Uniform Commercial
Code in the UCC filing offices specified on Schedule 3.19, and, to the extent
contemplated in the Intellectual Property Security Agreement and subject to ss.
9-306 of the Uniform Commercial Code, the proceeds thereof, which security
interests, in each case in clauses (i) and (ii) above, are prior and superior in
right to any other person (it being understood that subsequent recordings in the
United States Patent and Trademark Office and the United States Copyright Office
may be necessary to perfect in the United States a lien on registered
trademarks, trademark applications and copyrights acquired by the Loan Parties
after the date hereof), other than with respect to the rights of persons
pursuant to Liens expressly permitted by Section 6.02.
SECTION 3.20. Location of Real Property and Leased Premises. (a) Schedule
3.20 lists completely and correctly as of the Closing Date all real property
owned by the Parent Borrower and the Subsidiaries and the addresses thereof,
other than individual properties that have a fair market value (as determined in
good faith by senior management of the Parent Borrower) on the Closing Date of
less than $200,000 and that are otherwise not material to the business of the
Parent Borrower and the Subsidiaries. As of the Closing Date, the Parent
Borrower
<PAGE>
134
and the Subsidiaries own in fee all the real property set forth as being owned
by them on Schedule 3.20.
(b) Schedule 3.20 lists completely and correctly as of the Closing Date all
real property leased by the Parent Borrower and the Subsidiaries and the
addresses thereof. As of the Closing Date, the Parent Borrower and the
Subsidiaries have a valid leasehold interest in all the real property set forth
as being leased by them on Schedule 3.20.
SECTION 3.21. Solvency. (a) Immediately after the consummation of the
Transactions and the other transactions to occur on the Closing Date and
immediately following the making of each Loan made, and the issuance of each
Letter of Credit issued, on the Closing Date and after giving effect to the
application of the proceeds thereof, (i) the fair value of the assets of the
Parent Borrower and the Subsidiaries on a consolidated basis, at a fair
valuation, will exceed the debts and liabilities, direct, subordinated,
contingent or otherwise, of the Parent Borrower and the Subsidiaries on a
consolidated basis; (ii) the present fair saleable value of the property of the
Parent Borrower and the Subsidiaries on a consolidated basis will be greater
than the amount that will be required to pay the probable liability of the
Parent Borrower and the Subsidiaries on a consolidated basis on their debts and
other liabilities, direct, subordinated, contingent or otherwise, as such debts
and other liabilities become absolute and matured; (iii) the Parent Borrower and
the Subsidiaries on a consolidated basis will be able to pay their debts and
liabilities, direct, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (iv) the Parent Borrower and the
Subsidiaries on a consolidated basis will not have unreasonably small capital
with which to conduct the businesses in which they are engaged as such
businesses are now conducted and are proposed to be conducted following the
Closing Date.
(b) The Parent Borrower does not intend to, and does not believe that it or
any Subsidiary will, incur debts beyond its ability to pay such debts as they
mature, taking into account the timing and amounts of cash to be received by it
or any such Subsidiary and the timing and amounts of cash to be payable on or in
respect of its Indebtedness or the Indebtedness of any such Subsidiary.
<PAGE>
135
SECTION 3.22. Labor Matters. Except as set forth in Schedule 3.22, there
are no strikes pending or threatened against the Parent Borrower or any
Subsidiary that, individually or in the aggregate, could reasonably be expected
to result in a Material Adverse Effect. The hours worked and payments made to
employees of the Parent Borrower and the Subsidiaries have not been in violation
in any material respect of the Fair Labor Standards Act or any other applicable
law dealing with such matters. All material payments due from the Parent
Borrower or any Subsidiary or for which any claim may be made against the Parent
Borrower or any Subsidiary, on account of wages and employee health and welfare
insurance and other benefits have been paid or accrued as a liability on the
books of the Parent Borrower or such Subsidiary to the extent required by GAAP.
The consummation of the Transactions will not give rise to a right of
termination or right of renegotiation on the part of any union under any
collective bargaining agreement to which the Parent Borrower or any Subsidiary
(or any predecessor) is a party or by which the Parent Borrower or any
Subsidiary (or any predecessor) is bound, other than collective bargaining
agreements which, individually or in the aggregate, are not material to the
Parent Borrower and the Subsidiaries taken as a whole.
SECTION 3.23. No Foreign Assets Control Regulation Violation. None of the
Transactions will result in a violation of any of the foreign assets control
regulations of the United States Treasury Department, 31 C.F.R., Subtitle B,
Chapter V, as amended (including the Foreign Assets Control Regulations, the
Transaction Control Regulations, the Cuban Assets Control Regulations, the
Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the
Nicaraguan Trade Control Regulations, the South African Transactions
Regulations, the Libyan Sanctions Regulations, the Soviet Gold Coin Regulations,
the Panamanian Transactions Regulations, the Kuwaiti Assets Control Regulations
and the Iraqi Sanctions Regulations contained in said Chapter V), or any ruling
issued thereunder or any enabling legislation or Presidential Executive Order
granting authority therefor, nor will the proceeds of the Loans be used by the
Parent Borrower in a manner that would violate any thereof.
SECTION 3.24. Insurance. Schedule 3.24 sets forth a true, complete and
correct description of all insurance (other than title insurance) maintained by
or on behalf of the Parent Borrower or the Subsidiaries as of the Closing Date.
As of such
<PAGE>
136
date, such insurance is in full force and effect and all premiums have been duly
paid. The Parent Borrower and the Subsidiaries have insurance in such amounts
and covering such risks and liabilities (and with such deductibles and
exclusions) as are in accordance with normal industry practice.
Notwithstanding anything to the contrary in this Agreement, the U.K.
Borrower shall not have any liability to any party with respect to any
representation or warranty made pursuant hereto other than to the applicable
Administrative Agents and to the U.K. (pound) Revolving Credit Lenders (and
assignees thereof pursuant to Section 9.01 or Section 10.04), and the Canadian
Borrower shall not have any liability to any party with respect to any
representation or warranty made pursuant hereto other than to the applicable
Administrative Agents and to the C $ Revolving Credit Lenders (and assignees
thereof pursuant to Section 9.01 or Section 10.04).
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make Loans and of the Fronting Bank to
issue Letters of Credit hereunder (each, a "Credit Event") are subject to the
satisfaction of the following conditions:
SECTION 4.01. All Credit Events. On the date of each Borrowing and on the
date of each issuance or renewal of a Letter of Credit (other than a Borrowing
in which Revolving Credit Loans are refinanced with new Revolving Credit Loans
as contemplated by Section 2.02(f) without any increase in the aggregate
principal amount of Revolving Credit Loans outstanding and any extension or
renewal of any Letter of Credit without any increase in the stated amount of
such Letter of Credit):
(a) The U.S. Administrative Agent and, in the case of a C $ Revolving
Credit Borrowing, the Canadian Administrative Agent shall have received a
notice of such Borrowing as required by Section 2.03 (or such notice shall
have been deemed given in accordance with the last paragraph of Section
2.03) or, in the case of the issuance of a Letter of Credit, the Fronting
Bank and the U.S. Administrative Agent shall have received a notice
requesting the issuance of such Letter of Credit as required by Section
2.20(a).
<PAGE>
137
(b) The representations and warranties set forth in each Loan Document
shall be true and correct in all material respects on and as of the date of
such Borrowing or issuance of such Letter of Credit, as the case may be,
with the same effect as though made on and as of such date, except to the
extent such representations and warranties expressly relate to an earlier
date (it being understood that on the Closing Date such representations and
warranties shall be true and correct in all material respects both before
and after giving effect to the Recapitalization/Acquisition and the other
Transactions to occur on the Closing Date).
(c) At the time of and immediately after such Borrowing or issuance of
such Letter of Credit, as the case may be, no Event of Default or Default
shall have occurred and be continuing.
Each Borrowing and each issuance or renewal of a Letter of Credit (except those
specified in the parenthetical contained in the introductory paragraph of this
Section 4.01) shall be deemed to constitute a representation and warranty by the
Parent Borrower and, if applicable, the Canadian Borrower and the U.K. Borrower
on the date of such Borrowing or issuance, as the case may be, as
to the matters specified in paragraphs (b) and (c) of this
Section 4.01.
SECTION 4.02. First Credit Event. On the Closing Date:
(a) The U.S. Administrative Agent shall have received, on behalf of
itself, the Lenders and the Fronting Bank, a favorable written opinion of
(i) Jones, Day, Reavis & Pogue, counsel for the Borrowers, substantially to
the effect set forth in Exhibit J-1, (ii) Jones, Day, Reavis & Pogue, local
counsel for the U.K. Borrower, and McInnes Cooper & Robertson, local
counsel for the Canadian Borrower, substantially to the effect set forth in
Exhibit J-2, and J- 3, respectively, and (iii) Cain, Hibbard, Meyers &
Cook, and McCampbell & Young, local counsels for the Parent Borrower,
substantially to the effect set forth in Exhibit J-4, in each case (A)
dated the Closing Date, (B) addressed to the Fronting Bank, the U.S.
Administrative Agent and the Lenders, and (C) covering such other matters
relating to the Loan Documents and the Transactions as the U.S.
<PAGE>
138
Administrative Agent shall reasonably request, and the Borrower hereby
instructs its counsel to deliver such opinions.
(b) All legal matters incident to this Agreement, the Borrowings and
extensions of credit hereunder and the other Loan Documents shall be
reasonably satisfactory to the U.S. Administrative Agent, the Lenders and
the Fronting Bank.
(c) The U.S. Administrative Agent shall have received each of the
items referred to in clauses (A), (B) and (C) below with respect to each
Loan Party: (A) a copy of the certificate or articles of incorporation
(other than with respect to the U.K. Subsidiary Guarantors), including all
amendments thereto, of each Loan Party (other than with respect to the U.K.
Subsidiary Guarantors), certified as of a recent date by the Secretary of
State of the state of its organization, and a certificate as to the good
standing of each Loan Party as of a recent date from such Secretary of
State, or comparable documentation reasonably satisfactory to the
Administrative Agent with respect to any Loan Party that is a non-Domestic
Subsidiary and UK Newco; (B) a certificate of the Secretary or Assistant
Secretary of each Loan Party (other than with respect to the U.K.
Subsidiary Guarantors) dated the Closing Date and certifying (w) that
attached thereto is a true and complete copy of the by-laws of such Loan
Party as in effect on the Closing Date and at all times since a date prior
to the date of the resolutions described in clause (x) below, (x) that
attached thereto is a true and complete copy of resolutions duly adopted by
the Board of Directors of such Loan Party authorizing the execution,
delivery and performance of the Loan Documents to which such person is a
party and, in the case of each Borrower, the borrowings hereunder, and that
such resolutions have not been modified, rescinded or amended and are in
full force and effect, (y) that the certificate or articles of
incorporation of such Loan Party have not been amended since the date of
the last amendment thereto shown on the certificate of good standing
furnished pursuant to clause (A) above, and (z) as to the incumbency and
specimen signature of each officer executing any Loan Document or any other
document delivered in connection herewith on behalf of such Loan Party; (C)
a certificate of another officer as to the incumbency and specimen
signature of the Secretary or
<PAGE>
139
Assistant Secretary executing the certificate pursuant to (B) above; and
such other documents as the U.S. Administrative Agent, the Lenders or the
Fronting Bank may reasonably request.
(d) The U.S. Administrative Agent shall have received a certificate of
the Parent Borrower, dated the Closing Date and signed by a Financial
Officer of and on behalf of the Parent Borrower, confirming compliance with
the conditions precedent set forth in paragraphs (b) and (c) of Section
4.01.
(e) The U.S. Administrative Agent shall have received all Fees and
other amounts due and payable on or prior to the Closing Date, including,
to the extent invoiced, reimbursement or payment of all out-of-pocket
expenses required to be reimbursed or paid by any Borrower hereunder or
under any other Loan Document.
(f) Each of the Guarantee Agreements (other than the U.K. Subsidiary
Guarantee Agreement) and the Indemnity, Subrogation and Contribution
Agreement shall have been duly executed by the parties thereto and
delivered to the Collateral Agent and shall be in full force and effect.
(g) (i) The Pledge Agreements shall have been duly executed by the
parties thereto and delivered to the Collateral Agent and shall be in full
force and effect, and (A) the Vernon Note, the IHC Note and all notes
evidencing any intercompany Indebtedness of UK Newco to the Parent Borrower
shall have been duly and validly pledged thereunder to the Collateral Agent
for the benefit of the Secured Parties and (B) all the outstanding Capital
Stock of the Parent Borrower owned by Holdings and all the outstanding
Capital Stock of each Domestic Subsidiary, and 65% of the outstanding
Capital Stock of each non-Domestic Subsidiary (or, if less, all such
Capital Stock) owned directly by the Parent Borrower or any Domestic
Subsidiary, shall have been duly and validly pledged thereunder to the
Collateral Agent for the ratable benefit of the Secured Parties and
certificates representing such shares, accompanied in the case of
certificated shares by stock powers endorsed in blank, shall be in the
actual possession of the Collateral Agent; and (ii) the Security Agreement
and the Intellectual
<PAGE>
140
Property Security Agreement shall have been duly executed by the Loan
Parties party thereto and shall have been delivered to the Collateral Agent
and shall be in full force and effect on such date and each document
(including each Uniform Commercial Code financing statement) required by
law or reasonably requested by the U.S. Administrative Agent to be filed,
registered or recorded in order to create in favor of the Collateral Agent
for the benefit of the Secured Parties a valid, legal and perfected
first-priority security interest in and lien on the Collateral described in
each such agreement (subject to any Lien expressly permitted by Section
6.02) shall have been delivered to the Collateral Agent.
(h) The Collateral Agent shall have received (i) the results of a
search of the Uniform Commercial Code filings made with respect to the Loan
Parties (other than non-Domestic Subsidiaries and UK Newco) in the states
in which the chief executive office of each such person is located and the
other jurisdictions in which Uniform Commercial Code filings are to be made
pursuant to the preceding paragraph, together with copies of the financing
statements disclosed by such search and (ii) the results of equivalent
searches made in each other jurisdiction requested by the U.S.
Administrative Agent, in each case accompanied by evidence satisfactory to
the U.S. Administrative Agent that the Liens indicated in any such
financing statement (or similar document) or otherwise disclosed in such
searches would be permitted under Section 6.02 or have been released.
(i) (i) Each of the Mortgages, substantially in the form of Exhibit F,
relating to each of the Mortgaged Properties shall have been duly executed
by the parties thereto and delivered to the Collateral Agent and shall be
in full force and effect, (ii) each of such Mortgaged Properties shall not
be subject to any Lien other than those expressly permitted under Section
6.02, (iii) a lender's title insurance policy, together with such surveys,
abstracts, appraisals and legal opinions required to be furnished pursuant
to the terms of the Mortgages or this Agreement, paid for by the Parent
Borrower, in form and substance acceptable to the U.S. Administrative
Agent, insuring such Mortgage as a first lien on such Mortgaged Property
(subject to any Lien expressly permitted by
<PAGE>
141
Section 6.02 or otherwise agreed to by the U.S. Administrative Agent) shall
have been received by the U.S. Administrative Agent and (iv) the Collateral
Agent shall have received such other documents as reasonably requested in
writing by the U.S. Administrative Agent or the Lenders.
(j) The U.S. Administrative Agent shall have received copies of, or an
insurance broker's or agent's certificate as to coverage under, the
insurance policies required by Section 5.02 and the applicable provisions
of the Security Documents, each of which policies shall be endorsed or
otherwise amended to include a "standard" or "New York" lender's loss
payable endorsement and to name the Collateral Agent as additional insured,
in form and substance satisfactory to the U.S. Administrative Agent.
(k) The U.S. Administrative Agent shall be reasonably satisfied with
the scope of due diligence performed with respect to environmental matters
concerning the Parent Borrower and the Subsidiaries, including with respect
to any environmental hazards, liabilities or Remedial Action to which the
Parent Borrower or any of the Subsidiaries may be subject.
(l) The Recapitalization and the Imperial Acquisition shall each have
been consummated substantially simultaneously with the initial Credit Event
hereunder in accordance (i) in all material respects with applicable law
and (ii) with the respective terms of the Recapitalization Agreement and
the Acquisition Agreement and all related documentation, in each case in
the form previously approved by the U.S. Administrative Agent, and
otherwise on terms reasonably satisfactory to the U.S. Administrative Agent
(it being agreed that the Recapitalization shall occur prior to the
Imperial Acquisition); the conditions to MergerCo's obligations set forth
in the Recapitalization Agreement shall have been satisfied without giving
effect to any waiver or amendment in any manner adverse to the Lenders that
was not approved by all the Lenders; the conditions to MergerCo's
obligations set forth in the Acquisition Agreement shall have been
satisfied without giving effect to any waiver or amendment in any manner
materially adverse to the Lenders that was not approved by the U.S.
Administrative Agent; and the other Transactions intended to occur on or
<PAGE>
142
before the Closing Date (including the consummation of the Imperial Merger)
shall have been consummated before or substantially simultaneously with the
initial Credit Event hereunder and the capital, corporate and ownership
structures intended to be in effect on the Closing Date shall have become
effective not later than the initial Credit Event hereunder.
(m) The U.S. Administrative Agent shall be satisfied that the
aggregate level of fees and expenses to be paid by MergerCo and the Parent
Borrower and the Subsidiaries in connection with the
Recapitalization/Acquisition, the other Transactions, the financing
therefor and the other transactions contemplated herein shall not exceed
$24,000,000.
(n) The Fund or other current stockholders of Holdings shall have
purchased, or shall purchase simultaneously with the initial Credit Event
hereunder, newly issued shares of common stock of Holdings for a cash
purchase price at least equal to $84,500,000 and Holdings shall have made
the Equity Contribution to MergerCo.
(o) The Senior Subordinated Notes shall have been issued on the terms
set forth in the Offering Memorandum and the Parent Borrower shall have
received gross proceeds of not less than $125,000,000 therefrom.
(p) After giving effect to the Transactions, including the repayment
of any Existing Indebtedness (other than such Indebtedness set forth on
Schedule 6.01), (i) the Parent Borrower and the Subsidiaries shall have
outstanding no preferred stock and no Indebtedness other than Loans
hereunder, the Senior Subordinated Notes and Indebtedness otherwise
permitted under Section 6.01 and (ii) the Parent Borrower shall have
outstanding no Capital Stock other than common stock owned by Holdings and
the Borden Sellers in the amounts described in the preamble to this
Agreement and other than the C&A Option and the Management Options. All
agreements, commitments, security interests and other rights and
obligations in respect of the Existing Indebtedness shall have been
terminated and all amounts due in respect thereof shall have been paid in
full from the proceeds of
<PAGE>
143
the Loans made on the Closing Date, except as set forth on Schedule 6.01
and Schedule 6.02.
(q) There shall have been no material adverse change in the business,
financial condition or results of operations of the Parent Borrower and the
Subsidiaries, the Sunworthy business, Imperial Wallcoverings (Canada) Inc.
and Imperial Wallcoverings, Inc. and its subsidiaries taken as a whole
since September 27, 1997.
(r) The U.S. Administrative Agent shall have received a satisfactory
pro forma combined balance sheet of the Parent Borrower as of September 27,
1997, together with a certificate of the Parent Borrower, dated the Closing
Date and signed by a Financial Officer of the Parent Borrower, to the
effect that such statement fairly presents the pro forma financial position
of the Parent Borrower and the Subsidiaries in accordance with GAAP after
giving effect to the Credit Events to occur on the Closing Date and the
Transactions as if such transactions occurred as of September 27, 1997, and
the U.S. Administrative Agent shall be reasonably satisfied that such
balance sheet and the Transactions and the financing arrangements
contemplated hereby are consistent with the sources and uses of funds
delivered to the Lenders prior to the date hereof and are not materially
inconsistent with the information, projections and financial models
delivered prior to the date hereof. MergerCo and the Parent Borrower shall
have provided such other financial information as the U.S. Administrative
Agent may reasonably request in connection with the
Recapitalization/Acquisition.
(s) All requisite material approvals and consents to the Transactions
of or from Governmental Authorities and all material third parties shall
have been received to the extent required and all applicable appeal periods
shall have expired.
(t) There shall be no governmental or judicial action, actual or
threatened, that has or could have a reasonable likelihood of restraining,
preventing or imposing materially burdensome conditions on the Transactions
or the consummation of the other transactions contemplated hereby.
<PAGE>
144
(u) The Lenders shall have received a solvency letter in form and
substance satisfactory to the U.S. Administrative Agent from Murray, Devine
& Co., together with other evidence reasonably requested by the Lenders as
to the solvency of the Parent Borrower and the Subsidiaries on a
consolidated basis, after giving effect to the Transactions and the
consummation of the other transactions contemplated hereby.
SECTION 4.03. First Credit Event Under U.K. (pound) Revolving Credit
Commitments. On or before the date on which the first Credit Event in respect of
the U.K. (pound) Revolving Credit Commitments shall occur (a) the conditions
specified in Sections 4.01 and 4.02 shall have been satisfied, (b) the U.S.
Administrative Agent shall have received the items referred to in clauses (A),
(B) and (C) of Section 4.02(c) with respect to each U.K. Subsidiary Guarantor
and (c) the U.K. Subsidiary Guarantee Agreement shall have been duly executed by
the parties thereto and delivered to the Collateral Agent and shall be in full
force and effect.
ARTICLE V. AFFIRMATIVE COVENANTS
The Parent Borrower covenants and agrees with each Lender that so long as
this Agreement shall remain in effect and until the Commitments have been
terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document shall have been paid
in full and all Letters of Credit have been canceled or have expired and all
amounts drawn thereunder have been reimbursed in full, unless the Required
Lenders shall otherwise consent in writing, the Parent Borrower will, and will
cause each of the Subsidiaries to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence (which shall not preclude it changing its organizational
status from a corporation to a limited liability company), except as otherwise
expressly permitted under Section 6.05, and except for the liquidation or
dissolution of Subsidiaries if the assets of such Subsidiaries to the extent
they exceed estimated liabilities are acquired by the Parent Borrower or a
Wholly Owned Subsidiary
<PAGE>
145
in such liquidation or dissolution, provided that Subsidiaries that are
Guarantors may not be liquidated into Subsidiaries that are not Guarantors and
Domestic Subsidiaries may not be liquidated into non-Domestic Subsidiaries.
(b) Do or cause to be done all things necessary to obtain, preserve, renew,
extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; comply in all material respects with
all applicable laws, rules, regulations (including any zoning, building,
Environmental Law, ordinance, code or approval or any building permits or any
restrictions of record or agreements affecting the Mortgaged Properties) and
orders of any Governmental Authority, whether now in effect or hereafter
enacted; and at all times maintain and preserve all property material to the
conduct of such business and keep such property in good repair, working order
and condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith, if any,
may be properly conducted at all times (in each case except as expressly
permitted by this Agreement).
SECTION 5.02. Insurance. (a) Keep its insurable properties insured at all
times by financially sound and reputable insurers in such amounts as shall be
customary for similar businesses and maintain such other reasonable insurance
(including, to the extent consistent with past practices, self-insurance), of
such types, to such extent and against such risks, as is customary with
companies in the same or similar businesses (including business interruption
insurance as reasonably requested by the U.S. Administrative Agent), and
maintain such other insurance as may be required by law or any other Loan
Document.
(b) Cause all such property and casualty insurance policies with respect to
the Mortgaged Properties to be endorsed or otherwise amended to include a
"standard" or "New York" lender's loss payable endorsement, in form and
substance reasonably satisfactory to the U.S. Administrative Agent and the
Collateral Agent, which endorsement shall provide that, from and after the
Closing Date, if the insurance carrier shall have received written notice from
the U.S. Administrative Agent or the
<PAGE>
146
Collateral Agent of the occurrence of an Event of Default, the insurance carrier
shall pay all proceeds otherwise payable to the Parent Borrower or the Loan
Parties under such policies directly to the Collateral Agent; cause all such
policies to provide that neither the Parent Borrower, the U.S. Administrative
Agent, the Collateral Agent nor any other party shall be a coinsurer thereunder
and to contain a "Replacement Cost Endorsement", without any deduction for
depreciation, and such other provisions as the U.S. Administrative Agent or the
Collateral Agent may reasonably (in light of a Default or a material development
in respect of the insured Mortgaged Property) require from time to time to
protect their interests; deliver original or certified copies of all such
policies or a certificate of an insurance broker to the Collateral Agent; cause
each such policy to provide that it shall not be canceled or modified to reduce
the amount (including by means of increased deductibles), type or scope of
coverage or not renewed upon less than 30 days' prior written notice thereof by
the insurer to the U.S. Administrative Agent and the Collateral Agent; deliver
to the U.S. Administrative Agent and the Collateral Agent, prior to the
cancelation, modification or nonrenewal of any such policy of insurance, a copy
of a renewal or replacement policy (or other evidence of renewal of a policy
previously delivered to the U.S. Administrative Agent and the Collateral Agent),
or insurance certificate with respect thereto, together with evidence
satisfactory to the U.S. Administrative Agent and the Collateral Agent of
payment of the premium therefor.
(c) If at any time the area in which the Premises (as defined in the
Mortgages) are located is designated (i) a "flood hazard area" in any Flood
Insurance Rate Map published by the Federal Emergency Management Agency (or any
successor agency), obtain flood insurance in such reasonable total amount as the
U.S. Administrative Agent, the Collateral Agent or the Required Lenders may from
time to time reasonably require, and otherwise comply with the National Flood
Insurance Program as set forth in the Flood Disaster Protection Act of 1973, as
it may be amended from time to time, or (ii) a "Zone 1" area (as so designated
in the National Ocean and Earthquake Risk Map), obtain earthquake insurance in
such reasonable total amount as the U.S. Administrative Agent, the Collateral
Agent or the Required Lenders may from time to time reasonably require.
<PAGE>
147
(d) With respect to each Mortgaged Property, carry and maintain
comprehensive general liability insurance including the "broad form CGL
endorsement" and coverage on an occurrence basis against claims made for
personal injury (including bodily injury, death and property damage) and
umbrella liability insurance against any and all claims, in no event for a
combined single limit of less than $500,000, naming the Collateral Agent as an
additional insured, in forms reasonably satisfactory to the Collateral Agent.
(e) Notify the U.S. Administrative Agent and the Collateral Agent promptly
whenever any separate insurance concurrent in form or contributing in the event
of loss with that required to be maintained under this Section 5.02 is taken out
by the Parent Borrower or any Subsidiary; and promptly deliver to the U.S.
Administrative Agent and the Collateral Agent a duplicate original copy of such
policy or policies, or an insurance certificate with respect thereto.
(f) In connection with the covenants set forth in this Section 5.02, it is
understood and agreed that:
(i) none of the U.S. Administrative Agent, the Lenders, the Fronting
Bank and their respective agents or employees shall be liable for any loss
or damage insured by the insurance policies required to be maintained under
this Section 5.02, it being understood that (A) the Parent Borrower and the
other Loan Parties shall look solely to their insurance companies or any
other parties other than the aforesaid parties for the recovery of such
loss or damage and (B) such insurance companies shall have no rights of
subrogation against the U.S. Administrative Agent, the Collateral Agent,
the Lenders, the Fronting Bank or their agents or employees. If, however,
the insurance policies do not provide waiver of subrogation rights against
such parties, as required above, then the Parent Borrower hereby agrees, to
the extent permitted by law, to waive, and to cause each Subsidiary to
waive, its right of recovery, if any, against the U.S. Administrative
Agent, the Collateral Agent, the Lenders, the Fronting Bank and their
agents and employees; and
(ii) the designation of any form, type or amount of insurance coverage
by the U.S. Administrative Agent, the
<PAGE>
148
Collateral Agent or the Required Lenders under this Section 5.02 shall in
no event be deemed a representation, warranty or advice by the U.S.
Administrative Agent, the Collateral Agent or the Lenders that such
insurance is adequate for the purposes of the business of the Parent
Borrower and the Subsidiaries or the protection of their properties and the
U.S. Administrative Agent, the Collateral Agent and the Required Lenders
shall have the right from time to time, during the continuance of a Default
or Event of Default or in light of a material development in respect of any
Mortgaged Property, to require the Parent Borrower and the other Loan
Parties to keep other insurance in such form and reasonable amount as the
U.S. Administrative Agent, the Collateral Agent or the Required Lenders may
reasonably request, provided that such insurance shall be obtainable on
commercially reasonable terms.
SECTION 5.03. Taxes. Pay and discharge promptly when due all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or in respect of its property, before the same shall become
delinquent or in default, as well as all lawful claims for labor, materials and
supplies or otherwise which, if unpaid, might give rise to a Lien upon such
properties or any part thereof; provided, however, that such payment and
discharge shall not be required with respect to any such tax, assessment,
charge, levy or claim so long as (a) the validity or amount thereof shall be
contested in good faith by appropriate proceedings and the Parent Borrower or
the affected Subsidiary, as applicable, shall have set aside on its books
adequate reserves in accordance with GAAP with respect thereto, (b) such tax,
assessment, charge, levy or claim is in respect of property taxes for property
that the Parent Borrower or one of the Subsidiaries has determined to abandon
and the sole recourse for such tax, assessment, charge, levy or claim is to such
property or (c) the amount of such taxes, assessments, charges, levies and
claims and interest and penalties thereon does not exceed $1,000,000 in the
aggregate.
<PAGE>
149
SECTION 5.04. Financial Statements, Reports, etc. In the case of the Parent
Borrower, furnish to the U.S. Administrative Agent and each Lender:
(a) within 120 days after the end of fiscal year 1997, and within 90
days after the end of each fiscal year thereafter, a consolidated balance
sheet and related statements of operations, cash flows and shareholders'
equity and owners investment showing the financial position of the Parent
Borrower and the Subsidiaries as of the close of such fiscal year and the
consolidated results of their operations during such year, all audited by
Deloitte & Touche, LLP or other independent public accountants of
recognized national standing reasonably acceptable to the U.S.
Administrative Agent and accompanied by a report of such accountants (which
shall not be qualified in any material respect) to the effect that such
consolidated financial statements fairly present, in all material respects,
the financial position and results of operations of the Parent Borrower and
the Subsidiaries on a consolidated basis in accordance with GAAP (except,
as to GAAP, as disclosed therein);
(b) within 60 days after the end of the first fiscal quarter of 1998,
and within 45 days after the end of each of the first three fiscal quarters
of each fiscal year thereafter, a consolidated balance sheet and related
statements of operations, cash flows and shareholders' equity and owners
investment showing the financial position of the Parent Borrower and the
Subsidiaries as of the close of such fiscal quarter and the consolidated
results of their operations during such fiscal quarter and the then-elapsed
portion of the fiscal year, all certified by one of its Financial Officers
on behalf of the Parent Borrower as fairly presenting, in all material
respects, the financial position and results of operations of the Parent
Borrower and the Subsidiaries on a consolidated basis in accordance with
GAAP (except for the absence of footnotes and except as disclosed therein),
subject to normal year-end audit adjustments;
(c) concurrently with any delivery of financial statements under (a)
or (b) above, a certificate of the accounting firm or Financial Officer, as
applicable, on
<PAGE>
150
behalf of the Parent Borrower opining on or certifying such statements
(which certificate, when furnished by an accounting firm, may be limited to
accounting matters and disclaim responsibility for legal interpretations)
(i) certifying that no Event of Default or Default has occurred or, if such
an Event of Default or Default has occurred, specifying the nature and
extent thereof and any corrective action taken or proposed to be taken with
respect thereto and (ii) setting forth computations in reasonable detail
satisfactory to the U.S. Administrative Agent (A) demonstrating compliance
with the covenants contained in Sections 6.10, 6.11 and 6.12, and (B)
determining the Leverage Ratio and Adjusted Net Leverage Ratio as of the
last day of the fiscal quarter or fiscal year in respect of which such
financial statements are being delivered (it being understood that the
information required by this clause (ii) may be provided in a certificate
of a Financial Officer on behalf of the Parent Borrower instead of from
such accounting firm);
(d) promptly after the same become publicly available, copies of all
periodic and other publicly available reports, proxy statements and, to the
extent requested by the U.S. Administrative Agent, other materials filed by
the Parent Borrower or any Subsidiary with the Securities and Exchange
Commission, or any governmental authority succeeding to any of or all the
functions of said Commission, or with any national securities exchange, or
distributed to its share holders generally, as the case may be;
(e) if, as a result of any change in accounting principles and
policies from those as in effect on the date of this Agreement, the
consolidated financial statements of the Parent Borrower and the
Subsidiaries delivered pursuant to paragraph (a) or (b) above will differ
in any material respect from the consolidated financial statements that
would have been delivered pursuant to such clauses had no such change in
accounting principles and policies been made, then, together with the first
delivery of financial statements pursuant to paragraph (a) and (b) above
following such change, a schedule prepared by a Financial Officer on behalf
of the Parent Borrower reconciling such changes to what the financial
statements would have been without such changes;
<PAGE>
151
(f) within 90 days after the beginning of each fiscal year, a copy of
an operating and capital expenditure budget for such fiscal year;
(g) promptly following the creation or acquisition of any Subsidiary,
a certificate from a Responsible Officer, identifying such new Subsidiary
and the ownership interest of the Parent Borrower and the Subsidiaries
therein;
(h) simultaneously with the delivery of any financial statements
pursuant to paragraph (a) or (b) above, a balance sheet and related
statements of operations, cash flows and stockholder's equity for each
unconsolidated Subsidiary for the applicable period;
(i) promptly, a copy of all reports submitted in connection with any
material interim or special audit made by independent accountants of the
books of the Parent Borrower or any Subsidiary; and
(j) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of the Parent Borrower
or any Subsidiary, or compliance with the terms of any Loan Document, or
such consolidating financial statements, as in each case the U.S.
Administrative Agent or any Lender, acting through the U.S. Administrative
Agent, may reasonably request.
SECTION 5.05. Litigation and Other Notices. Furnish to the U.S.
Administrative Agent and each Lender written notice of the following promptly
after any Responsible Officer of any Borrower obtains actual knowledge thereof:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) proposed to be taken with
respect thereto;
(b) the filing or commencement of, or any written threat or notice of
intention of any person to file or com mence, any action, suit or
proceeding, whether at law or in equity or by or before any Governmental
Authority, against such Borrower or any Subsidiary in respect of which
there is a reasonable possibility of an adverse determination and
<PAGE>
152
which, if adversely determined, could reasonably be expected to result in a
Material Adverse Effect; and
(c) any other development specific to such Borrower or any Subsidiary
that is not a matter of general public knowledge and that has resulted in,
or could reasonably be expected to result in, a Material Adverse Effect.
SECTION 5.06. Employee Benefits. (a) Comply in all material respects with
the applicable provisions of ERISA and the provisions of the Code relating to
ERISA and any applicable similar non-U.S. law and (b) furnish to the U.S.
Administrative Agent (i) as soon as possible after, and in any event within 30
days after any Responsible Officer of the Parent Borrower or any ERISA Affiliate
knows or has reason to know that, any Reportable Event has occurred, a statement
of a Financial Officer setting forth details as to such Reportable Event and the
action proposed to be taken with respect thereto, together with a copy of the
notice, if any, of such Reportable Event given to the PBGC, (ii) promptly after
any such Responsible Officer learns of receipt thereof, a copy of any notice
that the Parent Borrower or any ERISA Affiliate may receive from the PBGC
relating to the intention of the PBGC to terminate any Plan or Plans (other than
a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate
only pursuant to subsection (m) or (o) of Code Section 414) or to appoint a
trustee to administer any such Plan, (iii) within 30 days after the due date for
filing with the PBGC pursuant to Section 412(n) of the Code a notice of failure
to make a required installment or other payment with respect to a Plan, a
statement of a Financial Officer setting forth details as to such failure and
the action proposed to be taken with respect thereto, together with a copy of
any such notice given to the PBGC and (iv) promptly after any such Responsible
Officer learns thereof and in any event within 30 days after receipt thereof by
the Parent Borrower or any ERISA Affiliate from the sponsor of a Multiemployer
Plan, a copy of each notice received by the Parent Borrower or any ERISA
Affiliate concerning (A) the imposition of Withdrawal Liability or (B) a
determination that a Multiemployer Plan is, or is expected to be, terminated or
in reorganization, in each case within the meaning of Title IV of ERISA,
provided that in the case of each of clauses (i) through (iv) above, notice to
the U.S. Administrative Agent shall only be required if such event or condition,
together with all other events or conditions referred to in clauses (i) through
(iv) above, could
<PAGE>
153
reasonably be expected to result in liability of the Parent Borrower or any
Subsidiary in an aggregate amount exceeding $3,000,000.
SECTION 5.07. Maintaining Records; Access to Properties and Inspections.
Maintain all financial records in accordance with GAAP and permit any persons
designated by the U.S. Administrative Agent or any Lender to visit and inspect
the financial records and the properties of the Parent Borrower or any
Subsidiary at reasonable times, upon reasonable prior notice to the Parent
Borrower, and as often as reasonably requested and to make extracts from and
copies of such financial records, and permit any persons designated by the U.S.
Administrative Agent or any Lender upon reasonable prior notice to the Parent
Borrower to discuss the affairs, finances and condition of the Parent Borrower
or any Subsidiary with the officers thereof and independent accountants therefor
(subject to reasonable requirements of confidentiality, including requirements
imposed by law or by contract).
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans and request
the issuance of Letters of Credit only for the purposes set forth in the
preamble to this Agreement.
SECTION 5.09. Compliance with Environmental Laws. Comply, and make
reasonable efforts to cause all lessees and other persons occupying its
Properties to comply, with all Environmental Laws and Environmental Permits
applicable to its operations and Properties; obtain and renew all material
Environmental Permits necessary for its operations and Properties; and conduct
any Remedial Action in accordance with Environmental Laws, except, in each case
with respect to this Section 5.09, to the extent the failure to do so,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
SECTION 5.10. Preparation of Environmental Reports. If a default caused by
reason of a breach of Section 3.17 or 5.09 shall have occurred and be
continuing, at the request of the Required Lenders through the U.S.
Administrative Agent, provide to the Lenders within 60 days after such request,
at the expense of the Parent Borrower, an environmental site assessment report
for the Properties which are the subject of such default prepared by an
environmental consulting firm acceptable to the U.S.
<PAGE>
154
Administrative Agent, indicating the presence or absence of Hazardous Materials
and the estimated cost of any Remedial Action required under any applicable
Environmental Law in connection with such Properties.
SECTION 5.11. Further Assurances. Execute any and all further documents,
financing statements, agreements and instruments, and take all further action
(including filing Uniform Commercial Code and other financing statements,
mortgages and deeds of trust), that may be required under applicable law, or
which the Collateral Agent may reasonably request, in order to effectuate the
transactions contemplated by the Loan Documents and in order to grant, preserve,
protect and perfect the validity and first priority (subject to Liens permitted
by Section 6.02) of the security interests created or intended to be created by
the Security Documents. In addition, from time to time, the Parent Borrower and
the Subsidiaries will, at their cost and expense, on or promptly (but in any
event within 10 Business Days) following (x) the date of creation or acquisition
by the Parent Borrower or any Subsidiary of any new Subsidiary (subject to the
receipt of any required consents from Governmental Authorities), promptly secure
the applicable Obligations by causing the following to occur: (i) promptly upon
creating or acquiring any additional Subsidiary, the Capital Stock of such
Subsidiary will (unless such Subsidiary is a Subsidiary of a non-Domestic
Subsidiary) be pledged pursuant to the applicable Pledge Agreement, provided
that no more than 65% of the Capital Stock of any non-Domestic Subsidiary shall
be required to be pledged pursuant to this Section 5.11, and (ii) such
Subsidiary will (A) (unless such Subsidiary is a non-Domestic Subsidiary or less
than 90% of the Capital Stock of such Subsidiary is owned by the Parent Borrower
and the Subsidiaries) become a party to the Security Agreement, the Intellectual
Property Security Agreement, the Pledge Agreement (if such Subsidiary owns
Capital Stock of any subsidiary), the Domestic Subsidiary Guarantee Agreement
and the Indemnity, Subrogation and Contribution Agreement as contemplated under
each such agreement, (B) if such Subsidiary is organized under the laws of the
United Kingdom and is not an Inactive U.K. Subsidiary, to the maximum extent
permitted by applicable law, become a party to the U.K. Subsidiary Guarantee
Agreement or if such Subsidiary is a subsidiary of the Canadian Borrower
organized under the laws of Canada, to the maximum extent permitted by
applicable law, become a party to the Canadian Subsidiary Guarantee Agreement
(and the Parent Borrower
<PAGE>
155
agrees that at such time as the Canadian Subsidiary Guarantee Agreement is first
entered into, it shall provide a legal opinion addressed to the Administrative
Agents, the Fronting Bank and the Lenders in form, substance and from counsel
reasonably satisfactory to the U.S. Administrative Agent, as to the
enforceability of the Canadian Subsidiary Guarantee Agreement and such other
matters as the U.S. Administrative Agent may reasonably request), provided that
any Subsidiary organized under the laws of Canada shall be a wholly owned
subsidiary of the Canadian Borrower unless, in the reasonable judgment of the
senior management of the Parent Borrower, a material tax or other material
economic or legal disadvantage to the Parent Borrower or any Subsidiary would
result therefrom, and (C) if such Subsidiary owns any individual parcels of real
property located in the United States having a value at the time of acquisition
of such Subsidiary in excess of $1,000,000, enter into and deliver to the
Collateral Agent a Mortgage in respect of such property or (y) the acquisition
by the Parent Borrower or any Domestic Subsidiary of any real property located
in the United States having a value at the time of acquisition of such property
in excess of $1,000,000, enter into and deliver to the Collateral Agent a
Mortgage in respect of such property. In addition, at the request of the U.S.
Administrative Agent or the Required Lenders, the Parent Borrower shall (a)
cause the pledge to the Collateral Agent of the Collateral (as defined in the
Intellectual Property Security Agreement) that (i) is identified in Schedules I,
II and III to the Intellectual Property Security Agreement and (ii) is issued or
registered in the United Kingdom or Canada, to be perfected by registering such
pledge in the appropriate offices in the United Kingdom or Canada, as
applicable, and (b) execute any and all further documents, financing statements,
agreements and instruments, and take all further action, that may be required
under applicable law, or which the Collateral Agent may reasonably request, in
order to grant, preserve, protect and perfect the validity and priority of the
security interest created or intended to be created by the Intellectual Property
Security Agreement in such Collateral. All the foregoing security interests and
Liens will be created under the Security Documents and other instruments and
documents in form and substance reasonably satisfactory to the Collateral Agent,
the Parent Borrower and the Subsidiaries shall deliver or cause to be delivered
to the U.S. Administrative Agent all such instruments and documents (including
legal opinions and lien searches) as the Required Lenders shall reasonably
request to
<PAGE>
156
evidence compliance with this Section 5.11. The Parent Borrower agrees to
provide, and to cause each Subsidiary to provide, such evidence as the
Collateral Agent shall reasonably request as to the perfection and priority
status of each such security interest and Lien. The Parent Borrower will not be
required to pledge its equity interest in any Subsidiary pursuant to this
Section 5.11 if the creation of such pledge would violate a contractual
obligation applicable to the Parent Borrower or any Subsidiary with respect to
which the Parent Borrower has been unable to obtain a waiver despite its use of
reasonable efforts to do so.
SECTION 5.12. Fiscal Year; Accounting. In the case of each of the Parent
Borrower and each of the Subsidiaries, cause its respective fiscal year to end
on December 31.
SECTION 5.13. Dividends. In the case of the Parent Borrower, permit the
Subsidiaries to pay dividends and cause such dividends to be paid to the extent
required to pay the monetary Obligations, subject to restrictions permitted by
Section 6.09(d) and to prohibitions imposed by applicable requirements of law.
SECTION 5.14. Interest/Exchange Rate Protection Agreements. In the case of
the Parent Borrower, as promptly as practicable and in any event within 60 days
after the Closing Date, enter into, and thereafter maintain in effect for a
period of at least four years following the Closing Date, one or more
Interest/Exchange Rate Protection Agreements with any of the Lenders or other
financial institutions reasonably satisfactory to the U.S. Administrative Agent,
the effect of which shall be to limit at all times the interest payable in
connection with Indebtedness having an aggregate outstanding principal amount
not less than an amount equal to 25% of the aggregate principal amount of Term
Borrowings to a maximum rate and on terms and conditions reasonably acceptable,
taking into account current market conditions, to the U.S. Administrative Agent,
and deliver evidence of the execution and delivery thereof to the U.S.
Administrative Agent.
SECTION 5.15. Surveys. Within 30 days after the Closing Date, for each
Mortgaged Property, the Parent Borrower shall deliver or cause to be delivered
an A.L.T.A. survey in form and substance reasonably satisfactory to the U.S.
Administrative Agent and endorsements to the title policies required by
<PAGE>
157
Section 4.02(i) providing for survey-related coverage reasonably satisfactory to
the U.S. Administrative Agent.
ARTICLE VI. NEGATIVE COVENANTS
The Parent Borrower covenants and agrees with each Lender that, so long as
this Agreement shall remain in effect and until the Commitments have been
terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document have been paid in full
and all Letters of Credit have been canceled or have expired and all amounts
drawn thereunder have been reimbursed in full, unless the Required Lenders shall
otherwise consent in writing, the Parent Borrower will not, and will not cause
or permit any of the Subsidiaries to:
SECTION 6.01. Indebtedness. Incur, create, assume or permit to exist any
Indebtedness, except:
(a) Indebtedness (other than Indebtedness of UK Newco) existing on the
date hereof and set forth in Schedule 6.01, but not any extensions,
renewals or replacements of such Indebtedness except (i) renewals and
extensions expressly provided for in the agreements evidencing any such
Indebtedness as the same are in effect on the date of this Agreement and
(ii) refinancings and extensions of any such Indebtedness if the average
life to maturity thereof is greater than or equal to that of the
Indebtedness being refinanced or extended, provided that such Indebtedness
permitted under clause (i) or clause (ii) above shall not be (A)
Indebtedness of an obligor that was not an obligor with respect to the
Indebtedness being extended, renewed or refinanced, (B) in a principal
amount which exceeds the Indebtedness being renewed, extended or refinanced
(plus unpaid accrued interest and premium thereon) or (C) incurred, created
or assumed if any Default or Event of Default has occurred and is
continuing or would result therefrom;
(b) Indebtedness created hereunder and under the other Loan Documents;
<PAGE>
158
(c) (i) in the case of the Parent Borrower, the Senior Subordinated
Notes or Senior Subordinated Exchange Notes in an aggregate principal
amount (the "Subordinated Principal") for all the foregoing not to exceed
the sum of (A) $125,000,000 and (B) the aggregate principal amount of
Senior Subordinated Notes and Senior Subordinated Exchange Notes issued
after the Closing Date in payment of interest thereon pursuant to the terms
thereof (less the principal amount of any Senior Subordinated Notes and
Senior Subordinated Exchange Notes that is repaid after the Closing Date)
and (ii) in the case of the Parent Borrower, Refinancing Notes in an
aggregate principal amount not to exceed the sum at the time immediately
prior to issuance and refinancing of (A) the Subordinated Principal and (B)
if the Refinancing Notes are issued at a time when there is accrued but
unpaid interest on the Subordinated Principal, the amount of such accrued
but unpaid interest;
(d) in the case of any Guarantor, the Guarantees under the Guarantee
Agreement to which such Guarantor is a party;
(e) Indebtedness of the Parent Borrower and the Subsidiaries (other
than UK Newco) pursuant to Interest/Exchange Rate Protection Agreements
entered into in order to fix the effective rate of interest, or to hedge
against currency fluctuations, on the Loans and other Indebtedness,
provided that such transactions shall be entered into to hedge actual
interest rate exposures or currency exchange rate exposures and not for the
purpose of speculation;
(f) Indebtedness (other than Indebtedness of UK Newco) owed to
(including obligations in respect of letters of credit for the benefit of)
any person providing worker's compensation, health, disability or other
employee benefits or property, casualty or liability insurance to the
Parent Borrower or any Subsidiary, pursuant to reimbursement or
indemnification obligations to such person;
(g) (i) Indebtedness of the Parent Borrower or any Wholly Owned
Subsidiary that is a Domestic Subsidiary Guarantor to any Subsidiary or to
the Parent Borrower; (ii) Indebtedness of the Parent Borrower or any Wholly
Owned Subsidiary that is not a Domestic Subsidiary Guarantor to
<PAGE>
159
any Subsidiary that is not a Domestic Subsidiary Guarantor, provided that,
if the Subsidiary that is the obligee in respect of such Indebtedness is a
Loan Party organized under the laws of the United Kingdom or Canada, the
Subsidiary that is the obligor in respect of such Indebtedness must be a
Loan Party organized under the laws of the same jurisdiction; (iii)
Indebtedness of any Subsidiary to the Parent Borrower or another Subsidiary
incurred pursuant to a Permitted Foreign Transfer; and (iv) Indebtedness of
any Subsidiary to the Parent Borrower or any other Subsidiary arising from
any transaction effected pursuant to Section 6.04(k) or (l), provided that
Indebtedness of UK Newco pursuant to this clause (g) shall be limited to
Indebtedness in respect of loans and advances made to UK Newco (A) by the
Parent Borrower on the Closing Date in an amount not to exceed the amount
to be paid on or before the Closing Date by UK Newco as consideration for
the capital stock of BDPHL and (B) after the Closing Date to the extent the
proceeds of such loans or advances are used on or before the second
Business Day following such advance to make Permitted Foreign Transfers to
UK Newco's subsidiaries;
(h) Indebtedness of the Parent Borrower or a Subsidiary which
represents the assumption by the Parent Borrower or such Subsidiary of
Indebtedness of a Subsidiary in connection with the permitted merger of
such Subsidiary with or into the assuming person or the permitted purchase
of all or substantially all the assets of such Subsidiary;
(i) Indebtedness of the Parent Borrower or the Subsidiaries (other
than UK Newco) in respect of performance bonds, bid bonds, appeal bonds,
surety bonds and similar obligations and trade-related letters of credit,
in each case provided in the ordinary course of business, including those
incurred to secure health, safety and environmental obligations in the
ordinary course of business, and any extension, renewal or refinancing
thereof to the extent not provided to secure the repayment of other
Indebtedness and to the extent that the amount of refinancing Indebtedness
is not greater than the amount of Indebtedness being refinanced;
(j) Indebtedness (other than Indebtedness of UK Newco) arising from
the honoring by a bank or other financial
<PAGE>
160
institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business, provided that such
Indebtedness is extinguished within two Business Days of its incurrence;
(k) Indebtedness of a Subsidiary acquired after the date hereof and
Indebtedness of a corporation merged or consolidated with or into the
Parent Borrower or a Subsidiary after the date hereof, which Indebtedness
in each case exists at the time of such acquisition, merger, consolidation
or conversion into a Subsidiary and is not created in contemplation of such
event and where such acquisition, merger or consolidation is permitted by
this Agreement, provided that the aggregate principal amount of
Indebtedness under this paragraph (k) shall not at any time exceed
$5,000,000 for the Parent Borrower and all Subsidiaries;
(l) Capital Lease Obligations, mortgage financings and purchase money
Indebtedness incurred by the Parent Borrower or any Subsidiary (other than
UK Newco) prior to or within 270 days after a Capital Expenditure permitted
under Section 6.10 in order to finance such Capital Expenditure, and
extensions, renewals and refinancings thereof, in an aggregate principal
amount outstanding at any time not in excess of $10,000,000, provided that
such refinancing Indebtedness shall not be (i) Indebtedness of an obligor
that was not an obligor with respect to the Indebtedness being extended,
renewed or refinanced, (ii) in a principal amount which exceeds the
Indebtedness being renewed, extended or refinanced or (iii) incurred,
created or assumed if any Default or Event of Default has occurred and is
continuing or would result therefrom;
(m) Capital Lease Obligations incurred by the Parent Borrower or any
Subsidiary (other than UK Newco) in respect of any Sale and Leaseback
Transaction that is permitted under Section 6.03;
(n) Indebtedness of the Parent Borrower or any Subsidiary (other than
UK Newco) supported by a Letter of Credit, in a principal amount not in
excess of the stated amount of such Letter of Credit;
<PAGE>
161
(o) Guarantees in respect of the Senior Subordinated Notes, the Senior
Subordinated Exchange Notes or the Refinancing Notes, provided that no
Subsidiary shall Guarantee the Senior Subordinated Notes, the Senior
Subordinated Exchange Notes or the Refinancing Notes unless (i) it has also
Guaranteed the Obligations pursuant to a Guarantee Agreement, (ii) such
Guarantee of the Senior Subordinated Notes, the Senior Subordinated
Exchange Notes or the Refinancing Notes, as the case may be, is
subordinated to such Guarantee of the Obligations on terms no less
favorable to the Lenders than the subordination provisions of the Senior
Subordinated Notes, the Senior Subordinated Exchange Notes or the
Refinancing Notes, as applicable, and (iii) such Guarantee of the Senior
Subordinated Notes, the Senior Subordinated Exchange Notes or the
Refinancing Notes, as the case may be, provides for the release and
termination thereof, without any action of any party, upon (A) the sale
(including through merger or consolidation) of the Capital Stock, or all or
substantially all the assets, of the applicable Guarantor if (x) such sale
is made in compliance with the covenants relating to the sale of assets
under the Senior Subordinated Indenture or the Senior Subordinated Exchange
Indenture or any indenture in respect of any Refinancing Notes, as
applicable, and (y) such Guarantor is released from any Guarantee Agreement
and, if applicable, all Security Documents, to which it is a party or (B)
the applicable Guarantor ceasing to be a Subsidiary as a result of any
foreclosure of any pledge or security interest under any Security Document
or other exercise of remedies in respect thereof if such Guarantor is
released from any Guarantee Agreement and, if applicable, all Security
Documents, to which it is a party;
(p) other Indebtedness of the Parent Borrower and the Subsidiaries in
an aggregate principal amount at any time outstanding not in excess of
$5,000,000 incurred on an unsecured basis for working capital purposes,
provided that no more than $2,000,000 of such Indebtedness shall be
Indebtedness of non-Domestic Subsidiaries or Domestic Subsidiaries that are
not Loan Parties; and
(q) all premium (if any), interest (including post-petition interest),
fees, expenses, indemnities, charges and
<PAGE>
162
additional or contingent interest on obligations described in clauses (a)
through (p) above.
Notwithstanding anything to the contrary in this Agreement or any other Loan
Document, no Refinancing Notes shall be issued (and no Indebtedness shall be
incurred under the Refinancing Note Indenture) unless: (a) concurrently with the
issuance of any Refinancing Notes, Senior Subordinated Exchange Notes or Senior
Subordinated Notes in a principal amount equal to the principal amount of such
Refinancing Notes (less any amount issued pursuant to clause (ii)(B) of
paragraph (c) above) shall have been redeemed (or called for redemption, so long
as the redemption price has been indefeasibly deposited with the trustee in
respect of such Senior Subordinated Notes or Senior Subordinated Exchange Notes
(the "Trustee")) and canceled upon delivery to the Trustee, at a price not in
excess of 100% of the principal amount thereof (plus interest accrued to the
date of redemption and not paid in cash and plus any portion of any premium in
respect of such redemption to the extent paid with the proceeds of the issuance
of Capital Stock of the Parent Borrower (to the extent not previously used to
prepay Indebtedness (other than Revolving Credit Loans or Swingline Loans), make
any Investment or Capital Expenditure or otherwise for any purpose resulting in
a deduction to Excess Cash Flow in any fiscal year) issued after the Closing
Date), (b) the terms of the Refinancing Notes and the Refinancing Note Indenture
(other than the interest rate, the interest payment dates and any redemption
premiums, which shall be determined at the time of issuance of the Refinancing
Notes) shall be reasonably satisfactory to the Required Lenders (provided,
however, that such terms of the Refinancing Notes and the Refinancing Note
Indenture shall be deemed to be satisfactory to the Required Lenders if the
Refinancing Notes are issued with substantially the same terms as the Senior
Subordinated Exchange Notes or Senior Subordinated Notes that are being
refinanced (other than any changes thereto that are not adverse in any respect
to the interests of the Lenders)), (c) the interest rate of the Refinancing
Notes shall be a fixed, non-increasing interest rate per annum not in excess of
the rate payable in respect of the Senior Subordinated Notes or the Senior
Subordinated Exchange Notes, as applicable, payable on a principal amount of the
Refinancing Notes not in excess of the gross proceeds of the sale thereof and
interest on the Refinancing Notes shall be payable semiannually and (d) the
Refinancing Notes shall mature not earlier than the maturity date
<PAGE>
163
of the Senior Subordinated Notes or the Senior Subordinated Exchange Notes, as
applicable.
SECTION 6.02. Liens. Create, incur, assume or permit to exist any Lien on
any property or assets (including stock or other securities of any person,
including any Subsidiary) at the time owned by it or on any income or revenues
or rights in respect of any thereof, or sell or transfer any account receivable
or any right in respect thereof, except:
(a) Liens on property or assets of the Parent Borrower and the
Subsidiaries existing on the date hereof and set forth in Schedule 6.02
(including Liens disclosed by title insurance policies delivered pursuant
to Section 4.02), provided that such Liens shall secure only those
obligations which they secure on the date hereof (and extensions, renewals
and refinancings of such obligations permitted by Section 6.01(a)) and
shall not subsequently apply to any other property or assets of the Parent
Borrower or any Subsidiary (other than pursuant to existing
after-acquired-property clauses specifically described and set forth in
Schedule 6.02);
(b) any Lien created under the Loan Documents or permitted in respect
of any Mortgaged Property by the terms of the applicable Mortgage;
(c) any Lien existing on any property or asset of the Parent Borrower
or any Subsidiary prior to the acquisition thereof by the Parent Borrower
or any Subsidiary, provided that (i) such Lien is not created in
contemplation of or in connection with such acquisition and (ii) such Lien
does not apply to any other property or asset of the Parent Borrower or any
Subsidiary;
(d) any Lien on any property or asset of a Subsidiary securing
Indebtedness permitted by Section 6.01(k), provided that such Lien does not
apply to any other property or assets of the Parent Borrower or any
Subsidiary not securing such Indebtedness at the date of acquisition of
such property or asset (other than after acquired property of such
Subsidiary subjected to a Lien securing Indebtedness incurred prior to such
date and permitted hereunder which
<PAGE>
164
contains a requirement for the pledging of after acquired property and as
provided in clause (v) below);
(e) Liens for taxes, assessments or other governmental charges or
levies not yet delinquent, or which are for less than $1,000,000 in the
aggregate, or which are being contested in compliance with Section 5.03 or
for property taxes on property that the Parent Borrower or one of the
Subsidiaries has determined to abandon if the sole recourse for such tax,
assessment, charge, levy or claim is to such property;
(f) carriers', warehousemen's, mechanics', materialmen's, landlords',
repairmen's or other like Liens arising in the ordinary course of business
and securing obligations that are not due and payable or that are being
contested in good faith by appropriate proceedings and in respect of which,
if applicable, the Parent Borrower or the relevant Subsidiary shall have
set aside on its books reserves in accordance with GAAP;
(g) pledges and deposits made in the ordinary course of business in
compliance with the Federal Employers Liability Act or any other workmen's
compensation, unemployment insurance and other social security laws or
regulations and deposits securing liability to insurance carriers under
insurance or self-insurance arrangements in respect of such obligations;
(h) deposits to secure the performance of bids, trade contracts (other
than for Indebtedness), leases (other than leases constituting Indebtedness
or in respect of which the lessee claims the benefits of ownership for
federal income tax purposes), statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business, including those incurred to secure health,
safety and environmental obligations in the ordinary course of business;
(i) zoning restrictions, easements, trackage rights, leases (other
than leases constituting Indebtedness or in respect of which the lessee
claims the benefits of ownership for federal income tax purposes),
licenses, special
<PAGE>
165
assessments, rights-of-way, restrictions on use of real property and other
similar encumbrances incurred in the ordinary course of business which, in
the aggregate, are not substantial in amount and do not materially detract
from the value of the property subject thereto or interfere with the
ordinary conduct of the business of the Parent Borrower or any of the
Subsidiaries;
(j) purchase money security interests in real property and
improvements thereto, equipment and improvements thereto or licenses
hereafter acquired (or, in the case of improvements, constructed or
installed) by the Parent Borrower or any Subsidiary (including the
interests of vendors and lessors under conditional sale and title retention
agreements and capital leases), provided that (i) such security interests
secure Indebtedness permitted by Section 6.01, (ii) such security interests
are incurred, and the Indebtedness secured thereby is created, within 270
days after such acquisition (or construction or installation), (iii) the
Indebtedness secured thereby does not exceed 100% of the cost of such real
property, equipment, improvements or licenses at the time of such
acquisition (or construction or installation), including transaction,
engineering, design, construction, installation and related costs incurred
by the Parent Borrower or any Subsidiary in connection with such
acquisition, construction, improvement or installation, as the case may be,
(iv) such expenditures are permitted by this Agreement and (v) such
security interests do not apply to any other property or assets of the
Parent Borrower or any Subsidiary (other than to accessions to such real
property, improvements or equipment and provided that individual financings
of equipment provided by a single lender may be cross-collateralized to
other financings of equipment provided solely by such lender);
(k) Liens securing reimbursement obligations in respect of
trade-related letters of credit permitted under Section 6.01 and covering
the goods (or the documents of title in respect of such goods) financed by
such letters of credit;
(l) Liens arising out of capitalized or operating lease transactions
permitted under Section 6.03, so long as such
<PAGE>
166
Liens (i) attach only to the property sold in such transaction and any
accessions thereto and (ii) could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect;
(m) Liens consisting of interests of lessors under capital leases
permitted by Section 6.01;
(n) Liens securing judgments for the payment of money in an aggregate
amount not in excess of $1,000,000 (except to the extent covered by
insurance), unless such judgments shall remain undischarged for a period of
more than 30 consecutive days during which execution shall not be
effectively stayed;
(o) any leases or subleases to other persons of properties or assets
owned or leased by the Parent Borrower or a Subsidiary;
(p) Liens that are contractual rights of setoff (i) relating to the
establishment of depository relations with banks not given in connection
with the issuance of Indebtedness or (ii) pertaining to pooled deposit
and/or sweep accounts of the Parent Borrower and/or any Subsidiary to
permit satisfaction of overdraft or similar obligations incurred in the
ordinary course of business of the Parent Borrower and the Subsidiaries;
(q) any Lien arising by operation of law pursuant to Section 107(l) of
the Comprehensive Environmental Response, Compensation and Liability Act,
41 U.S.C. ss. 9607(l), or pursuant to analogous state law, for costs or
damages which are not yet due (by virtue of a written demand for payment by
a Governmental Authority) or which are being contested in compliance with
the standard set forth in Section 5.03(a), or on property that the Parent
Borrower or a Subsidiary has determined to abandon if the sole recourse for
such costs or damages is to such property, provided that the liability of
the Parent Borrower and the Subsidiaries with respect to the matters giving
rise to all such Liens shall not, in the reasonable estimate of the Parent
Borrower (in light of all attendant circumstances, including the likelihood
of contribution by third parties), exceed $1,000,000;
<PAGE>
167
(r) other Liens with respect to property or assets of the Parent
Borrower and the Domestic Subsidiaries (other than UK Newco) not
constituting collateral for the Obligations with an aggregate fair market
value (valued at the time of the creation thereof) of not more than
$2,000,000 at any time;
(s) the sale of accounts receivable in connection with collection in
the ordinary course of business;
(t) Liens of landlords or mortgagees of landlords arising by operation
of law or under customary provisions of contracts entered into in the
ordinary course of business, provided that the rental payments secured
thereby are not yet due and payable;
(u) construction liens arising in the ordinary course of business,
including liens for work performed for which payment has not been made,
securing obligations that are not due and payable or are being contested in
good faith by appropriate proceedings and in respect of which, if
applicable, the Parent Borrower or the relevant Subsidiary shall have set
aside on its books reserves in accordance with GAAP;
(v) Liens on proceeds and products and (to the extent constituting a
trade-in, substitution or casualty replacement) replacements of, chattel
paper and other evidences of ownership of, and accessions to, and general
intangibles directly relating to, property to the extent they relate to
Liens on such property that are permitted by any other provision of this
Section 6.02; and
(w) the replacement, extension or renewal of any Lien permitted by
clause (c), (d) or (j) above, provided that such replacement, extension or
renewal Lien shall not cover any property other than the property that was
subject to such Lien prior to such replacement, extension or renewal; and
provided further that the Indebtedness and other obligations secured by
such replacement, extension or renewal Lien are permitted by this
Agreement.
SECTION 6.03. Sale and Lease-Back Transactions. Enter into any arrangement,
directly or indirectly, with any person
<PAGE>
168
whereby it shall sell or transfer any property, real or personal, used or useful
in its business, whether now owned or hereafter acquired, and thereafter rent or
lease such property or other property which it intends to use for substantially
the same purpose or purposes as the property being sold or transferred (a "Sale
and Lease-Back Transaction"), other than any Sale and Lease-Back Transaction
that involves a sale by the Parent Borrower or a Subsidiary solely for cash
consideration on terms not less favorable than would prevail in an arm's-length
transaction and which (a) results in a Capital Lease Obligation or an operating
lease, in either case entered into to finance a Capital Expenditure permitted by
Section 6.10 consisting of the initial acquisition by the Parent Borrower or
such Subsidiary of the property sold or transferred in such Sale and Lease-Back
Transaction, provided that such Sale and Lease-Back Transaction occurs within
270 days after such acquisition or (b) results in a Capital Lease Obligation or
an operating lease entered into for any other purpose, provided that the
proceeds of any such Sale and Lease-Back Transaction in reliance upon this
clause (b) shall be deemed subject to Section 2.12(d), provided further that
none of the Parent Borrower or any Subsidiary shall enter into any Sale and
Leaseback Transaction pursuant to clause (a) or (b) of this Section 6.03 if the
proceeds of such Sale and Leaseback Transaction, when aggregated with the
proceeds of each other Sale and Leaseback Transaction previously consummated
pursuant to this Section 6.03, would exceed $10,000,000.
SECTION 6.04. Investments, Loans and Advances. Purchase, hold or acquire
any capital stock, evidences of indebtedness or other securities of, make or
permit to exist any loans or advances to, or make or permit to exist any
investment or any other interest in, any other person (all of the foregoing,
collectively, "Investments"), except:
(a) Investments (i) existing on the date hereof in the capital stock
of the Subsidiaries after giving effect to all the Transactions; (ii) by
the Parent Borrower or any Subsidiary in any Wholly Owned Subsidiary (other
than UK Newco, unless all of such Investment shall be used by UK Newco on
or before the second Business Day following the making thereof to make a
Permitted Foreign Transfer) that is a Domestic Subsidiary Guarantor (so
long as such Domestic Subsidiary Guarantor shall remain a Wholly Owned
Subsidiary and a Domestic Subsidiary Guarantor after giving effect to
<PAGE>
169
such Investment); (iii) by any Wholly Owned Subsidiary (other than UK
Newco) in any Wholly Owned Subsidiary that is a Domestic Subsidiary
Guarantor; (iv) by any Subsidiary that is not a Domestic Subsidiary
Guarantor in any Wholly Owned Subsidiary that is not a Domestic Subsidiary
Guarantor (so long as (A) such second Subsidiary shall remain a Wholly
Owned Subsidiary after giving effect to such Investment and (B) if the
Subsidiary that is making such Investment is a Loan Party organized under
the laws of the United Kingdom or Canada, the Subsidiary in which such
investment is being made must be a Loan Party organized under the laws of
the same jurisdiction); or (v) that constitute Permitted Foreign Transfers;
(b) Permitted Investments and Investments that were Permitted
Investments when made;
(c) Investments arising out of the receipt by the Parent Borrower or
any Subsidiary of noncash consideration for the sale of assets permitted
under Section 6.05, provided that such consideration (if the stated amount
or value thereof is in excess of $1,000,000) is pledged upon receipt
pursuant to the Pledge Agreement to the extent required thereby (unless
such pledge would, in the reasonable judgment of the senior management of
the Parent Borrower, result in a material tax or other material economic or
legal disadvantage to the Parent Borrower or any Subsidiary);
(d) intercompany loans permitted to be incurred as Indebtedness under
Section 6.01;
(e) (i) loans and advances to employees of the Parent Borrower or the
Subsidiaries not to exceed $5,000,000 in the aggregate at any time
outstanding and (ii) advances of payroll payments and expenses to employees
in the ordinary course of business;
(f) (i) accounts receivable arising and trade credit granted in the
ordinary course of business and any securities received in satisfaction or
partial satisfaction thereof from financially troubled account debtors to
the extent reasonably necessary in order to prevent or limit loss and (ii)
prepayments and other credits to suppliers
<PAGE>
170
made in the ordinary course of business consistent with the past practices
of the businesses of the Parent Borrower and the Subsidiaries;
(g) Interest/Exchange Rate Protection Agreements permitted pursuant to
Section 6.01(e);
(h) Investments, other than investments listed in paragraphs (a)
through (g) of this Section, existing on the Closing Date and set forth on
Schedule 6.04;
(i) Investments resulting from pledges and deposits referred to in
Section 6.02(g), (h) or (p);
(j) Investments constituting Permitted Business Acquisitions in an
aggregate amount, which shall be deemed to include the principal amount of
Indebtedness that is assumed pursuant to Section 6.01 in connection with
such Permitted Business Acquisitions, not to exceed $10,000,000 (net of any
return representing return on capital in respect of any such Investment and
valued at the time of the making thereof);
(k) Investments in Permitted Business Acquisitions to the extent made
with proceeds of the issuance of Capital Stock of the Parent Borrower (to
the extent not previously used to prepay Indebtedness (other than Revolving
Credit Loans or Swingline Loans), make any Investment or Capital
Expenditure or otherwise for any purpose resulting in a deduction to Excess
Cash Flow in any fiscal year) issued after the Closing Date; and
(l) other Investments in an aggregate amount not to exceed $5,000,000
plus, the sum of the amounts with respect to each fiscal year of the Parent
Borrower ending after the Closing Date equal to the portion of Excess Cash
Flow for each such fiscal year not required to be applied to prepay Term
Loans pursuant to Section 2.12(d) (to the extent not previously used to
prepay Indebtedness (other than Revolving Credit Loans or Swingline Loans),
make any Investment or Capital Expenditure or otherwise for any purpose
resulting in a deduction to Excess Cash Flow in any fiscal year) (net of
any return representing return on capital in respect of
<PAGE>
171
any such Investment and valued at the time of the making thereof).
SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions.
Merge into or consolidate with any other person, or permit any other person to
merge into or consolidate with it, or sell, transfer, lease or otherwise dispose
of (in one transaction or in a series of transactions) all or any substantial
part of its assets (whether now owned or hereafter acquired), or any Capital
Stock of any Subsidiary, or purchase, lease or otherwise acquire (in one
transaction or a series of transactions) all or any substantial part of the
assets of any other person, except that this Section shall not prohibit:
(a) the purchase and sale of inventory in the ordinary course of
business (including rotations and buy-outs of competitor inventory) by the
Parent Borrower or any Subsidiary or the acquisition of any asset of any
person in the ordinary course of business;
(b) if at the time thereof and immediately after giving effect thereto
no Event of Default or Default shall have occurred and be continuing (i)
the merger of any Subsidiary (other than UK Newco) into the Parent Borrower
in a transaction in which the Parent Borrower is the surviving corporation
and (ii) the merger or consolidation of any Subsidiary (other than UK
Newco) into or with any other Wholly Owned Subsidiary (other than UK Newco)
in a transaction in which the surviving entity is a Wholly Owned Subsidiary
(which shall be a Domestic Subsidiary if the non-surviving person shall be
a Domestic Subsidiary) and, (A) in the case of each of clauses (i) and
(ii), no person other than the Parent Borrower or a Wholly Owned Subsidiary
receives any consideration and (B) in the case of clause (ii), if any
non-surviving person was (x) a Domestic Subsidiary Guarantor the surviving
person must be a Domestic Subsidiary Guarantor, (y) a U.K. Subsidiary
Guarantor the surviving person must be the U.K. Borrower or a U.K.
Subsidiary Guarantor or (z) a Canadian Subsidiary Guarantor the surviving
person must be the Canadian Borrower or a Canadian Subsidiary Guarantor;
(c) Sale and Lease-Back Transactions permitted by Section 6.03;
<PAGE>
172
(d) Investments permitted by Section 6.04;
(e) subject to Section 6.07, sales, leases or transfers (i) from the
Parent Borrower or any Subsidiary to the Parent Borrower or to a Domestic
Wholly Owned Subsidiary (other than UK Newco), (ii) from any non-Domestic
Subsidiary to any non-Domestic Wholly Owned Subsidiary or to the Parent
Borrower so long as, if the Subsidiary that is making such sale, lease or
other transfer is a Loan Party organized under the laws of the United
Kingdom or Canada, any Subsidiary to which such sale, lease or other
transfer is being made is a Loan Party organized under the laws of the same
jurisdiction or (iii) constituting Permitted Foreign Transfers;
(f) sales, leases or other dispositions of equipment or real or
personal property (other than inventory) of the Parent Borrower or the
Subsidiaries determined by the Board of Directors or senior management of
the Parent Borrower to be no longer useful or necessary in the operation of
the business of the Parent Borrower or the Subsidiaries, provided that the
Net Proceeds thereof shall be applied in accordance with Section 2.12(c);
(g) sales, leases or other dispositions of inventory of the Parent
Borrower and the Subsidiaries not made in the ordinary course of business
determined by the Board of Directors or senior management of the Parent
Borrower to be no longer useful or necessary in the operation of the
business of the Parent Borrower and the Subsidiaries, provided that the Net
Proceeds thereof shall be applied in accordance with Section 2.12(c);
(h) the sale by the Parent Borrower of all the Capital Stock or all or
substantially all the assets of Vernon for consideration equal to the fair
market value of such Capital Stock or assets (as determined in good faith
by the Board of Directors of the Parent Borrower) at least 85% of which is
in cash, provided that, prior to or substantially simultaneously with such
sale, the Vernon Note shall have been paid in full without giving effect to
any amendment to the terms thereof adverse to the Lenders;
<PAGE>
173
(i) sales, leases or other dispositions of property having a net book
value not in excess of $1,000,000 in any fiscal year, provided that the Net
Proceeds thereof are applied in accordance with Section 2.12(c) or are used
within one year of the date of receipt thereof to purchase assets useful in
the business of the Parent Borrower and the Subsidiaries, and provided
further that no sale may be made of the Capital Stock of any Subsidiary
except in connection with the sale of all its outstanding Capital Stock
that is held by the Parent Borrower and any other Subsidiary;
(j) the sale of any Capital Stock of any Subsidiary in which less than
90% of the Capital Stock is owned by the Parent Borrower or a Domestic
Wholly Owned Subsidiary (other than UK Newco) and that was acquired
pursuant to Section 6.04(l);
(k) Capital Asset Exchanges; and
(l) Capital Expenditures permitted under Section 6.10.
SECTION 6.06. Dividends and Distributions. Declare or pay, directly or
indirectly, any dividend or make any other distribution (by reduction of capital
or otherwise), whether in cash, property, securities or a combination thereof,
with respect to any shares of its Capital Stock (other than dividends and
distributions on the common stock of the Parent Borrower payable solely by the
issuance of additional shares of common stock of the Parent Borrower) or
directly or indirectly redeem, purchase, retire or otherwise acquire for value
(or permit any Subsidiary to purchase or acquire) any shares of any class of its
Capital Stock or set aside any amount for any such purpose; provided, however,
that:
(a) any Subsidiary may declare and pay dividends to, repurchase its
Capital Stock from or make other distributions to the Parent Borrower or to
any Wholly Owned Subsidiary (or, in the case of non-Wholly Owned
Subsidiaries, to the Parent Borrower or any Subsidiary and to each other
owner of Capital Stock of such Subsidiary on a pro rata basis (or more
favorable basis from the perspective of the Parent Borrower or such
Subsidiary) based on their relative ownership interests); and
<PAGE>
174
(b) the Parent Borrower may declare and pay dividends to Holdings or
make other distributions to Holdings in respect of overhead, tax
liabilities, legal, accounting and other professional fees and expenses and
other fees and expenses in connection with the maintenance of its existence
and its ownership of the Parent Borrower;
(c) the Parent Borrower may purchase or redeem shares of Capital Stock
of the Parent Borrower (including related stock appreciation rights or
similar securities) held by present or former officers or employees of the
Parent Borrower or any Subsidiary or by any Plan upon such person's death,
disability, retirement or termination of employment or under the terms of
any such Plan or any other agreement under which such shares of stock or
related rights were issued, provided that the aggregate amount of such
purchases or redemptions under this paragraph (c) shall not exceed in any
calendar year $5,000,000, which, if not used in any year, may be carried
forward to any subsequent calendar year; provided, however, that the
aggregate amount of such purchases or redemptions that may be made pursuant
to this paragraph (c) shall not exceed $10,000,000 (plus the amount of net
proceeds received by the Parent Borrower after the date of this Agreement
from Employee Equity Sales).
SECTION 6.07. Transactions with Affiliates. (a) Sell or transfer any
property or assets to, or purchase or acquire any property or assets from, or
otherwise engage in any other transaction with, any of its Affiliates or any
known direct or indirect holder of 10% or more of any class of Capital Stock of
the Parent Borrower, unless such transaction is (i) otherwise permitted under
this Agreement and (ii) upon terms no less favorable to the Parent Borrower or
such Subsidiary, as the case may be, than it would obtain in a comparable
arm's-length transaction with a person which was not an Affiliate, provided that
the foregoing restriction shall not apply to (A) the payment to the Fund or any
of its Affiliates of the monitoring and management fees referred to in paragraph
(c) below or fees payable on the Closing Date, (B) the indemnification of
directors of the Parent Borrower and the Subsidiaries in accordance with
customary practice or (C) the transactions contemplated by the Borden Master
Customer Services Agreement between Borden and the Parent Borrower dated as of
the Closing Date.
<PAGE>
175
(b) The foregoing paragraph (a) shall not prohibit, to the extent otherwise
permitted under this Agreement, (i) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors of the Parent Borrower, (ii) loans or
advances to employees of the Parent Borrower or any Subsidiary in accordance
with Section 6.04(e), (iii) transactions among the Parent Borrower and Wholly
Owned Subsidiaries and transactions among Wholly Owned Subsidiaries otherwise
permitted by this Agreement, (iv) the payment of fees and indemnities to
directors, officers and employees of the Parent Borrower and the Subsidiaries in
the ordinary course of business, (v) transactions pursuant to permitted
agreements in existence on the Closing Date and set forth on Schedule 6.07, (vi)
any employment agreements entered into by the Parent Borrower or any of the
Subsidiaries in the ordinary course of business, (vii) dividends and repurchases
permitted under Section 6.06 and (viii) any purchase by the Investors of Capital
Stock of Holdings or any purchase by Holdings of Capital Stock of the Parent
Borrower or any contribution by Holdings to the equity capital of the Parent
Borrower, provided that any Capital Stock of the Parent Borrower purchased by
Holdings shall be pledged to the Collateral Agent on behalf of the Lenders
pursuant to the Pledge Agreement.
(c) Make any payment of or on account of monitoring or management fees
payable to the Fund or its Affiliates if a Default or Event of Default shall
have occurred and be continuing or would result therefrom, provided that the
aggregate amount of monitoring and management fees paid or payable to the Fund
and its Affiliates in any fiscal year shall not exceed $1,500,000 for 1998 and
for any subsequent year an amount equal to 105% of the maximum allowable
aggregate monitoring and management fee for the immediately preceding year,
provided that in the event that the maximum amount allowable for such monitoring
and management fee is not paid in any such year (the "Fee Shortfall") the
maximum amount allowable for such monitoring and management fee shall be an
amount equal to 105% of the maximum allowable aggregate monitoring and
management fee for the immediately preceding year plus the Fee Shortfall.
SECTION 6.08. Business of the Parent Borrower and the Subsidiaries. Engage
at any time in any business or business activity other than (a) in the case of
the Parent Borrower and
<PAGE>
176
the Subsidiaries, any business or business activity conducted by it on the date
hereof and any business or business activities incidental or related thereto and
(b) in the case of UK Newco, (i) the ownership of the capital stock of its
subsidiaries, (ii) the making of Permitted Foreign Transfers, (iii) the
performance of its obligations under and in connection with the Loan Documents
and any guarantee of the Senior Subordinated Notes, the Senior Subordinated
Exchange Notes or the Refinancing Notes permitted by this Agreement and (iv)
actions required by law to maintain its status as a corporation.
SECTION 6.09. Subordinated Indebtedness and Other Material Agreements. (a)
Amend or modify, or grant any waiver or release under, any instruments,
agreements or documents evidencing or related to the Senior Subordinated Notes,
the Senior Subordinated Exchange Notes or the Refinancing Notes in any manner
adverse to the Lenders.
(b) (i) Directly or indirectly make any payment, retirement, repurchase or
redemption on account of the principal of the Senior Subordinated Notes, the
Senior Subordinated Exchange Notes or the Refinancing Notes or directly or
indirectly prepay or defease any such Indebtedness prior to the stated maturity
date of such Indebtedness, (ii) make any payment or prepayment of any such
Indebtedness that would violate the terms of this Agreement or of such
Indebtedness, any agreement or document evidencing, related to or securing the
payment or performance of such Indebtedness or any subordination agreement or
provision applicable to such Indebtedness or (iii) pay in cash any amount in
respect of such Indebtedness that may at the Parent Borrower's option be paid in
kind thereunder; provided, however, that (a) the Senior Subordinated Exchange
Notes may be issued in exchange for, and satisfaction of, Senior Subordinated
Notes and (B) the proceeds of the Refinancing Notes may be applied to repay or
prepay Senior Subordinated Exchange Notes or Senior Subordinated Notes.
(c) Amend or modify in any manner adverse to the Lenders, or grant any
waiver or release under or terminate in any manner (if such action shall be
materially adverse to the Lenders), the certificate of incorporation, the
certificate of formation, any operating agreement or the bylaws of the Parent
Borrower or any Subsidiary or the Recapitalization Agreement or the Acquisition
Agreement.
<PAGE>
177
(d) Permit any Subsidiary to enter into any agreement or instrument which
by its terms restricts the payment of dividends or the making of cash advances
by such Subsidiary to the Parent Borrower or any Subsidiary that is a direct or
indirect parent of such Subsidiary other than those in effect on the Closing
Date and set forth on Schedule 6.09 (or replacements of such agreements on terms
no less favorable to the Lenders) and those arising under any Loan Document.
SECTION 6.10. Capital Expenditures. Permit the aggregate amount of Capital
Expenditures made by the Parent Borrower and the Subsidiaries in any fiscal year
to exceed the sum of (a) the amount set forth below as the "Base Amount" for
such fiscal year, (b) an amount equal to the lesser of (i) the total amount of
unused permitted Capital Expenditures for the immediately preceding year
(including the amount of any unused Capital Expenditures carried forward to such
preceding year pursuant to this proviso) and (ii) the Base Amount for the
immediately preceding year, and (c) the portion of the Excess Vernon Proceeds
not theretofore applied (i) to prepay Term Borrowings pursuant to Section
2.12(c) or (e), (ii) to make Capital Expenditures pursuant to this Section 6.10
or (iii) otherwise for any purpose resulting in a deduction to Excess Cash Flow
in any fiscal year, provided, that, in the event the Parent Borrower effects
Gallery Concept Roll-outs after the Closing Date with respect to any stores, in
addition to the Capital Expenditures permitted pursuant to clauses (a), (b) and
(c) above, the Parent Borrower and the Subsidiaries shall be permitted to make
Capital Expenditures with respect to the Gallery Concept Roll-out in each such
store in an amount equal to $40,000, provided, further, that, during the term of
this Agreement, the aggregate increase in the amount of permitted Capital
Expenditures pursuant to this proviso shall not exceed $10,000,000 for all
stores.
Fiscal Year Base Amount
1998 55
1999 45
2000 and thereafter 25
<PAGE>
178
SECTION 6.11. Interest Coverage Ratio. Permit the ratio (the "Interest
Coverage Ratio") as of (a) September 30, 1998, for the two quarter period ended
as of such date of (i) Adjusted EBITDA of the Parent Borrower and the
Subsidiaries to (ii) Cash Interest Expense to be less than 1.60 to 1.00, (b)
December 31, 1998, for the three quarter period ended as of such date of (i)
Adjusted EBITDA of the Parent Borrower and the Subsidiaries to (ii) Cash
Interest Expense to be less than 1.60 to 1.00 or (c) the last day of any fiscal
quarter, which last day occurs in any period set forth below, for the four
quarter period ended as of such day of (a) Adjusted EBITDA of the Parent
Borrower and the Subsidiaries to (b) Cash Interest Expense to be less than the
ratio set forth below for such period:
Period: Ratio:
March 31, 1999, to March 31, 2000 1.70 to 1.00
June 30, 2000, to September 30, 2000 1.85 to 1.00
December 31, 2000, to September 30, 2002 2.00 to 1.00
December 31, 2002, to September 30, 2003 2.50 to 1.00
December 31, 2003, to September 30, 2004 3.00 to 1.00
December 31, 2004, to September 30, 2005 3.25 to 1.00
December 31, 2005 and thereafter 3.75 to 1.00
SECTION 6.12. Adjusted Net Leverage Ratio. Permit the Adjusted Net Leverage
Ratio as of the last day of December 31, 1998 (calculating Adjusted EBITDA, for
this purpose only, by adding (a) the product of (i) Adjusted EBITDA for the
three quarter period ended on such date, without giving effect to the synergy
addback allowances set forth for such period on Schedule B, and (ii) 4/3 and (b)
the synergy addback allowances set forth for the four quarter period ended
December 31, 1998, on Schedule B) to be in excess of 6.75 to 1.00 or permit the
Adjusted Net Leverage Ratio as of the last day of any fiscal quarter, which last
day occurs in any period or on any date set forth below, to be in excess of the
ratio set forth below for such period or date:
<PAGE>
179
Period: Ratio:
March 31, 1999 6.75 to 1.00
June 30, 1999, to March 31, 2000 6.50 to 1.00
June 30, 2000, to September 30, 2000 6.00 to 1.00
December 31, 2000, to March 31, 2001 5.50 to 1.00
June 30, 2001, to March 31, 2002 4.75 to 1.00
June 30, 2002, to March 31, 2003 4.25 to 1.00
June 30, 2003, to March 31, 2004 3.75 to 1.00
June 30, 2004, and thereafter 3.25 to 1.00
SECTION 6.13. Capital Stock of the Subsidiaries. Sell, transfer, lease or
otherwise dispose of, or make subject to any subscription, option, warrant,
call, right or other agreement or commitment of any nature, the Capital Stock of
any Subsidiary, other than (a) pursuant to the Loan Documents or pursuant to a
transaction permitted pursuant to Section 6.05 and subject to Section 2.12(c)
and (b) directors' qualifying shares.
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening of any of the following events ("Events of
Default"):
(a) any representation or warranty made or deemed made by Holdings,
the Parent Borrower or any Loan Party in any Loan Document, or any
representation, warranty, statement or information contained in any report,
certificate, financial statement or other instrument furnished in
connection with or pursuant to any Loan Document, shall prove to have been
false or misleading in any material respect when so made, deemed made or
furnished by the Parent Borrower or any other Loan Party;
(b) default shall be made in the payment in the applicable currency of
any principal of any Loan or the reimbursement with respect to any L/C
Disbursement when and
<PAGE>
180
as the same shall become due and payable, whether at the due date thereof
or at a date fixed for prepayment thereof or by acceleration thereof or
otherwise;
(c) default shall be made in the payment of any interest on any Loan
or on any L/C Disbursement or in the payment of any Fee or any other amount
(other than an amount referred to in (b) above) due under any Loan
Document, when and as the same shall become due and payable, and such
default shall continue unremedied for a period of five Business Days;
(d) default shall be made in the due observance or performance by the
Parent Borrower or any Subsidiary of any covenant, condition or agreement
contained in Section 5.01(a) (with respect to the Parent Borrower), 5.05(a)
or 5.08 or in Article VI;
(e) default shall be made in the due observance or performance by
Holdings, the Parent Borrower or any Subsidiary of any covenant, condition
or agreement contained in any Loan Document (other than those specified in
(b), (c) or (d) above) and such default shall continue unremedied for a
period of 30 days after notice thereof from the U.S. Administrative Agent
or the Required Lenders to the Parent Borrower;
(f) the Parent Borrower or any Subsidiary shall fail to observe or
perform any term, covenant, condition or agreement contained in any
agreement or instrument evidencing or governing any Indebtedness (other
than any Indebtedness under any Loan Document) having an aggregate
principal or notional amount in excess of $3,000,000 if the effect of any
such failure is to cause, or to permit the holder or holders of such
Indebtedness or a trustee on its or their behalf to cause (all requisite
notices having been given and all applicable grace periods having expired),
such Indebtedness to become due prior to its stated maturity, or the Parent
Borrower or any Subsidiary shall fail to pay any principal in respect of
any such Indebtedness at the stated maturity thereof;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent
<PAGE>
181
jurisdiction seeking (i) relief in respect of Holdings, the Parent Borrower
or any Subsidiary, or of a substantial part of the property or assets of
Holdings, the
Parent Borrower or a Subsidiary, under Title 11 of the United States Code, as
now constituted or hereafter amended, or any other Federal, state or foreign
bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
Holdings, the Parent Borrower or any Subsidiary or for a substantial part of the
property or assets of the Parent Borrower or any Subsidiary or (iii) the
winding-up or liquidation of Holdings, the Parent Borrower or any Subsidiary;
and such proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be entered;
(h) Holdings, the Parent Borrower or any Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal, state or foreign bankruptcy, insolvency,
receivership or similar law, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or the filing of
any petition described in (g) above, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for Holdings, the Parent Borrower or any Subsidiary or for
a substantial part of the property or assets of Holdings, the Parent
Borrower or any Subsidiary, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v) make
a general assignment for the benefit of creditors, (vi) become unable,
admit in writing its inability or fail generally to pay its debts as they
become due or (vii) take any action for the purpose of effecting any of the
foregoing;
(i) one or more judgments for the payment of money in an aggregate
amount in excess of $3,000,000 (except to the extent covered by insurance
as to which the insurer has acknowledged in writing its obligation to
cover) shall be rendered against the Parent Borrower, any Subsidiary or any
combination thereof and the same shall remain undischarged for a period of
30 consecutive days during which execution shall not be effectively stayed,
or any action shall be
<PAGE>
182
legally taken by a judgment creditor to levy upon assets or properties of
the Parent Borrower or any Subsidiary to enforce any such judgment;
(j) (i) a Reportable Event or Reportable Events, or a failure to make
a required installment or other payment (within the meaning of Section
412(n)(1) of the Code), shall have occurred with respect to any Plan or
Plans, (ii) a trustee shall be appointed by a United States district court
to administer any Plan or Plans, (iii) the PBGC shall institute proceedings
(including giving notice of intent thereof) to terminate any Plan or Plans,
(iv) the Parent Borrower or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that it has incurred Withdrawal
Liability to such Multiemployer Plan and the Parent Borrower or such ERISA
Affiliate does not have reasonable grounds for contesting such Withdrawal
Liability or is not contesting such Withdrawal Liability in a timely and
appropriate manner, (v) the Parent Borrower or any ERISA Affiliate shall
have been notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or is being terminated, within the
meaning of Title IV of ERISA, (vi) the Parent Borrower or any ERISA
Affiliate shall engage in any "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (vii)
any other similar event or condition shall occur or exist with respect to a
Plan; and in each case in clauses (i) through (vii) above, such event or
condition, together with all other such events or conditions, if any, could
reasonably be expected to have a Material Adverse Effect;
(k) (i) any Loan Document shall for any reason be asserted by
Holdings, the Parent Borrower or any Subsidiary not to be a legal, valid
and binding obligation of any party thereto, (ii) any security interest
purported to be created by any Security Document and to extend to assets
that are not immaterial to Holdings, the Parent Borrower and the
Subsidiaries on a consolidated basis shall cease to be, or shall be
asserted by the Parent Borrower or any other Loan Party not to be, a valid,
perfected, first priority (except as otherwise expressly provided in this
Agreement or such Security Document) security interest in the securities,
assets or properties covered thereby, except to the extent
<PAGE>
183
that any such loss of perfection or priority results from the failure of
the Collateral Agent to maintain possession of certificates representing
securities pledged under the Pledge Agreements or to file UCC continuation
statements and except to the extent that such loss is covered by a lender's
title insurance policy and the related insurer promptly after such loss
shall have acknowledged in writing that such loss is covered by such title
insurance policy and the U.S. Administrative Agent shall be reasonably
satisfied with the credit of such insurer or (iii) the Obligations of the
Parent Borrower or the guarantee by the Domestic Subsidiary Guarantors
thereof pursuant to the Domestic Subsidiary Guarantee Agreement shall cease
to constitute senior indebtedness under the subordination provisions of any
document or instrument evidencing any permitted subordinated Indebtedness
or such subordination provisions shall be invalidated or otherwise cease to
be legal, valid and binding obligations of the parties thereto, enforceable
in accordance with their terms;
(l) there shall have occurred a Change in Control; or
(m) Holdings shall engage at any time in any business or business
activity or incur any Indebtedness (other than intercompany advances to the
Parent Borrower or Indebtedness in respect of liabilities incurred in
connection with the maintenance of its existence) other than (i) the
ownership of Capital Stock of the Parent Borrower, together with activities
directly related thereto, (ii) performance of its obligations under and in
connection with the Pledge Agreement and (iii) actions required by law to
maintain its status as a limited liability company;
then, and in every such event (other than an event with respect to any Borrower
described in paragraph (g) or (h) above), and at any time thereafter during the
continuance of such event, the U.S. Administrative Agent, at the request of the
Required Lenders, shall, by notice to the Parent Borrower, take any or all of
the following actions, at the same or different times: (i) terminate forthwith
the Commitments, (ii) declare the Loans then outstanding to be forthwith due and
payable in whole or in part and (iii) demand cash collateral pursuant to Section
2.20(g), whereupon the principal of the Loans so declared to be due and payable,
together with accrued interest thereon and
<PAGE>
184
any unpaid accrued Fees and all other liabilities of any Borrower accrued
hereunder and under any other Loan Document, shall become forthwith due and
payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived by each Borrower, anything contained
herein or in any other Loan Document to the contrary notwithstanding; and in any
event with respect to any Borrower described in para graph (g) or (h) above, the
Commitments shall automatically terminate, the principal of the Loans then
outstanding, together with accrued interest thereon and any unpaid accrued Fees
and all other liabilities of each Borrower accrued hereunder and under any other
Loan Document, shall automatically become due and payable and the U.S.
Administrative Agent shall be deemed to have made a demand for cash collateral
to the full extent permitted under Section 2.20(g), without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived by each Borrower, anything contained herein or in any other Loan Document
to the contrary notwithstanding.
ARTICLE VIII. THE ADMINISTRATIVE AGENTS AND THE COLLATERAL AGENT
In order to expedite the transactions contemplated by this Agreement, The
Chase Manhattan Bank is hereby appointed to act as U.S. Administrative Agent and
Collateral Agent on behalf of the Term Lenders, the U.S. $ Revolving Credit
Lenders, the U.K. (pound) Revolving Credit Lenders and the Fronting Banks, and
The Chase Manhattan Bank of Canada is hereby appointed to act as Canadian
Administrative Agent on behalf of the C $ Revolving Credit Lenders (for purposes
of this Article VIII, the U.S. Administrative Agent, the Canadian Administrative
Agent and the Collateral Agent are referred to collectively as the "Agents").
Each of the Lenders and each assignee of any such Lender hereby irrevocably
authorizes the Agents to take such actions on behalf of such Lender or assignee
or the Fronting Bank and to exercise such powers as are specifically delegated
to the Agents by the terms and provisions hereof and of the other Loan
Documents, together with such actions and powers as are reasonably incidental
thereto. The U.S. Administrative Agent is hereby expressly authorized by the
Lenders and the Fronting Bank, without hereby limiting any implied authority,
(a) to receive on behalf of the Lenders and the Fronting Bank all payments of
principal of and interest on the Term Loans, U.S. $ Revolving Credit Loans, U.K.
(pound) Revolving Credit Loans and Swingline Loans,
<PAGE>
185
all payments in respect of L/C Disbursements and all other amounts due to the
Lenders and the Fronting Bank hereunder, and promptly to distribute to each
Lender or the Fronting Bank its proper share of each payment so received; (b) to
give notice on behalf of each of the Lenders to the Parent Borrower of any Event
of Default specified in this Agreement of which the U.S. Administrative Agent
has actual knowledge acquired in connection with its agency hereunder; and (c)
to distribute to each Lender copies of all notices, financial statements and
other materials delivered by any Borrower pursuant to this Agreement as received
by the U.S. Administrative Agent. The Canadian Administrative Agent is hereby
expressly authorized by the Lenders, without hereby limiting any implied
authority, (a) to receive on behalf of the C $ Revolving Credit Lenders all
payments of principal of and interest on C $ Revolving Credit Loans and all
other amounts due to the C $ Revolving Credit Lenders hereunder, and promptly
distribute to each such Lender its proper share of each payment so received; (b)
to give notice on behalf of each such Lender to the Parent Borrower or the
Canadian Borrower, as applicable, of any Event of Default specified in this
Agreement of which the Canadian Administrative Agent has actual knowledge
acquired in connection with its agency hereunder; and (c) to distribute to each
such Lender copies of all notices and other materials delivered by any Borrower
pursuant to this Agreement as received by the Canadian Administrative Agent.
Without limiting the generality of the foregoing, the Agents are hereby
expressly authorized to execute any and all documents (including releases) with
respect to the Collateral and the rights of the Secured Parties with respect
thereto, as contemplated by and in accordance with the provisions of this
Agreement and the Security Documents. In the event that any party other than the
Lenders and the Agents shall participate in all or any portion of the Collateral
pursuant to the Security Documents, all rights and remedies in respect of such
Collateral shall be controlled by the Collateral Agent.
The Collateral Agent in its capacity as trustee or otherwise under any Loan
Document (a) shall not be liable for any failure of, omission in or defect in
perfecting or registering the security constituted or created by (i) the U.K.
Borrower Pledge Agreement, (ii) the UK Newco Pledge Agreement, (iii) the U.K.
Subsidiary Guarantee Agreement or (iv) the UK Newco Guarantee Agreement (except
for gross negligence or wilful misconduct), (b) may accept without enquiry such
title as any
<PAGE>
186
Borrower or Subsidiary may have to any assets secured by the U.K. Borrower
Pledge Agreement or the UK Newco Pledge Agreement and (c) is not under any
obligation to hold any Loan Document or the assets secured by the U.K. Borrower
Pledge Agreement or the UK Newco Pledge Agreement (including title deeds) in its
own possession or to take any steps to protect or preserve the same. Except as
otherwise required in any Loan Document, the Collateral Agent may permit any
Borrower or Subsidiary to retain any Loan Document or other document in its
possession.
Neither the Agents nor any of their respective directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his own gross negligence or wilful misconduct, or
be responsible for any statement, warranty or representation herein or the
contents of any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or observance by the
Parent Borrower or any other Loan Party of any of the terms, conditions,
covenants or agreements contained in any Loan Document. The Agents shall not be
responsible to the Lenders for the due execution, genuineness, validity,
enforceability or effectiveness of this Agreement or any other Loan Documents or
other instruments or agreements. The Agents shall in all cases be fully
protected in acting, or refraining from acting, in accordance with written
instructions signed by the Required Lenders and, except as otherwise
specifically provided herein, such instructions and any action or inaction
pursuant thereto shall be binding on all the Lenders. Each Agent shall, in the
absence of knowledge to the contrary, be entitled to rely on any instrument or
document believed by it in good faith to be genuine and correct and to have been
signed or sent by the proper person or persons. Neither the Agents nor any of
their respective directors, officers, employees or agents shall have any
responsibility to the Parent Borrower or any other Loan Party on account of the
failure of or delay in performance or breach by any Lender or the Fronting Bank
of any of its obligations hereunder or to any Lender or the Fronting Bank on
account of the failure of or delay in performance or breach by any other Lender
or the Fronting Bank or the Parent Borrower or any other Loan Party of any of
their respective obligations hereunder or under any other Loan Document or in
connection herewith or therewith. Each of the Agents may execute any and all
duties hereunder by or through agents or employees and shall be entitled to rely
upon the advice of legal counsel selected by
<PAGE>
187
it with respect to all matters arising hereunder and shall not be liable for any
action taken or suffered in good faith by it in accordance with the advice of
such counsel.
The Lenders hereby acknowledge that no Agent shall be under any duty to
take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless it shall be requested in writing to do so by
the Required Lenders. The Lenders further acknowledge and agree that so long as
an Agent shall make any determination to be made by it hereunder or under any
other Loan Document in good faith, such Agent shall have no liability in respect
of such determination to any person.
Subject to the appointment and acceptance of a successor Agent as provided
below, any Agent may resign at any time by notifying the Lenders and the Parent
Borrower. Upon any such resignation, the Required Lenders shall have the right
to appoint a successor with the consent of the Parent Borrower (not to be
unreasonably withheld or delayed), provided that Lenders holding a majority of
the C $ Revolving Credit Commitments shall have the right to appoint a successor
Canadian Administrative Agent. If no successor shall have been so appointed by
the Required Lenders (or the C $ Revolving Credit Lenders, in the case of the
Canadian Administrative Agent) and approved by the Parent Borrower and shall
have accepted such appointment within 30 days after the retiring Agent gives
notice of its resignation, then the retiring Agent may, on behalf of the Lenders
with the consent of the Parent Borrower (not to be unreasonably withheld or
delayed), appoint a successor Agent which shall be a bank with an office in New
York, New York, having a combined capital and surplus of at least $500,000,000
or an Affiliate of any such bank (or in the case of a successor to the Canadian
Administrative Agent, a Canadian bank with an office in Toronto having a
combined capital and surplus of at least $500,000,000). Upon the acceptance of
any appointment as Agent hereunder by a successor bank, such successor shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent and the retiring Agent shall be discharged from its duties
and obligations hereunder. After the Agent's resignation hereunder, the
provisions of this Article and Section 10.5 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
<PAGE>
188
With respect to the Loans made by it hereunder, each Agent in its
individual capacity and not as Agent shall have the same rights and powers as
any other Lender and may exercise the same as though it were not an Agent, and
the Agents and their Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Parent Borrower or any
Subsidiary or other Affiliate thereof as if it were not an Agent.
Each Lender agrees (a) to reimburse the Agents, on demand, in the amount of
its pro rata share (based on its Commit ments hereunder (or if such Commitments
shall have expired or been terminated, in accordance with the respective
principal amounts of its applicable outstanding Loans or participations in L/C
Disbursements, as applicable)) of any reasonable expenses incurred for the
benefit of the Lenders by the Agents, including counsel fees and compensation of
agents and employees paid for services rendered on behalf of the Lenders, which
shall not have been reimbursed by any Borrower and (b) to indemnify and hold
harmless each Agent and any of its directors, officers, employees or agents, on
demand, in the amount of such pro rata share, from and against any and all
liabilities, taxes, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against it in its capacity as Agent
or any of them in any way relating to or arising out of this Agreement or any
other Loan Document or any action taken or omitted by it or any of them under
this Agreement or any other Loan Document, to the extent the same shall not have
been reim bursed by any Borrower, provided that no Lender shall be liable to an
Agent for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the gross negligence or wilful misconduct of such Agent or any of its
directors, officers, employees or agents.
Each Lender acknowledges that it has, independently and without reliance
upon the Agents or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon the Agents or any other Lender and based on such
documents and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this
<PAGE>
189
Agreement or any other Loan Document, any related agreement or any document
furnished hereunder or thereunder.
As soon as practicable after it becomes aware of an Event of Default that
has occurred and is continuing, the U.S. Administrative Agent shall notify each
Lender thereof.
In its capacity as U.S. Administrative Agent hereunder, the U.S.
Administrative Agent will serve as Representative of the Bank Indebtedness under
the Senior Subordinated Indenture and the Senior Subordinated Exchange Indenture
and agrees to notify each Lender of any notice received by it as such
Representative.
ARTICLE IX. COLLECTION ALLOCATION MECHANISM
SECTION 9.01. Implementation of CAM. (a) On the CAM Exchange Date, (i) the
Commitments shall automatically and without further act be terminated as
provided in Article VII and (ii) the Lenders shall automatically and without
further act (and without regard to the provisions of Section 10.04) be deemed to
have exchanged interests in the Credit Facilities such that in lieu of the
interest of each Lender in each Credit Facility in which it shall participate as
of such date (including such Lender's interest in the Designated Obligations of
each Credit Party in respect of each such Credit Facility), such Lender shall
hold an interest in every one of the Credit Facilities (including the Designated
Obligations of each Credit Party in respect of each such Credit Facility and
each L/C Reserve Account established pursuant to Section 9.02 below), whether or
not such Lender shall previously have participated therein, equal to such
Lender's CAM Percentage thereof. Each Lender and each Credit Party hereby
consents and agrees to the CAM Exchange, and each Lender agrees that the CAM
Exchange shall be binding upon its successors and assigns and any person that
acquires a participation in its interests in any Credit Facility. Each Credit
Party agrees from time to time to execute and deliver to the Administrative
Agent all such Notes and other instruments and documents as the Administrative
Agent shall reasonably request to evidence and confirm the respective interests
of the Lenders after giving effect to the CAM Exchange, and each Lender agrees
to surrender any Notes originally received by it in connection with its Loans
hereunder to the Administrative Agent against delivery of new Notes evidencing
its interests in the Credit
<PAGE>
190
Facilities; provided, however, that the failure of any Credit Party to execute
or deliver or of any Lender to accept any such Note, instrument or document
shall not affect the validity or effectiveness of the CAM Exchange.
(b) As a result of the CAM Exchange, upon and after the CAM Exchange Date,
each payment received by the Administrative Agent or the Collateral Agent
pursuant to any Loan Document in respect of the Designated Obligations, and each
distribution made by the Collateral Agent pursuant to any Security Document in
respect of the Designated Obligations, shall be distributed to the Lenders pro
rata in accordance with their respective CAM Percentages. Any direct payment
received by a Lender upon or after the CAM Exchange Date, including by way of
setoff, in respect of a Designated Obligation shall be paid over to the
Administrative Agent for distribution to the Lenders in accordance herewith.
SECTION 9.02. Letters of Credit. (a) In the event that on the CAM Exchange
Date any Letter of Credit shall be outstanding and undrawn in whole or in part,
or any amount drawn under a Letter of Credit shall not have been reimbursed
either by the Parent Borrower or with the proceeds of a U.S. $ Revolving Credit
Borrowing, each U.S. $ Revolving Credit Lender shall promptly pay over to the
Administrative Agent, in immediately available funds, an amount equal to such
U.S. $ Revolving Credit Lender's Applicable Percentage of such undrawn face
amount or (to the extent it has not already done so) such unreimbursed drawing,
as the case may be, together with interest thereon from the CAM Exchange Date to
the date on which such amount shall be paid to the Administrative Agent at the
rate that would be applicable at the time to an ABR Revolving Credit Loan in a
principal amount equal to such amount. The Administrative Agent shall establish
a separate account or accounts for each Lender (each, an "L/C Reserve Account")
for the amounts received with respect to each such Letter of Credit pursuant to
the preceding sentence. The Administrative Agent shall deposit in each Lender's
L/C Reserve Account such Lender's CAM Percentage of the amounts received from
the U.S. $ Revolving Credit Lenders as provided above. The Administrative Agent
shall have sole dominion and control over each L/C Reserve Account, and the
amounts deposited in each L/C Reserve Account shall be held in such L/C Reserve
Account until withdrawn as provided in paragraph (b), (c), (d) or (e) below. The
Administrative Agent shall maintain records enabling
<PAGE>
191
it to determine the amounts paid over to it and deposited in the L/C Reserve
Accounts in respect of each Letter of Credit and the amounts on deposit in
respect of each Letter of Credit attributable to each Lender's CAM Percentage.
The amounts held in each Lender's L/C Reserve Account shall be held as a reserve
against the Revolving L/C Exposures, shall be the property of such Lender, shall
not constitute Loans to or give rise to any claim of or against any Loan Party
and shall not give rise to any obligation on the part of any Borrower to pay
interest to such Lender, it being agreed that the reimbursement obligations in
respect of Letters of Credit shall arise only at such times as drawings are made
thereunder, as provided in Section 2.20.
(b) In the event that after the CAM Exchange Date any drawing shall be made
in respect of a Letter of Credit, the Administrative Agent shall, at the request
of the Fronting Bank, withdraw from the L/C Reserve Account of each Lender any
amounts, up to the amount of such Lender's CAM Percentage of such drawing,
deposited in respect of such Letter of Credit and remaining on deposit and
deliver such amounts to the Fronting Bank in satisfaction of the reimbursement
obligations of the U.S. $ Revolving Credit Lenders under Section 2.20(a)(iv)
(but not of the Parent Borrower under Section 2.20(a)(v)). In the event any U.S.
$ Revolving Credit Lender shall default on its obligation to pay over any amount
to the Administrative Agent in respect of any Letter of Credit as provided in
this Section 9.02, the Fronting Bank shall, in the event of a drawing
thereunder, have a claim against such U.S. $ Revolving Credit Lender to the same
extent as if such Lender had defaulted on its obligations under Section
2.20(a)(iv), but shall have no claim against any other Lender in respect of such
defaulted amount, notwithstanding the exchange of interests in the Parent
Borrower's reimbursement obligations pursuant to Section 9.01. Each other Lender
shall have a claim against such defaulting U.S. $ Revolving Credit Lender for
any damages sustained by it as a result of such default, including, in the event
such Letter of Credit shall expire undrawn, its CAM Percentage of the defaulted
amount.
(c) In the event that after the CAM Exchange Date any Letter of Credit
shall expire undrawn, the Administrative Agent shall withdraw from the L/C
Reserve Account of each Lender the amount remaining on deposit therein in
respect of such Letter of Credit and distribute such amount to such Lender.
<PAGE>
192
(d) With the prior written approval of the Administrative Agent and the
Fronting Bank (not to be unreasonably withheld), any Lender may withdraw the
amount held in its L/C Reserve Account in respect of the undrawn amount of any
Letter of Credit. Any Lender making such a withdrawal shall be unconditionally
obligated, in the event there shall subsequently be a drawing under such Letter
of Credit, to pay over to the Administrative Agent, for the account of the
Fronting Bank, on demand, its CAM Percentage of such drawing.
(e) Pending the withdrawal by any Lender of any amounts from its L/C
Reserve Account as contemplated by the above paragraphs, the Administrative
Agent will, at the direction of such Lender and subject to such rules as the
Administrative Agent may prescribe for the avoidance of inconvenience, invest
such amounts in Permitted Investments (other than Permitted Investments
described in clause (f) of the definition of the term "Permitted Investments").
Each Lender which has not withdrawn its CAM Percentage of amounts in its L/C
Reserve Account as provided in paragraph (d) above shall have the right, at
intervals reasonably specified by the Administrative Agent, to withdraw the
earnings on investments so made by the Administrative Agent with amounts in its
L/C Reserve Account and to retain such earnings for its own account.
SECTION 9.03. Conversion. In the event the CAM Exchange Date shall occur,
Obligations owed by the Loan Parties denominated in any currency other than U.S.
Dollars shall, automatically and with no further act required, be converted to
obligations of the same Loan Parties denominated in U.S. Dollars. Such
conversion shall be effected based upon the Spot Exchange Rates in effect with
respect to the relevant currencies on the CAM Exchange Date. On and after any
such conversion, all amounts accruing and owed to any Lender in respect of its
Obligations shall accrue and be payable in U.S. Dollars at the rates otherwise
applicable hereunder (and, in the case of interest on Loans, at the default rate
applicable to ABR Loans hereunder). Notwithstanding the foregoing provisions of
this Section 9.03, any Lender may, by notice to the Parent Borrower and the
Administrative Agent prior to the CAM Exchange Date, elect not to have the
provisions of this Section 9.03 apply with respect to all Obligations owed to
such Lender immediately following the CAM Exchange Date, and, if such notice is
given, all Obligations owed
<PAGE>
193
to such Lender immediately following the CAM Exchange Date shall remain
designated in their original currencies.
ARTICLE X. MISCELLANEOUS
SECTION 10.01. Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to the Parent Borrower, to it at 23645 Mercantile, Cleveland,
Ohio 44122, Attention of Mr. Keith T. McAslan (Telecopy No. (216)
765-8677), with a copy to The Blackstone Group, 345 Park Avenue, New York,
NY 10154, Attention of Mr. David I. Foley, (Telecopy No. (212) 754- 8707);
(b) if to the U.K. Borrower, to it at 23645 Mercantile, Cleveland,
Ohio 44122, Attention of Mr. Keith T. McAslan, (Telecopy No. (216)
765-8677), with a copy to The Blackstone Group, 345 Park Avenue, New York,
NY 10154, Attention of Mr. David I. Foley, (Telecopy No. (212) 754-8707);
(c) if to the Canadian Borrower, to it at 23645 Mercantile, Cleveland,
Ohio 44122, Attention of Mr. Keith T. McAlsan (Telecopy No. (216)
765-8677), with a copy to The Blackstone Group, 345 Park Avenue, New York,
NY 10154, Attention of Mr. David I. Foley, (Telecopy No. (212) 754- 8707);
(d) if to the U.S. Administrative Agent, to The Chase Manhattan Bank,
Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New
York, New York 10081, Attention of Ms. Maggie Swales (Telecopy No. (212)
270-5662), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New
York, New York 10017, Attention of Mr. Neil Boylan (Telecopy No. (212)
972-0009);
(e) if to the Canadian Administrative Agent, to The Chase Manhattan
Bank of Canada, 1 First Canadian Place, 100 King Street West, Suite 6900,
Toronto, Canada M5X 1A4, Attention of Ms. Christine Chan and Mr. Charles
Ritchie
<PAGE>
194
(Telecopy No. (416) 216-4161), with a copy to Ms. Amanda Staff and Ms.
Martha Tamayo (Telecopy No. (416) 216-4161);
(f) if to the Fronting Bank to it at 120 North Market Street,
Wilmington, Delaware 19801, Attention of Michael P. Handago (Telecopy No.
(302) 428-3390); and
(g) if to a Lender, to it at its address (or telecopy number) set
forth in the Administrative Questionnaire delivered to the U.S.
Administrative Agent by such Lender in connection with the execution of
this Agreement or in the Assignment and Acceptance pursuant to which such
Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 10.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 10.01.
SECTION 10.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrowers and the Guarantors herein,
in the other Loan Documents and in the certificates or other instruments
prepared or delivered in connection with or pursuant to this Agreement or any
other Loan Document shall be considered to have been relied upon by the Lenders
and the Fronting Bank and shall survive the making by the Lenders of the Loans,
the execution and delivery to the Lenders of the Loan Documents and the issuance
of the Letters of Credit, regardless of any investigation made by the Lenders or
on their behalf, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or L/C Disbursement or any Fee
or any other amount payable under this Agreement or any other Loan Document is
outstanding and unpaid or any Letter of Credit is outstanding and so long as the
Commitments have not been terminated. Without prejudice to the survival of any
other agreements contained herein, indemnification and reimbursement obligations
contained herein (including pursuant to Sections 2.13, 2.15, 2.19 and 10.05)
shall survive the payment in full of the principal and interest
<PAGE>
195
hereunder, the expiration of the Letters of Credit and the termination of the
Commitments or this Agreement.
SECTION 10.03. Binding Effect. This Agreement shall become effective when
it shall have been executed by the Borrowers, and the Administrative Agents and
when the U.S. Administrative Agent shall have received copies hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the Borrowers, the
Fronting Bank, the Administrative Agents and each Lender and their respective
permitted successors and assigns.
SECTION 10.04. Successors and Assigns. (a) Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the permitted successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of the Borrowers, the U.S. Administrative Agent,
the Canadian Administrative Agent, the Collateral Agent, the Fronting Bank or
the Lenders that are contained in this Agreement shall bind and inure to the
benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion of its
interests, rights and obligations as a Lender under this Agreement (including
all or a portion of its Commitments, the Loans and L/C Disbursements at the time
owing to it and participations in Letters of Credit and Swingline Loans held by
it, it being understood that Lenders shall not be required to assign pro rata
amounts of their Loans, L/C Disbursements, Revolving Credit Commitments and Term
Commitments, except that except as provided in Section 2.09, assignments of U.S.
$ Revolving Credit Loans, L/C Disbursements and U.S. $ Revolving Credit
Commitments may only be assigned in pro rata amounts, assignments of C $
Revolving Credit Loans and C $ Revolving Credit Commitments may only be assigned
in pro rata amounts and assignments of U.K. (pound) Revolving Credit Loans and
U.K. (pound) Revolving Credit Commitments may only be assigned in pro rata
amounts); provided, however, that (i) except in the case of an assignment to
another Lender or an Affiliate of, or an Approved Fund with respect to, such
Lender, (A) in each case, the Parent Borrower and the U.S. Administrative Agent
(and, in the case of an assignment of C $ Revolving Credit Loans or C $
Revolving Credit Commitments, the Canadian Administrative Agent) must each
<PAGE>
196
give its prior written consent to such assignment (which consent shall not in
either case be unreasonably withheld or delayed) and (B) in the case of
participations in Letters of Credit or Revolving Credit Commitments, the
Fronting Bank must give its prior written consent to such assignment (which
consent shall not in any case be unreasonably withheld or delayed), (ii) except
in the case of an assignment made pursuant to Section 2.09 or to another Lender
or an Affiliate of, or an Approved Fund with respect to, such Lender, the amount
of the Loans, L/C Disbursements, Commitments or participations in Letters of
Credit or Swingline Loans of the assigning Lender subject to such assignment
(determined as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the U.S. Administrative Agent) shall be an amount not
less than $5,000,000 and an integral multiple of $1,000,000 unless each of the
Parent Borrower and the U.S. Administrative Agent shall have given its prior
written consent to the assignment of a lesser amount, or shall be the entire
remaining amount of such Loans, L/C Disbursements, Commitments or participations
in Letters of Credit or Swingline Loans held by such assigning Lender, (iii)
unless the assignor ceases to be a Lender, the aggregate amount of the Loans and
L/C Disbursements owing to and unused Commitments of such Lender after giving
effect to such assignment shall be not less than $5,000,000, (iv) the parties to
each such assignment shall execute and deliver to the U.S. Administrative Agent
(and, in the case of an assignment of C $ Revolving Credit Loans or C $
Revolving Credit Commitments, the Canadian Administrative Agent) an Assignment
and Acceptance, together with a processing and recordation fee of $3,500
(payable to the U.S. Administrative Agent, unless the Canadian Administrative
Agent was also required to receive an Assignment and Acceptance pursuant to this
Section 10.04(b), in which case it shall be payable to the Canadian
Administrative Agent in Canadian Dollars) and (v) the assignee, if it shall not
be a Lender, shall deliver to the U.S. Administrative Agent an Administrative
Questionnaire. Upon acceptance and recording pursuant to paragraph (e) of this
Section 10.04, subject to Section 2.09, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least five Business Days after the execution thereof unless agreed otherwise by
the applicable Administrative Agents, (i) the assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations, including all obligations under
Sections 2.09(e) and (f), of a
<PAGE>
197
Lender under this Agreement and (ii) the assigning Lender thereunder shall, to
the extent of the interest assigned by such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, if such Lender has no
remaining contingent obligations under Section 2.09(f) in respect of Revolving
Credit Commitments temporarily reduced pursuant to Section 2.09(e), such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.13, 2.15, 2.19 and 10.05, as well as to any Fees accrued
for its account and not yet paid).
(c) By executing and delivering an Assignment and Acceptance, the assigning
Lender thereunder and the assignee thereunder shall be deemed to confirm to and
agree with each other and the other parties hereto as follows: (i) such
assigning Lender warrants that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim and that its
Term Commitments and Revolving Credit Commitment, and the outstanding balances
of its Loans and L/C Disbursements and its participations in Letters of Credit
and Swingline Loans, in each case without giving effect to assignments thereof
that have not become effective, are as set forth in such Assignment and
Acceptance; (ii) except as set forth in clause (i) above, such assigning Lender
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
this Agreement, or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement, any other Loan Document or
any other instrument or document furnished pursuant hereto or thereto, or the
financial condition of the Parent Borrower or any Guarantor or the performance
or observance by the Parent Borrower or any Guarantor of any of its obligations
under this Agreement, any other Loan Document or any other instrument or
document furnished pursuant hereto or thereto; (iii) such assignee represents
and warrants that it is legally authorized to enter into such Assignment and
Acceptance; (iv) such assignee confirms that it has received copies of this
Agreement and the other Loan Documents, together with copies of the most recent
financial statements delivered pursuant to this Agreement and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such
<PAGE>
198
Assignment and Acceptance; (v) such assignee will independently and without
reliance upon either Administrative Agent, the Fronting Bank, such assigning
Lender 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 decisions in
taking or not taking action under this Agreement; (vi) such assignee appoints
and authorizes the Administrative Agents and the Collateral Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
and the other Loan Documents as are delegated to the Administrative Agents and
the Collateral Agent by the terms hereof or thereof, together with such powers
as are reasonably incidental thereto; and (vii) such assignee agrees that it
will perform in accordance with their terms all the obligations which by the
terms of this Agreement are required to be performed by it as a Lender.
(d) The U.S. Administrative Agent and the Canadian Administrative Agent,
acting for this purpose as agents of the applicable Borrowers, shall maintain at
its address referred to in subsection 10.01 a copy of each Assignment and
Acceptance delivered to it and a register (each, a "Register") for the
recordation of the names and addresses of the Lenders and the Commitments of,
and principal amount of the Loans and L/C Disbursements owing to, each Lender
from time to time. The U.S. Administrative Agent shall also record the Revolving
L/C Exposure of each Lender in the Register. The entries in a Register shall be
conclusive, in the absence of manifest error, and the Borrowers, the
Administrative Agents, the Fronting Bank and the Lenders shall treat each person
whose name is recorded in a Register as the owner of Commitments and the Loans
and Revolving L/C Exposures recorded therein for all purposes of this Agreement.
Each Register shall be available for inspection by the Borrowers, the Fronting
Bank, any Lender and their representatives (including counsel and accountants),
at any reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance executed
by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) above and, if required, the written consent of the Parent Borrower, the
Fronting Bank and the applicable
<PAGE>
199
Administrative Agents to such assignment, the U.S. Administrative Agent and, if
applicable, the Canadian Administrative Agent shall (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in its Register
and (iii) give prompt notice thereof to the Lenders. Notwithstanding anything to
the contrary contained herein, no assignment under Section 10.04(b) of any
rights or obligations shall be effective unless and until the U.S.
Administrative Agent and, if applicable, the Canadian Administrative Agent shall
have recorded such assignment in its Register. The U.S. Administrative Agent
and, if applicable, the Canadian Administrative Agent shall record the name of
the transferor, the name of the transferee, and the amount of the transfer in
its Register after receipt of all documents required pursuant to this Section
10.04 and such other documents as the U.S. Administrative Agent and, if
applicable, the Canadian Administrative Agent may reasonably request.
(f) Each Lender may without the consent of any Borrower, the Fronting Bank
or either Administrative Agent sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitments, the Loans owing to it, its
Revolving L/C Exposure and the participations in Letters of Credit and Swingline
Loans, held by it); provided, however, that (i) such Lender's obligations under
this Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) the participating banks or other entities shall be entitled to the benefit
of the cost protection provisions contained in Sections 2.13, 2.15, 2.19 and
10.06 to the same extent as if they were Lenders, provided that no such
participating bank or entity shall be entitled to receive any greater amount
pursuant to such Sections than a Lender would have been entitled to receive in
respect of the amount of the participation sold by such Lender to such
participating bank or entity had no sale occurred, and (iv) the Borrowers, the
Administrative Agents, the Fronting Bank and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement, and such Lender shall retain the
sole right to enforce the obligations of the Borrowers or any other Loan Party,
as the case may be, relating to its Loans, Revolving L/C Exposure and
participations in Letters of Credit and Swingline Loans and Fees
<PAGE>
200
and to approve any amendment, modification or waiver of any provision of this
Agreement or any other Loan Document (other than amendments, modifications or
waivers decreasing any Fee payable hereunder or the amount of principal of or
the rate at which interest is payable on the Loans or L/C Disbursements,
extending any final maturity date or increasing any Commitment, in each case in
respect of an Obligation in which the relevant participating bank or entity is
participating, or releasing all or substantially all of the Collateral or any
Guarantor from its Guarantee Agreement unless all or substantially all the
Capital Stock of such Guarantor is sold in a transaction permitted by this
Agreement or as provided in Section 10.18). Each Lender will disclose the
identity of its participants to the Parent Borrower and Administrative Agents if
requested by the Parent Borrower or either Administrative Agent.
(g) Any Lender or participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
10.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrowers or any Guarantor furnished
to such Lender by or on behalf of the Borrowers or any Guarantor, provided that,
prior to any such disclosure, each such assignee or participant or proposed
assignee or participant shall execute an agreement whereby such assignee or
participant shall agree to be bound by Section 10.17.
(h) Any Lender may at any time assign all or any portion of its rights
under this Agreement to a Federal Reserve Bank, provided that no such assignment
shall release a Lender from any of its obligations hereunder. In order to
facilitate such an assignment to a Federal Reserve Bank, the applicable Borrower
shall, at the request of the assigning Lender, duly execute and deliver to the
assigning Lender a promissory note or notes evidencing the Loans made to such
Borrower by the assigning Lender hereunder.
(i) In the event that Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. shall, after the date that any U.S. $ Revolving Credit Lender
becomes a Lender, downgrade the long-term certificate deposit ratings or
long-term senior unsecured debt ratings of such Lender (or the parent company
thereof), and the resulting ratings shall be BBB+ or Baa1 or lower, then the
Fronting Bank shall have the right, but not the
<PAGE>
201
obligation, at its own expense, upon notice to such Lender and the U.S.
Administrative Agent, to replace (or to request the Parent Borrower, at the sole
expense of the Fronting Bank, to use its reasonable efforts to replace) such
Lender with respect to such Lender's Revolving Credit Commitment with an
assignee (in accordance with and subject to the restrictions contained in
paragraph (b) above), and such Lender hereby agrees to transfer and assign
without recourse (in accordance with and subject to the restrictions contained
in paragraph (b) above) all its interests, rights and obligations in respect of
its Revolving Credit Commitment to such assignee; provided, however, that (i) no
such assignment shall conflict with any law, rule and regulation or order of any
Governmental Authority and (ii) such assignee shall pay to such Lender in
immediately available funds on the date of such assignment the principal of and
interest accrued to the date of payment on the Loans and L/C Disbursements of
such Lender hereunder and all other amounts accrued for such Lender's account or
owed to it hereunder.
(j) No Borrower shall assign or delegate any of its rights or duties
hereunder and any attempted assignment shall be null and void.
(k) Except as provided in Section 2.13(d), the Fronting Bank shall not
assign or delegate any of its interests, rights or obligations as a Fronting
Bank under this Agreement without the prior written consent of the Parent
Borrower, the U.S. Administrative Agent and the Required Lenders.
SECTION 10.05. Expenses; Indemnity. (a) The Parent Borrower agrees to pay
all reasonable out-of-pocket expenses incurred by the Administrative Agents and
the Collateral Agent in connection with the preparation of this Agreement and
the other Loan Documents, or by the Administrative Agents or the Collateral
Agent in connection with the syndication of the Commitments or the
administration of this Agreement (including expenses incurred in connection with
due diligence and initial and ongoing Collateral examination to the extent
incurred with the reasonable prior approval of the Parent Borrower) or in
connection with any amendments, modifications or waivers of the provisions
hereof or thereof (whether or not the transactions hereby contemplated shall be
consummated) or incurred by the U.S. Administrative Agent, the Collateral Agent
or any Lender in connection with the enforcement or protection of their rights
in connection with this
<PAGE>
202
Agreement and the other Loan Documents or in connection with the Loans made or
the Letters of Credit issued hereunder, including the reasonable fees, charges
and disbursements of Cravath, Swaine & Moore, counsel for the U.S.
Administrative Agent and the Collateral Agent, and, in connection with any such
enforcement or protection, the reasonable fees, charges and disbursements of any
other counsel (including the reasonable allocated costs of internal counsel if a
Lender elects to use internal counsel in lieu of outside counsel) for the
Administrative Agents, the Fronting Bank or any Lender (but no more than one
such counsel for any Lender).
(b) The Parent Borrower agrees to indemnify the Administrative Agents, the
Collateral Agent, the Fronting Bank, each Lender and each of their respective
directors, trustees, officers, employees, affiliates and agents (each such
person being called an "Indemnitee") against, and to hold each Indemnitee
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable counsel fees, charges and disbursements, incurred
by or asserted against any Indemnitee arising out of, in any way connected with,
or as a result of (i) the execution or delivery of this Agreement or any other
Loan Document or any agreement or instrument contemplated hereby or thereby, the
performance by the parties hereto and thereto of their respective obligations
thereunder or the consummation of the Transactions and the other transactions
contemplated hereby and thereby, (ii) the use of the proceeds of the Loans or
the use of any Letter of Credit or (iii) any claim, litigation, investigation or
proceeding relating to any of the foregoing, whether or not any Indemnitee is a
party thereto, provided that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses result from the gross negligence or wilful misconduct of such
Indemnitee (treating, for this purpose only, the applicable Administrative
Agent, the Fronting Bank or any Lender and its directors, trustees, officers and
employees as a single Indemnitee). Subject to and without limiting the
generality of the foregoing sentence, the Parent Borrower agrees to indemnify
each Indemnitee against, and hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including reasonable
counsel or consultant fees, charges and disbursements, incurred by or asserted
against any Indemnitee arising out of, in any way connected with, or as a result
of (A) any Environmental Claim
<PAGE>
203
related in any way to the Parent Borrower or any Subsidiary, or (B) any actual
or alleged presence, Release or threatened Release of Hazardous Materials on any
Property or any property owned, leased or operated by any predecessor of the
Parent Borrower or any Subsidiary, provided that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are, determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or wilful misconduct of such Indemnitee or any of its directors,
trustees, officers or employees. The provisions of this Section 10.05 shall
remain operative and in full force and effect regardless of the expiration of
the term of this Agreement, the consummation of the transactions contemplated
hereby, the repayment of any of the Obligations, the invalidity or
unenforceability of any term or provision of this Agreement or any other Loan
Document, or any investigation made by or on behalf of either Administrative
Agent, the Fronting Bank or any Lender. All amounts due under this Section 10.05
shall be payable on written demand therefor.
(c) Unless an Event of Default shall have occurred and be continuing, the
Parent Borrower shall be entitled to assume the defense of any action for which
indemnification is sought hereunder with counsel of its choice at its expense
(in which case the Parent Borrower shall not thereafter be responsible for the
fees and expenses of any separate counsel retained by an Indemnitee except as
set forth below); provided, however, that such counsel shall be reasonably
satisfactory to each such Indemnitee. Notwithstanding the Parent Borrower's
election to assume the defense of such action, each Indemnitee shall have the
right to employ separate counsel and to participate in the defense of such
action, and the Parent Borrower shall bear the reasonable fees, costs and
expenses of such separate counsel, if (i) the use of counsel chosen by the
Parent Borrower to represent such Indemnitee would present such counsel with a
conflict of interest; (ii) the actual or potential defendants in, or targets of,
any such action include both the Parent Borrower and such Indemnitee and such
Indemnitee shall have reasonably concluded that there may be legal defenses
available to it that are different from or additional to those available to the
Parent Borrower (in which case the Parent Borrower shall not have the right to
assume the defense or such action on behalf of such Indemnitee); (iii) the
Parent Borrower shall not have employed counsel reasonably satisfactory to such
Indemnitee to represent
<PAGE>
204
it within a reasonable time after notice of the institution of such action; or
(iv) the Parent Borrower shall authorize such Indemnitee to employ separate
counsel at the Parent Borrower's expense. The Parent Borrower shall not, without
the consent of the affected Indemnitee, settle or compromise any claim or action
in a manner subjecting such Indemnitee to any monetary obligation (that has not
been paid or provided for) or any other obligation. The Parent Borrower will not
be liable under this Agreement for any amount paid by an Indemnitee to settle
any claims or actions if the settlement is entered into without the Parent
Borrower's consent, which consent may not be withheld or delayed unless such
settlement is unreasonable in light of such claims or actions against, and
defenses available to, such Indemnitee.
(d) Notwithstanding anything to the contrary in this Section 10.05, this
Section 10.05 shall not apply to taxes, it being understood that the Parent
Borrower's only obligations with respect to taxes shall arise under Sections
2.13 and 2.19.
SECTION 10.06. Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Lender and the Fronting Bank is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender or the Fronting Bank to or for the credit or the account of any Borrower
against any of and all the obligations of such Borrower now or hereafter
existing under this Agreement or any other Loan Document held by such Lender or
the Fronting Bank, irrespective of whether or not such Lender or the Fronting
Bank shall have made any demand under this Agreement or such other Loan Document
and although such obligations may be unmatured. The rights of each Lender and
the Fronting Bank under this Section 10.06 are in addition to other rights and
remedies (including other rights of setoff) which such Lender or the Fronting
Bank may have. Notwithstanding anything in any of the Loan Documents, no
proceeds of the exercise of any such lien, setoff or similar right against the
U.K. Borrower or its subsidiaries, or the Canadian Borrower or its subsidiaries,
shall be applied to the payment of any amounts other than amounts owing by the
U.K. Borrower or the Canadian Borrower, respectively, hereunder in respect of
their respective U.K. (pound) Revolving Credit Borrowings or C $ Revolving
Credit Borrowings.
<PAGE>
205
SECTION 10.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER LOAN
DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF
CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND
PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF
COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT
GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK.
SECTION 10.08. Waivers; Amendment. (a) No failure or delay of the
Administrative Agents, the Collateral Agent, the Fronting Bank or any Lender in
exercising any right or power hereunder or under any Loan Document shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right
or power, or any abandonment or discontinuance of steps to enforce such a right
or power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Administrative Agents, the
Collateral Agent, the Fronting Bank and the Lenders hereunder and under the
other Loan Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of this
Agreement or any other Loan Document or consent to any departure by Holdings,
any Borrower or any Guarantor therefrom shall in any event be effective unless
the same shall be permitted by paragraph (b) below, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No notice or demand on Holdings, any Borrower or any Guarantor in
any case shall entitle such Borrower to any other or further notice or demand in
similar or other circumstances.
(b) Neither this Agreement nor any other Loan Document nor any provision
hereof or thereof may be waived, amended or modified except, in the case of this
Agreement, pursuant to an agreement or agreements in writing entered into by the
Borrowers and the Required Lenders or, in the case of any other Loan Document,
pursuant to an agreement or agreements in writing entered into by each party
thereto and the Collateral Agent and consented to by the Required Lenders;
provided, however, that no such agreement shall (i) decrease the principal
amount of, or
<PAGE>
206
extend the final maturity of, or decrease the rate of interest on, any Loan or
any L/C Disbursement, without the prior written consent of each Lender directly
affected thereby, (ii) extend any Installment Date (other than any final
maturity) or extend any date on which payment of interest on any Loan or any L/C
Disbursement is due, without the prior written consent of (A) in the case of
Term Loans, the Required Lenders and Lenders holding Term Loans representing at
least 80% of the aggregate principal amount of each Term Loan Credit Facility
affected by such action or (B) in the case of Loans under the Revolving Credit
Commitments and L/C Disbursements, Lenders with Revolving Credit Commitments
representing at least 80% of the aggregate Revolving Credit Commitments then in
effect, (iii) advance any Installment Date without the prior written consent of
Lenders holding Term Loans representing (A) at least 80% of the aggregate
principal amount of the then outstanding Tranche A Term Loans, (B) at least 80%
of the aggregate principal amount of the then outstanding Tranche B Term Loans
and (C) at least 80% of the aggregate principal amount of the then outstanding
Tranche C Term Loans, (iv) increase or extend the Commitment of any Lender or
decrease the Commitment Fees, Facility Fees, L/C Participation Fees or other
fees of any Lender without the prior written consent of such Lender, (v) effect
any waiver, amendment or modification that by its terms adversely affects the
rights in respect of payments or collateral of Lenders participating in any
Credit Facility differently from those of Lenders participating in other Credit
Facilities, without the consent of a majority in interest of the Lenders
participating in the adversely affected Credit Facility, or change the relative
rights in respect of payments or collateral of the Lenders participating in
different Credit Facilities without the consent of a majority in interest of
Lenders participating in each affected Credit Facility, (vi) amend Article IX in
a manner adverse to any Lender without the consent of such Lender or (vii) amend
or modify the provisions of Section 2.09(d), Section 2.11(b) or Section 2.16,
the provisions of this Section or the definition of the term "Required Lenders",
or release all or substantially all the Collateral or release any Guarantor from
its Guarantee Agreement unless all or substantially all the Capital Stock of
such Guarantor is sold in a transaction permitted by this Agreement or as
provided in Section 10.18, without the prior written consent of each Lender
adversely affected thereby, provided further that no such agreement shall amend,
modify or otherwise affect the rights or duties of either Administrative Agent
or the Fronting
<PAGE>
207
Bank hereunder without the prior written consent of the applicable
Administrative Agent or the Fronting Bank acting as such at the effective date
of such agreement, as the case may be. Each Lender shall be bound by any waiver,
amendment or modification authorized by this Section 10.08 and any consent by
any Lender pursuant to this Section 10.08 shall bind any assignee of such
Lender.
SECTION 10.09. Interest Rate Limitation. Notwithstanding anything herein to
the contrary, if at any time the applicable interest rate, together with all
fees and charges that are treated as interest under applicable law
(collectively, the "Charges"), as provided for herein or in any other document
executed in connection herewith, or otherwise contracted for, charged, received,
taken or reserved by any Lender or the Fronting Bank, shall exceed the maximum
lawful rate (the "Maximum Rate") that may be contracted for, charged, taken,
received or reserved by such Lender in accordance with applicable law, the rate
of interest payable hereunder, together with all Charges payable to such Lender
or the Fronting Bank, shall be limited to the Maximum Rate, provided that such
excess amount shall be paid to such Lender or the Fronting Bank on subsequent
payment dates to the extent not exceeding the legal limitation.
SECTION 10.10. Entire Agreement. This Agreement, the other Loan Documents
and the agreements regarding certain Fees referred to herein constitute the
entire contract between the parties relative to the subject matter hereof. Any
previous agreement among or representations from the parties with respect to the
subject matter hereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan Documents, expressed
or implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by reason
of this Agreement or the other Loan Documents.
SECTION 10.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
<PAGE>
208
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.11.
SECTION 10.12. Severability. In the event any one or more of the provisions
contained in this Agreement or in any other Loan Document should be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby. The parties shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 10.13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract, and shall become effective as
provided in Section 10.03.
SECTION 10.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 10.15. Jurisdiction; Consent to Service of Process. (a) Each
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any
<PAGE>
209
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that any Lender or the Fronting
Bank may otherwise have to bring any action or proceeding relating to this
Agreement or the other Loan Documents against any Borrower or any Guarantor or
their properties in the courts of any jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of process
in the manner provided for notices in Section 10.01. Nothing in this Agreement
will affect the right of any party to this Agreement to serve process in any
other manner permitted by law.
SECTION 10.16. Judgment Currency. (a) The Borrowers' obligations hereunder
and the Borrowers' and the other Loan Parties' obligations under the other Loan
Documents to make payments in Dollars or in any Alternative Currency (the
"Obligation Currency") shall not be discharged or satisfied by any tender or
recovery pursuant to any judgment expressed in or converted into any currency
other than the Obligation Currency, except to the extent that such tender or
recovery results in the effective receipt by the applicable Administrative
Agent, the Collateral Agent or a Lender of the full amount of the Obligation
Currency expressed to be payable to the applicable Administrative Agent, the
Collateral Agent or such Lender under this Agreement or the other Loan
Documents. If, for the purpose of obtaining or enforcing judgment against any
Borrower or any other Loan Party in any court or in any jurisdiction, it becomes
necessary to convert into or from any currency other than the Obligation
Currency (such other currency being hereinafter referred to as the "Judgment
Currency") an amount due in the Obligation Currency, the conversion shall be
made, at the Dollar Equivalent of such amount, in the case of any Alternative
Currency or
<PAGE>
210
Dollars, and, in the case of other currencies, the rate of exchange (as quoted
by the U.S. Administrative Agent or if the U.S. Administrative Agent does not
quote a rate of exchange on such currency, by a known dealer in such currency
designated by the U.S. Administrative Agent) determined, in each case, as of the
date immediately preceding the day on which the judgment is given (such Business
Day being hereinafter referred to as the "Judgment Currency Conversion Date").
(b) If there is a change in the rate of exchange prevailing between the
Judgment Currency Conversion Date and the date of actual payment of the amount
due, the Borrowers covenant and agree to pay, or cause to be paid, such
additional amounts, if any (but in any event not a lesser amount), as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the rate of exchange prevailing on the date of payment, will
produce the amount of the Obligation Currency which could have been purchased
with the amount of Judgment Currency stipulated in the judgment or judicial
award at the rate of exchange prevailing on the Judgment Currency Conversion
Date.
(c) For purposes of determining the Dollar Equivalent or rate of exchange
for this Section, such amounts shall include any premium and costs payable in
connection with the purchase of the Obligation Currency.
SECTION 10.17. Confidentiality. Each of the Lenders, the Fronting Bank and
the Administrative Agents agrees that it shall maintain in confidence any
information relating to the Borrowers and the other Loan Parties furnished to it
by or on behalf of the Borrowers or the other Loan Parties (other than
information that (a) has become generally available to the public other than as
a result of a disclosure by such party, (b) has been independently developed by
such Lender, the Fronting Bank or such Administrative Agent without violating
this Section 10.17 or (c) was available to such Lender, the Fronting Bank or
such Administrative Agent from a third party having, to such person's knowledge,
no obligations of confidentiality to any Borrowers or any other Loan Party) and
shall not reveal the same other than (i) to its directors, trustees, officers,
employees and advisors with a need to know (so long as each such person shall
have been instructed to keep the same confidential in accordance with this
Section 10.17) and (ii) as contemplated by Section 10.04(g),
<PAGE>
211
except: (A) to the extent necessary to comply with law or any legal process or
the requirements of any Governmental Authority or of any securities exchange on
which securities of the disclosing party or any Affiliate of the disclosing
party are listed or traded, (B) as part of normal reporting or review procedures
to Governmental Authorities, (C) to its parent companies, Affiliates or auditors
(so long as each such person shall have been instructed to keep the same
confidential in accordance with this Section 10.17) and (D) in order to enforce
its rights under any Loan Document in a legal proceeding.
SECTION 10.18. Release of Liens and Guarantees. In the event that Holdings,
the Parent Borrower or any Subsidiary conveys, sells, leases, assigns, transfers
or otherwise disposes of all or any portion of any of the Capital Stock, assets
or property of the Parent Borrower or any of the Subsidiaries in a transaction
not prohibited by Section 6.05, the U.S. Administrative Agent and the Collateral
Agent shall promptly (and the Lenders hereby authorize the U.S. Administrative
Agent and the Collateral Agent to) take such action and execute any such
documents as may be reasonably requested by the Parent Borrower and at the
Parent Borrower's expense to release any Liens created by any Loan Document in
respect of such Capital Stock, assets or property, including the release and
satisfaction of record of any mortgage or deed of trust granted in connection
herewith, and, in the case of a disposition of all or substantially all the
Capital Stock or assets of any Subsidiary Guarantor, terminate such Subsidiary
Guarantor's obligations under the applicable Guarantee Agreement.
Notwithstanding the foregoing, neither the U.S. Administrative Agent nor the
Collateral Agent will have any obligation to release, in connection with any
conveyance, sale, lease, assignment, transfer or other disposition, any Lien
created under the Pledge Agreement with respect to the Capital Stock of the
Parent Borrower held by Holdings if such conveyance, sale, lease, assignment,
transfer or other disposition, would result in a Change in Control. In addition,
the U.S. Administrative Agent and the Collateral Agent agree to take such
actions as are reasonably requested by the Parent Borrower and at the Parent
Borrower's expense to terminate the Liens and security interests created by the
Loan Documents when all the Obligations are paid in full and all Letters of
Credit and Commitments are terminated. Any representation, warranty or covenant
contained in any Loan Document relating to any such Capital Stock, assets,
property or Subsidiary shall no longer be deemed to be made once
<PAGE>
212
such Capital Stock, assets or property is conveyed, sold, leased, assigned,
transferred or disposed of.
<PAGE>
213
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers or attorneys as of the day
and year first above written.
THE IMPERIAL HOME DECOR GROUP
INC.,
by
/S/ Keith T. McAslan
---------------------------------
Name: Keith T. McAslan
Title: Vice President
IMPERIAL HOME DECOR GROUP
HOLDINGS II LIMITED,
acting by Keith T. McAslan,
its duly appointed attorney
/s/ Keith T. McAslan
---------------------------------
THE IMPERIAL HOME DECOR GROUP
(CANADA) ULC,
by
/s/ Keith T. McAslan
---------------------------------
Name: Keith T. McAslan
Title: Vice President
<PAGE>
214
THE CHASE MANHATTAN BANK,
by
/s/ Deborah Davey
---------------------------------
Name: Deborah Davey
Title: Vice President
THE CHASE MANHATTAN BANK OF
CANADA,
by
/s/ Christine Chan
---------------------------------
Name: Christine Chan
Title: Vice President
CHASE MANHATTAN BANK DELAWARE,
by
/s/ Michael P. Handago
---------------------------------
Name: Michael P. Handago
Title: Vice President
BEAR STEARNS INVESTMENT
PRODUCTS INC.,
by
/S/ Harry Rosenberg
---------------------------------
Name: Harry Rosenberg
Title: Authorized Signatory
CREDIT SUISSE FIRST BOSTON,
by
/s/ Heather Sugitt
---------------------------------
Name: Heather Sugitt
Title: Vice President
<PAGE>
215
/s/ Sean S. Bernard
---------------------------------
Name: Sean S. Bernard
Title: Assistant Vice President
FUJI BANK,
by
/s/ Teiji Teramoto
---------------------------------
Name: Teiji Teramoto
Title: Vice President &
Manager
KZH HOLDING CORPORATION III,
by
/s/ Virginia Conway
---------------------------------
Name: Virginia Conway
Title: Authorized Agent
MERRILL LYNCH SENIOR
FLOATING RATE FUND, INC.,
by
/s/Lynn Callicott Baranski
---------------------------------
Name: Lynn Callicott
Baranski
Title: Authorized
Signatory
PILGRIM AMERICA PRIME RATE
INCOME TRUST BY: PILGRIM
AMERICA INVESTMENTS INC. AS
ITS INVESTMENT MANAGER,
<PAGE>
216
by
/s/ Howard Tiffen
---------------------------------
Name: Howard Tiffen
Title: Senior Vice
President
SOUTHERN PACIFIC BANK,
by
/s/ Southern Pacific Bank
---------------------------------
Name:Charles D. Martorano
Title: Senior Vice
President
THE LONG TERM CREDIT BANK OF
JAPAN, LIMITED, NEW YORK
BRANCH,
by
/s/ Shuichi Tajima
---------------------------------
Name: Shuichi Tajima
Title: Deputy General
Manager
<PAGE>
217
<PAGE>
218
PRICING ADJUSTMENTS
<TABLE>
<CAPTION>
SCHEDULE
A
Revolving
Credit Loans,
Tranche A
LIBOR Margin Facility
and L/C Fee and
Leverage Participation Tranche B Tranche C Commitment
Level Ratio Fee(1) LIBOR Margin LIBOR Margin Fee
<S> <C> <C> <C> <C> <C>
1 Greater than
or equal 2.50% 2.75% 3.00% 0.50%
to 4.50 to
1.00
2 Less than 2.25% 2.50% 2.75% 0.50%
4.50 to
1.00 but
greater than
or equal to
4.00 to 1.00
3 Less than 2.00% 2.50% 2.75% 0.375%
4.00 to 1.00
but greater
than or
equal to
3.50 to 1.00
4 Less than 1.75% 2.25% 2.50% 0.375%
3.50 to 1.00
</TABLE>
The "LIBOR Margin", the "ABR Margin", the Facility Fee and the Commitment
Fee for any date shall be determined by reference to the Leverage Ratio as
of the last day of the fiscal quarter most recently ended as of such date
and any change shall become effective upon the delivery to the U.S.
Administrative Agent of a certificate of a Responsible Officer of the
Borrower with respect to the financial statements to be delivered pursuant
to Section 5.04 for the most recently ended fiscal quarter (a) setting
forth in reasonable detail the calculation of the Leverage Ratio for the
end of such fiscal quarter and (b) stating that the signer has reviewed the
terms of this Agreement and the other Loan Documents and has made, or
caused to be made under his or her supervision, a review in reasonable
detail of the transactions and condition of the Borrower and the
Subsidiaries during the accounting
- --------
(1) The LIBOR Margin for any Borrowing that is a U.K. (pound) Revolving
Credit Borrowing and the LIBOR Margin and the ABR Margin for any Borrowing that
is a C $ Revolving Credit Borrowing set forth in this table must be adjusted as
provided for in the definition of the term "LIBOR Margin".
<PAGE>
219
period, and that the signer does not have knowledge of the existence as at
the date of such officers' certificate of any Event of Default or Default.
It is understood that the foregoing certificate of a Responsible Officer
shall be permitted to be delivered prior to, but in no event later than,
the time of the actual delivery of the financial statements required to be
delivered pursuant to Section 5.04. Notwithstanding the foregoing, at any
time during which the Borrower has failed to deliver the certificate
required under Section 5.04(c) with respect to a fiscal quarter following
the date the delivery thereof is due, the Leverage Ratio shall be deemed,
solely for the purposes of this Schedule A, to be greater than 4.50 to
1.00, until such time as the Borrower shall deliver such certificate.
<PAGE>
ACQUISITION AGREEMENT,
dated as of November 4, 1997,
among
COLLINS & AIKMAN PRODUCTS CO.,
IMPERIAL WALLCOVERINGS, INC.,
and
BDPI HOLDINGS CORPORATION
<PAGE>
TABLE OF CONTENTS
(Not a part of the Agreement)
I. PURCHASE AND SALE OF SHARES.............................................2
1.1. Purchase and Sale of Shares..................................2
1.2. Closing Payment..............................................2
1.3. Purchase Price Adjustment....................................3
1.4. Intercompany Obligations.....................................6
II. REPRESENTATIONS AND WARRANTIES.........................................7
2.1. Representations and Warranties of Seller.....................7
2.1.1. The Imperial Shares..................................7
2.1.2. Authorization and Effect of Agreement................8
2.1.3. No Restrictions......................................8
2.1.4. Financial Statements.................................9
2.1.5. Brokers.............................................10
2.2. Representations and Warranties of Purchaser.................11
2.2.1. Authorization and Effect of Agreement...............11
2.2.2. No Restrictions.....................................11
2.2.3. Financial Capacity..................................11
2.2.4. Disclosure..........................................12
2.3. Certain Limitations on Representations and Warranties.......12
III. COVENANTS............................................................12
3.1. Investigation by Purchaser..................................12
3.2. Press Releases..............................................14
3.3. Regulatory Filings..........................................14
3.4. Injunctions.................................................15
3.5. Operation of the Business...................................15
3.6. Satisfaction of Conditions..................................17
3.7. Negotiations With Others....................................18
3.8. Certain Additional Covenants................................18
3.9. Efforts to Consummate.......................................18
3.10. Resignations...............................................18
3.11. Certain Conditions.........................................19
3.12. Certain Pre-Closing Transactions...........................19
IV. THE CLOSING...........................................................19
4.1. Conditions Precedent to Obligations of Purchaser and Seller..........19
4.2. Additional Conditions Precedent to Obligations of
Purchaser...................................................20
4.2.1. No Material Breach..................................20
4.2.2. Transfer Documents, Etc.............................20
4.2.3. Other Documents.....................................20
4.2.4. Borden Closing......................................20
4.2.5. Material Adverse Change.............................20
<PAGE>
4.2.6. No Litigation.......................................20
4.2.7. Certain Approvals...................................20
4.2.8. Release of Liens....................................20
4.3. Additional Conditions Precedent to Obligations of Seller ...21
4.3.1. No Material Breach..................................21
4.3.2. Closing Payment.....................................21
4.3.3. Option..............................................21
4.3.4. Other Documents.....................................21
4.4. The Closing.................................................21
4.5. Termination.................................................22
V. SURVIVAL AND INDEMNIFICATION...........................................22
5.1. Survival of Representations, Warranties and Covenants.......22
5.2. Limitations on Liability....................................23
5.3. Indemnification.............................................24
5.4. Defense of Claims...........................................25
VI. OTHER POST-CLOSING COVENANTS..........................................27
6.1. Personnel Matters...........................................27
6.1.1. Employees and Employee Benefit Plans...............27
6.1.2. Assumption of Obligations..........................28
6.1.3. Retirement Plans...................................29
6.1.4. Employment and Plan Amendments or Terminations.....30
6.1.5. Transitional Matters...............................30
6.1.6. Employee Information...............................31
6.2. General Post-Closing Matters................................31
6.2.1. Post-Closing Notifications.........................31
6.2.2. Access.............................................31
6.2.3. Certain Tax Matters................................32
6.2.4. Insurance..........................................39
6.2.5. Receivables........................................40
6.2.6. Surety Obligations.................................40
6.2.7. Assumed Push-Down Liabilities......................41
6.2.8. 1994 Financial Statements..........................41
6.2.9. Certain Contracts..................................42
VII. MISCELLANEOUS PROVISIONS.............................................43
7.1. Notices.....................................................43
7.2. Expenses....................................................44
7.3. Successors and Assigns......................................44
7.4. Waiver......................................................44
7.5. Entire Agreement............................................45
7.6. Amendments, Supplements, Etc................................45
7.7. Rights of the Parties.......................................45
7.8. Further Assurances..........................................45
7.9. Applicable Law; Jurisdiction................................46
7.10. Titles and Headings.........................................46
<PAGE>
7.11. Certain Interpretive Matters and Definitions...............46
7.12. Bulk Transfer Laws.........................................46
<PAGE>
Table of Defined Terms
(Not a Part of the Agreement)
Section
AA......................................................................1.3(b)
Accountants.............................................................1.3(c)
Actual Purchase Price Adjustment Amount.................................1.3(a)
Adjustment Amount.......................................................1.2(a)
Affiliate..............................................................7.11(a)
Agreement.........................................................Introduction
Alternative Proposal.......................................................3.7
Assets..................................................................3.5(b)
Assumed Contract......................................................6.2.9(a)
Assumed Push-Down Liabilities............................................6.2.7
Balance Sheet.........................................................2.1.4(a)
Base Amount.............................................................1.2(a)
BDPH..................................................................Recitals
Blackstone...............................................................2.2.3
Borden Agreement.........................................................2.1.2
Borden Recap..........................................................Recitals
Business..............................................................Recitals
C&A Canada............................................................Recitals
C&A Canada-Owned Imperial Canada Shares...............................2.1.1(a)
C&A Corp..............................................................6.2.3(e)
C&A Imperial Canada Assets.................................................1.1
C&A Imperial Canada Assumed Liabilities....................................1.1
Canadian Pension Plan...................................................3.5(l)
Closing....................................................................4.4
Closing Date...............................................................4.4
Closing Payment.........................................................1.2(b)
Closing Statement.......................................................1.3(a)
Code....................................................................5.3(a)
Commitment Letter........................................................2.2.3
Company...............................................................Recitals
Contract.................................................................2.1.3
D&T.....................................................................1.2(b)
Direct Claim............................................................5.4(c)
"$"....................................................................7.11(a)
DOJ.....................................................................3.3(a)
Drop Dead Date..........................................................4.5(b)
Employee..............................................................6.1.1(c)
Employee Plan.........................................................6.1.1(c)
ERISA.................................................................6.1.1(c)
Estimated Purchase Price Adjustment Amount..............................1.2(b)
Financial Statements..................................................2.1.4(a)
iii
<PAGE>
Form 8023A............................................................6.2.3(g)
Former Employee.......................................................6.1.1(c)
FTC.....................................................................3.3(a)
GAAP..................................................................2.1.4(a)
Governmental Entity......................................................2.1.3
HSR Act..................................................................2.1.3
Imperial..........................................................Introduction
Imperial Canada.......................................................Recitals
Imperial Canada Business Acquisition..................................Recitals
Imperial-Owned Imperial Canada Shares.................................2.1.1(a)
Imperial Shares.......................................................Recitals
Imperial UK...........................................................Recitals
Income Tax/Taxes......................................................6.2.3(q)
Indebtedness............................................................1.2(a)
Indemnifiable Losses....................................................5.2(a)
Indemnifying Party......................................................5.2(a)
Indemnitee..............................................................5.2(a)
Indemnity Payment.......................................................5.2(a)
Initial Exercise Price...................................................4.3.3
Insurance................................................................6.2.4
Intellectual Property .....................................................3.5
Knowledge of Purchaser.................................................7.11(a)
Knowledge of Seller....................................................7.11(a)
Last Offer..............................................................1.3(c)
Law......................................................................2.1.3
Legal Proceedings.....................................................6.2.2(b)
Liens.................................................................2.1.1(a)
Material Adverse Effect...............................................2.1.4(e)
Merger................................................................Recitals
MSA......................................................................4.2.3
MSI...................................................................Recitals
NCA......................................................................4.2.3
Net Cash Flow...........................................................1.2(a)
Non-Income Taxes......................................................6.2.3(q)
Non-Prevailing Party....................................................1.3(c)
Offering Financial Statements.........................................2.1.4(b)
Option...................................................................4.3.3
Option Agreement.........................................................4.3.3
or.....................................................................7.11(a)
Permit...................................................................2.1.3
Phase I.................................................................3.1(a)
Phase II................................................................3.1(a)
Post-Closing Affiliates....................................................1.4
Post-Closing AR/AP.........................................................1.4
Post-Closing Covenants..................................................5.1(b)
Pre-Closing Tax Period................................................6.2.3(a)
Prevailing Party........................................................1.3(c)
iv
<PAGE>
primarily...............................................................2.3(b)
Products..............................................................Recitals
Purchase Price.............................................................1.1
Purchased Imperial Companies..........................................Recitals
Purchaser.........................................................Introduction
Purchaser Indemnitees...................................................5.3(a)
Records...............................................................6.2.2(a)
Retirement Plans......................................................6.1.3(a)
Section 338(h)(10) Election...........................................6.2.3(f)
Seller............................................................Introduction
Seller Indemnitees......................................................5.3(b)
Subsidiaries..........................................................Recitals
subsidiary.............................................................7.11(a)
Surety Obligations....................................................6.2.6(a)
Tax Returns...........................................................6.2.3(q)
Taxes.................................................................6.2.3(q)
Third Party Claim.......................................................5.2(a)
Transaction Documents....................................................2.1.2
Transfer..............................................................Recitals
Workpapers..............................................................1.3(b)
v
<PAGE>
AMENDED AND RESTATED ACQUISITION AGREEMENT
This Amended and Restated Acquisition Agreement (the "Agreement") is dated
as of the 4th day of November, 1997, and amended and restated as of the 9th day
of March, 1998, among Collins & Aikman Products Co., a Delaware corporation
("Seller"), Imperial Wallcoverings, Inc., a Delaware corporation ("Imperial"),
and BDPI Holdings Corporation, a Delaware corporation ("Purchaser").
RECITALS:
A. Imperial, together with its wholly owned subsidiaries Imperial
Wallcoverings Limited, a company incorporated in England ("Imperial UK") and
Marketing Service, Inc., a Delaware corporation ("MSI") and Imperial
Wallcoverings (Canada) Inc. ("Imperial Canada"), Canadian corporation owned by
Imperial and Collins & Aikman Canada Inc., an Ontario corporation and indirect
wholly owned subsidiary of Seller ("C&A Canada") (Imperial UK and MSI being
referred to herein collectively as the "Subsidiaries" and, together with
Imperial and Imperial Canada, the "Company" and Imperial UK, MSI and Imperial
being referred to herein as the "Purchased Imperial Companies"), is presently
engaged in the business (the "Business") of the development, production,
manufacture, marketing, distribution and sale of paper and vinyl decorative
surface products and related products for residential, commercial and industrial
applications ("Products") and performing certain related services;
B. Seller is the record and beneficial owner of all of the issued and
outstanding shares of Common Stock, par value $0.01 per share, of Imperial (the
"Imperial Shares") and C&A Canada is the record and beneficial owner of
3,100,000 issued and outstanding shares of common stock, without par value, of
Imperial Canada, which shares, together with the 1,000,000 shares of common
stock of Imperial Canada owned of record and beneficially by Imperial, represent
all of the issued and outstanding shares of capital stock of Imperial Canada;
C. Seller intends to cause C&A Canada to own all of the issued and
outstanding shares of common stock of Imperial Canada and to cause Imperial
Canada to be liquidated (the "Imperial Canada Liquidation") prior to the
Closing, with the result that C&A Canada will have all right, title and interest
in and to the
<PAGE>
assets, and be subject to all of the obligations and liabilities, of Imperial
Canada;
D. Purchaser intends to effect the recapitalization (the "Borden Recap") of
Borden Decorative Products Holdings, Inc. ("BDPH") pursuant to, among other
transactions, the merger of Purchaser into BDPH (the "Merger"), whereupon all
rights and obligations of Purchaser hereunder will be, by virtue of the Merger,
vested in BDPH (which will be renamed "The Imperial Home Decor Group Inc."
following the Merger);
E Seller desires to sell, assign and deliver ("Transfer") to Purchaser, and
Purchaser desires to purchase and accept from Seller, the Imperial Shares on the
terms and subject to the conditions set forth in this Agreement;
F. Seller desires to cause C&A Canada to Transfer to Purchaser or its
assignee (and, where applicable the term "Purchaser" will also refer to such
assignee), and Purchaser desires to purchase and accept from C&A Canada, the C&A
Imperial Canada Assets and to assume the C&A Imperial Canada Assumed Liabilities
(together, the "Imperial Canada Business Acquisition").
NOW, THEREFORE, the parties hereto agree as follows:
I. PURCHASE AND SALE OF SHARES
1.1. Purchase and Sale of Shares. On the terms and subject to the
conditions hereof, at the Closing, Seller will Transfer, or cause to be
Transferred, to Purchaser, and Purchaser will purchase and accept from Seller
and C&A Canada, the Imperial Shares and the C&A Imperial Canada Assets, free and
clear of all Liens, for the amount determined pursuant to Section 1.3 and in
consideration of the grant of the Option to be delivered at Closing pursuant to
Section 4.3.3 and the assumption of the C&A Imperial Canada Assumed Liabilities
(such amount, together with the Option and the C&A Imperial Canada Assumed
Liabilities, the "Purchase Price"). Notwithstanding any other provision hereof,
in no event will the total amount of the accounts payable and accrued
liabilities included in the C&A Imperial Canada Assumed Liabilities (other than
any liabilities under the Canadian Pension Plan) exceed $5.0 million. For
purposes of this Agreement, (a) the "C&A Imperial Canada Assets" means all
assets, properties and rights, of whatever kind and nature, real or personal,
tangible or intangible, contractual or legal, wherever located, as of the
Closing that would have been owned or held by Imperial Canada but for the
Imperial Canada Liquidation except for any right, title or interest in, to or
under that certain
<PAGE>
Credit Agreement dated as of July 12, 1994, between Canadian Imperial Bank of
Commerce, WCA Canada Inc. and Imperial Canada (the "Imperial Canada Credit
Agreement") and (b) "C&A Imperial Canada Assumed Liabilities" means all
obligations and liabilities, fixed or contingent, primary or secondary, direct
or indirect, absolute or contingent, known or unknown, whether or not accrued,
as of the Closing that would have been obligations or liabilities of Imperial
Canada but for the Imperial Canada Liquidation, except for (i) any Indebtedness
of C&A Canada and (ii) such of the foregoing as are retained by Seller or any of
its Post-Closing Affiliates hereunder or as to which Seller has agreed to
indemnify the Purchaser or the Purchased Imperial Companies under any provision
of Article VI and (iii) any obligation or liability under the Imperial Canada
Credit Agreement.
1.2. Closing Payment. (a) The cash portion of the Purchase Price will be
(i) $58 million, plus the amount of cash of Imperial UK as of immediately prior
to the Closing, less $500,000 (the "Base Amount"), (ii) plus the Adjustment
Amount, and (iii) minus the amount of any Indebtedness of any Purchased Imperial
Companies outstanding immediately prior to the Closing (calculated after giving
effect to any payments of any such Indebtedness prior to the Closing and in
accordance with this Agreement (provided, however, that nothing in this Section
1.2 will be deemed to constitute an authorization of the incurrence or
maintenance of any such Indebtedness by the Company)). For purposes of this
Agreement (A) "Adjustment Amount" means, if Net Cash Flow is negative, a
positive amount equal to such negative Net Cash Flow and, if Net Cash Flow is
positive, a negative amount equal to such positive Net Cash Flow; (B)
"Indebtedness" means any liability or obligation (whether primary or secondary
as a guarantor or other surety other than arising out of the endorsement of
checks for collection in the ordinary course of business), for borrowed money,
for deferred purchase price of any asset (other than obligations to pay for
inventory purchased in the ordinary course of business), under a capitalized
lease and any other liability or obligation which should be shown as
indebtedness on a consolidated balance sheet for the Company prepared in
accordance with GAAP, whether or not evidenced by a note, bond or similar
instrument, and any prepayment penalties, accrued interest or other amounts due
on or in respect of any of the foregoing; and (C) the term "Net Cash Flow" means
an amount, for the period from and including November 2, 1997 through the
opening of business on the Closing Date, calculated in accordance with Schedule
1.2, giving effect to an additional deemed positive
3
<PAGE>
cash flow amount (regardless of the actual amount thereof) of $6.0 million.
(b) Not less than two business days prior to the Closing Date, Seller and
Purchaser will jointly prepare estimates of the Adjustment Amount and
Indebtedness (such estimated Adjustment Amount minus such estimated Indebtedness
being the "Estimated Purchase Price Adjustment Amount"), determined in
accordance with Section 1.2(a) and based upon their respective review of monthly
financial information then available to Seller and Purchaser and their
respective inquiries of personnel responsible for the preparation of financial
information relating to the Company in the ordinary course thereof. If the
parties are unable so to agree on the Estimated Purchase Price Adjustment
Amount, then the amount thereof as estimated by Deloitte & Touche LLP,
Purchaser's independent accountants ("D&T"), in good faith will be the Estimated
Purchase Price Adjustment Amount for all purposes of this Agreement and the
amount to be paid by Purchaser at the Closing will be the Base Amount, plus or
minus, as the case may be, the Estimated Purchase Price Adjustment Amount (such
amount, the "Closing Payment").
(c) On the Closing Date, Purchaser will cause to be paid by wire transfer
of immediately available funds to such account as Seller has theretofore
designated an amount equal to the Closing Payment.
1.3. Purchase Price Adjustment. (a) In order finally to determine the
Purchase Price, the Closing Payment will be increased or decreased, as the case
may be, by the amount, if any, by which the Adjustment Amount and Indebtedness,
each as finally determined in accordance with this Section 1.3, differ (on a
combined basis) from the amounts thereof reflected in the Estimated Purchase
Price Adjustment Amount. For purposes of this Agreement, (x) the adjustment
referred to in the immediately preceding sentence will be finally calculated on
a net basis and (y) all determinations of the actual amounts thereof (the
"Actual Purchase Price Adjustment Amount") will be determined by reference to
the amounts thereof required to be shown, with respect to Indebtedness, on a
consolidated balance sheet as of the opening of business on the Closing Date
and, with respect to Net Cash Flow, on a consolidated statement of cash flows
for the period from and including November 2, 1997 through the opening of
business on the Closing Date (collectively, the "Closing Statement"), each on a
basis consistent with, and using the same accounting principles, policies,
practices and procedures used in
4
<PAGE>
preparing, the Financial Statements and in accordance with Schedule 1.2 and
Section 1.2(a).
(b) Within 60 calendar days after the Closing Date, Purchaser will in good
faith prepare and deliver, or cause to be prepared and delivered, to Seller a
Closing Statement setting forth Purchaser's determination of the Actual Purchase
Price Adjustment Amount. The parties and their respective authorized
representatives will be entitled to review, during normal business hours, the
books, records and work papers of the Company to prepare or review, as the case
may be, the Closing Statement and to determine the Actual Purchase Price
Adjustment Amount. Without limiting the generality or effect of any other
provision hereof, (i) the parties will provide the other parties and their
authorized representatives access, during normal business hours, to the
facilities, personnel and accounting and other records of the Company and the
parties, as the case may be, to the extent reasonably determined by such other
parties to be necessary to permit Purchaser to prepare or have prepared the
Closing Statement and to compute the Actual Purchase Price Adjustment Amounts as
herein provided and to permit Seller to review such Closing Statement and
computation (including, if requested by Seller, such access as may be necessary
or appropriate to permit Arthur Andersen L.L.P. ("AA") to perform an audit of
Net Cash Flow); provided, however, that the parties will conduct any such review
in a manner that does not unreasonably interfere with the conduct of any other
party's business, and (ii) Seller will take such actions as may be reasonably
requested by Purchaser to close, or to assist Purchaser in closing, as of the
opening of business on the Closing Date, or as of the Closing, as the case may
be, the books and accounting records of the Company and otherwise reasonably to
cooperate with Purchaser and its representatives in the preparation of the
Closing Statement. Concurrently with the delivery of the Closing Statement,
Seller will use its reasonable efforts to cause AA to provide Purchaser access
to any of such firm's workpapers, trial balances and similar materials prepared
in connection with such firm's audits or reviews of any of the Financial
Statements (the "Workpapers").
(c) If, within 45 calendar days after the date of Purchaser's delivery of
its computation of the Actual Purchase Price Adjustment Amount, Seller
determines in good faith that such computations are inaccurate, Seller will give
written notice to Purchaser within such 45 calendar day period (i) setting forth
Seller's computation of Actual Purchase Price Adjustment Amount and (ii)
specifying in reasonable detail Seller's basis for its disagreement with
Purchaser's computations. The failure by
5
<PAGE>
Seller so to express its disagreement or provide such specification within such
45 calendar day period will constitute Seller's acceptance of Purchaser's
computation of the Actual Purchase Price Adjustment Amounts. If Purchaser and
Seller are unable to resolve any disagreement between them within ten calendar
days after the giving of notice of such disagreement, the items in dispute will
be referred for determination to KPMG Peat Marwick LLP (the "Accountants") as
promptly as practicable. The Accountants will make a determination as to each of
the items in dispute, which determination will be (A) in writing, (B) furnished
to each of the parties hereto as promptly as practicable after the items in
dispute have been referred to the Accountants, (C) made in accordance with this
Agreement, and (D) conclusive and binding upon each of the parties hereto. In
connection with their determination of the disputed items, the Accountants will
be entitled to rely on the Workpapers and the Company's books and records, and
the fees and expenses of the Accountants will be shared equally by Purchaser and
Seller (except as provided below). Purchaser and Seller will use reasonable
efforts to cause the Accountants to render their decision as soon as
practicable, including without limitation by promptly complying with all
reasonable requests by the Accountants for information, books, records and
similar items. If the determination of the Accountants represents an outcome
more favorable to either Purchaser or Seller than the midpoint of such parties'
last written settlement offers related to all items in dispute, in the
aggregate, submitted to the other party at least two calendar days before the
referral of the matter to the Accountants (each a "Last Offer"), then the party
obtaining such favorable result will be deemed the "Prevailing Party" and the
other party will be deemed the "Non-Prevailing Party". For purposes hereof, all
of the fees and expenses of the Accountants, will be borne by the Non-Prevailing
Party. No party will disclose to the Accountants, and the Accountants will not
consider for any purpose, any settlement offer (other than the Last Offer) made
by any party.
(d) To the extent that the Actual Purchase Price Adjustment Amount,
determined as provided in this Section 1.3 is more or less than the Estimated
Purchase Price Adjustment Amount, Seller or Purchaser, as applicable, will,
within ten calendar days after the final determination of the Actual Purchase
Price Adjustment Amount, calculated on a net basis, pursuant to this Section
1.3, make or, in the case of Purchaser, cause to be made payment by wire
transfer of immediately available funds of the amount of such difference,
together with interest thereon from the Closing Date to the date of payment (at
a rate equal to The Chase
6
<PAGE>
Manhattan Bank's prime rate, as publicly announced and in effect from time to
time during such period, plus 2.0%, calculated on the basis of the actual number
of days elapsed over 365), to such account as has been designated by Purchaser
or Seller, as applicable.
1.4. Intercompany Obligations. Notwithstanding any other provision hereof,
except for the receivables and payables described in Schedule 1.4 ("Post-Closing
AR/AP"), any amount owed by Seller or any of its Affiliates other than the
Purchased Imperial Companies (collectively, "Post-Closing Affiliates"), or owed
by any of the Purchased Imperial Companies to Seller or any Post-Closing
Affiliate, in respect of liabilities, obligations or assets of the Purchased
Imperial Companies of a type that would be shown on a consolidated balance sheet
of any of the Purchased Imperial Companies as "Investments and Advances From
(To) Collins & Aikman Products Co." will be settled at or prior to the Closing
and will not be reflected in the Closing Statement. Effective immediately after
the Closing, all intercompany liabilities and obligations owing from Seller or
any Post-Closing Affiliate to any of the Purchased Imperial Companies or owing
from any of the Purchased Imperial Companies to Seller or any Post-Closing
Affiliate (except for any Post-Closing AR/AP) that is not settled as
contemplated by the immediately preceding sentence will be netted against each
other and the net balance thereof will be discharged and deemed forgiven without
further action or payment, will be deemed contributed to or deducted from
capital of the appropriate Purchased Imperial Company and all such amounts will
be excluded from the determination of Net Cash Flow or Indebtedness under
Sections 1.2 and 1.3. As a result, immediately following the Closing, there will
be no further liability or obligation in respect of any such matters between
Seller or any Post-Closing Affiliate, on the one hand, and the Purchased
Imperial Companies, on the other hand, except as expressly provided herein. Any
holder of a note or other evidence of indebtedness deemed settled pursuant to
this Section 1.4 will surrender such note or other evidence of indebtedness to
the obligor thereon. In addition, and without limiting the generality or effect
of the foregoing, effective as of immediately prior to the Closing, all
contracts and other obligations, other than the Transaction Documents and other
than as set forth on Schedule 1.4, between or among the Purchased Imperial
Companies or any of the Subsidiaries, on the one hand, and Seller or any
Post-Closing Affiliate, on the other hand, will be terminated without further
action to the extent that they would otherwise apply to any period or act
occurring after the Closing. Notwithstanding anything to the contrary in this
7
<PAGE>
Agreement, Purchaser will not assume any liability or obligation (other than
those listed on Schedule 1.4) owed by Imperial Canada to Seller or any
Post-Closing Affiliate of a type that would be shown on a balance sheet of
Imperial Canada and any such liability or obligation will not be included in the
C&A Imperial Canada Assumed Liabilities.
II. REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties of Seller. Subject to Section 2.3,
Seller represents and warrants to Purchaser as follows:
2.1.1 . The Imperial Shares. (a) Except as set forth on Schedule 2.1.1, (i)
Seller owns free and clear of any mortgages, liens, security interests or other
encumbrances (collectively, "Liens") the number of Imperial Shares listed in
Schedule 2.1.1, which Shares represent all of the issued and outstanding shares
of capital stock of Imperial, and (ii) C&A Canada owns the shares of common
stock of Imperial Canada listed in Schedule 2.1.1 as owned by C&A Canada (the
"C&A Canada-Owned Imperial Canada Shares"), which shares, together with the
shares of common stock of Imperial Canada listed in Schedule 2.1.1 as owned by
Imperial (the "Imperial-Owned Imperial Canada Shares"), represent all of the
issued and outstanding shares of capital stock of Imperial Canada.
(b) The Imperial Shares are duly authorized, validly issued and
outstanding, fully paid and nonassessable. The Imperial Shares have not been
issued in violation of, and are not subject to, any preemptive rights, and there
are no outstanding convertible or exchangeable securities, calls, options or
similar Contracts relating to the Imperial Shares or that may require the
Company to issue to any person or entity any shares of any of its capital stock.
Except as listed or described on Schedule 2.1.1, there are no voting trust or
other Contracts restricting the voting, dividend rights or disposition of the
Imperial Shares.
(c) Except as set forth in Schedule 2.1.1, Seller owns the Imperial Shares
beneficially and of record free and clear of all Liens and at the Closing will
Transfer its entire right, title and interest in and to the Imperial Shares to
Purchaser.
(d) The Company does not own, beneficially or of record, any stock or other
ownership interests in, or control, any other entity other than the
Subsidiaries, all of the issued and
8
<PAGE>
outstanding share capital of which is owned by Imperial free and clear of all
Liens (except for the C&A Canada-Owned Imperial Canada Shares and as set forth
on Schedule 2.1.1); and, except as set forth on Schedule 2.1.1, there are no
outstanding convertible or exchangeable securities or agreements giving any
person or entity any right to acquire shares of capital stock of either of the
Subsidiaries and no voting trusts or other Contracts restricting the voting,
dividend rights or disposition of shares of either of the Subsidiaries.
2.1.2. Authorization and Effect of Agreement. Seller has the requisite
corporate power to execute and deliver this Agreement and the other agreements
or instruments referred to herein other than the Recapitalization Agreement,
dated as of the date hereof, between Borden, Inc., BDPH and Purchaser (the
"Borden Agreement") (collectively, the "Transaction Documents") to which Seller
is a party and to perform the transactions contemplated hereby to be performed
by it. All necessary corporate action required to be taken under the Delaware
General Corporation Law for the due authorization of the execution and delivery
by Seller of the Transaction Documents to which Seller is a party and the
performance by Seller of the transactions contemplated thereby to be performed
by it has been duly taken by Seller. Each Transaction Document to which Seller
is a party has been, or will be, as the case may be, duly executed and delivered
by Seller, and, assuming the due execution and delivery of such Transaction
Document by Purchaser, constitutes, or will constitute, as the case may be,
valid and binding obligations of Seller enforceable in accordance with its
terms. Imperial and each of the Subsidiaries is a corporation duly organized,
validly existing and in good standing under the Laws of its jurisdiction of
incorporation.
2.1.3. No Restrictions. The execution and delivery of the Transaction
Documents by Seller, C&A Canada and Imperial to which they are parties does not,
and the performance by Seller, C&A Canada and Imperial of the transactions
contemplated thereby to be performed by them will not, conflict with, or result
in any violation of, or constitute a default (with or without notice or lapse of
time or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or the loss of a benefit under, (i) any provision
of the Certificate of Incorporation or By-laws or comparable governing documents
of Seller, C&A Canada, Imperial or any of the Subsidiaries, (ii) any material
lease, agreement, or other contract or legally binding contractual right or
obligation (a "Contract") of the Company, (iii) any permit or approval
9
<PAGE>
("Permit") issued under any domestic, foreign or other statute, law, ordinance,
rule, regulation, judgment, order, injunction, decree or ruling or common law
obligation ("Law") of any domestic, foreign or other court, government,
governmental agency, authority, entity or instrumentality ("Governmental
Entity"), or (iv) any Law (other than a Law requiring a Permit), other than, as
to clauses (ii), (iii) and (iv), any such conflicts, violations or defaults as
are listed or described on Schedule 2.1.3 or which, individually or in the
aggregate, could not reasonably be expected to result in a material undisclosed
liability of the Company. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required to
be obtained or made by or with respect to Seller or the Company in connection
with the execution and delivery by Seller and C&A Canada of the Transaction
Documents to which they are a party or the performance by Seller and C&A Canada
of the transactions contemplated thereby to be performed by them, except (i) for
the filing of a premerger notification report by an Affiliate of
Seller under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), if applicable in the circumstances, (ii) for such of
the foregoing as are listed or described on Schedule 2.1.3, and (iii) for such
consents, approvals, orders, authorizations of, or registrations, declarations
or filings with, any Governmental Entity, which, individually or in the
aggregate, if not obtained or made, could not reasonably be expected to result
in a material undisclosed liability of the Company.
2.1.4. Financial Statements. (a) Attached as Schedule 2.1.4(a) are the
audited consolidated balance sheets of the Company as of January 27, 1996 and
December 28, 1996, the related audited consolidated statements of stockholders'
equity, operations and cash flows for the fiscal years then ended, accompanied
by the accountant's reports thereon, the unaudited combined balance sheet of the
Company as of September 26, 1997 (the "Balance Sheet") and the unaudited
combined statements of operations for the combined first two fiscal quarters of
1996 and 1997 (collectively, with the related notes, the "Financial
Statements"). The audited Financial Statements present fairly, in all material
respects, the consolidated financial position of the Company as of the dates
thereof and the consolidated results of its operations and cash flows for the
periods specified in conformity with United States generally accepted accounting
principles, consistently applied ("GAAP"), except as set forth in Schedule
2.1.4(a).
10
<PAGE>
(b) Seller will deliver audited consolidated balance sheets of the Company
as of September 26, 1997 and the related audited consolidated statements of
stockholders' equity, operations and cash flows for the nine month periods ended
September 26, 1997 (collectively, with the related notes, the "Offering
Financial Statements") as promptly as practicable and in any event by November
30, 1997. The Offering Financial Statements will present fairly, in all material
respects, the consolidated financial position of the Company as of the dates
thereof and the results of its operations and cash flows for the periods
specified in conformity with GAAP.
(c) The Company does not have, and as of immediately prior to the Closing
will not have, any liabilities or obligations, whether known or unknown,
absolute, accrued, contingent or otherwise, whether due or to become due,
including any uninsured liabilities, and whether arising by virtue of a breach
of or under any Law, any lawsuit or claim or otherwise, that would be required
by GAAP to be shown as a liability on a consolidated balance sheet of the
Company except (i) as and to the extent set forth in the Balance Sheet or
specifically disclosed in the notes thereto, (ii) liabilities incurred in the
ordinary course of business consistent with past practice and not prohibited by
this Agreement, which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect, (iii) as set forth in Schedule
2.1.4(c), and (iv) other liabilities for which Seller is responsible pursuant to
this Agreement.
(d) Except as listed or described on Schedule 2.1.4(d), (i) from September
26, 1997 to November 4, 1997, the Company has conducted the Business only in the
ordinary course, consistent with past practice, (ii) since September 26, 1997
through November 4, 1997, the Company has not taken any action which would have
constituted a violation of Section 3.5 if Section 3.5 had applied since
September 26, 1997, and (iii) during the period from September 26, 1997 to the
Closing Date, there has not been any Material Adverse Effect, including any
damage, destruction, loss or abandonment (whether or not covered by insurance)
which, individually or in the aggregate, has or, to the Knowledge of Seller,
could reasonably be expected to have, a Material Adverse Effect, other than, as
applied to the accuracy of this representation in respect of the period between
the date hereof and the Closing Date, changes or effects after the date hereof
that result from general economic conditions or competitive circumstances in the
markets in which the Business is conducted.
11
<PAGE>
(e) For purposes of this Agreement, the term "Material Adverse Effect"
means an event, circumstance or occurrence that has a material adverse effect on
the Business or the consolidated financial condition or results of operations of
the Company relative, in the case of financial condition or results of
operations, to the management projections for the Business set forth in Schedule
2.1.4(e).
2.1.5. Brokers. No broker, investment banker, financial advisor or other
person (other than BancBoston Securities, Inc. and Wasserstein Perella & Co.,
Inc., the fees and expenses of which will be paid by Seller) is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement.
2.2. Representations and Warranties of Purchaser. Subject to Section 2.3,
Purchaser represents and warrants to Seller as follows:
2.2.1. Authorization and Effect of Agreement. Purchaser has the requisite
corporate power to execute and deliver this Agreement and to perform the
transactions contemplated hereby to be performed by it. All necessary corporate
action required to be taken under the Delaware General Corporation Law for the
due authorization of the execution and delivery by Purchaser of this Agreement
and the performance by Purchaser of the transactions contemplated hereby to be
performed has been duly taken by Purchaser. This Agreement has been duly
executed and delivered by Purchaser and, assuming the due execution and delivery
of this Agreement by Seller constitutes a valid and binding obligation of
Purchaser, enforceable in accordance with its terms.
2.2.2. No Restrictions. The execution and delivery of this Agreement by
Purchaser does not, and the performance by Purchaser of the transactions
contemplated hereby to be performed by it will not, conflict with, or result in
any material violation of, or constitute a material default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or the loss of a material benefit
under, any provision of the charter or bylaws or comparable governing documents
of Purchaser, or any material Contract or Permit applicable to Purchaser other
than any such conflicts, violations or defaults which, individually or in the
aggregate, could not reasonably be
12
<PAGE>
expected to result in a material undisclosed liability of Purchaser. No material
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required to be obtained or made by or
with respect to Purchaser in connection with the execution and delivery of this
Agreement by Purchaser or the performance by Purchaser of the transactions
contemplated hereby to be performed by either of them, except (i) for such of
the foregoing as are listed or described on Schedule 2.2.2 and (ii) for such
consents, approvals, orders, authorizations of, or registrations, declarations
or filings with, any Governmental Entity, which, individually or in the
aggregate if not obtained or made, could not reasonably be expected to result in
a material undisclosed liability of Purchaser.
2.2.3. Financial Capacity. Purchaser has in hand a commitment letter (the
"Commitment Letter"), which is currently in effect and a true and correct copy
of which has been previously provided to Seller, from the financial institutions
indicated therein, as well as the equity commitment letter of Blackstone Capital
Partners III Merchant Banking Fund, L.P. ("Blackstone"), to provide the secured
debt and equity financing contemplated by Purchaser for the transactions
described in this Agreement and has obtained a highly confident letter, a true
and correct copy of which has been previously provided to Seller, with respect
to the subordinated debt financing so contemplated. Blackstone has undertaken to
provide the equity capital contemplated by the Commitment Letter, and a true and
correct copy of such undertaking has been previously provided to Seller.
2.2.4. Disclosure. As of the date hereof, to the Knowledge of Purchaser,
(a) Seller is not in breach of any of its representations and warranties set
forth in Section 2.1.4 and (b) Purchaser has furnished to Seller's financial
advisors all material information pertaining to the Company and the Borden Recap
that such financial advisors have requested prior to the date hereof.
2.3. Certain Limitations on Representations and Warranties. (a) Each of the
parties is a sophisticated legal entity that was advised by experienced counsel
and, to the extent it deemed necessary, other advisors in connection with this
Agreement. Accordingly, each of the parties hereby acknowledges that (i) there
are no representations or warranties by or on behalf of any party hereto or any
of its respective Affiliates or representatives other than those expressly set
forth in this
13
<PAGE>
Agreement and (ii) the parties' respective rights, obligations and remedies
with respect to this Agreement and the events giving rise thereto will be solely
and exclusively as set forth in the Transaction Documents.
(b) Any representation and warranty made in this Agreement by Seller will
be deemed for all purposes to be qualified by the disclosures made in any
Schedule specifically referred to in such representation or warranty and by the
information disclosed in any other Schedule if the relevance of such information
to such representation and warranty is reasonably apparent on its face.
References in this Article to matters "primarily" relating to the Business are
to matters which predominantly relate to the Business rather than predominantly
to one of either Seller's or any Post-Closing Affiliate's other businesses or to
the businesses or operations of Seller or any Post-Closing Affiliate generally.
III. COVENANTS
3.1. Investigation by Purchaser. (a) Prior to the Closing, upon reasonable
notice from Purchaser to Seller given in accordance with this Agreement, Seller
will, and will cause the Company to, afford to the officers, attorneys,
accountants or other authorized representatives of Purchaser reasonable access
during normal business hours to the facilities and the books and records of the
Company so as to afford Purchaser a reasonable opportunity to make, at its sole
cost and expense, such review, examination and investigation of the Company as
Purchaser may reasonably desire to make, including without limitation a
so-called "Phase I" (i.e., documentary review and walk-through site inspection)
preliminary environmental evaluation; provided, however, that no borings or
other so-called "Phase II" environmental examinations will be performed without
Seller's prior written consent, which consent may be given or withheld in
Seller's sole discretion. Purchaser will be permitted to make extracts from or
to make copies of such books and records as may be reasonably necessary. Prior
to the Closing, Seller will furnish to Purchaser, or cause to be furnished to
Purchaser, such financial and operating data and other information pertaining to
the Company as Purchaser may reasonably request; provided, however, that nothing
in this Agreement will obligate Seller to take actions that would unreasonably
disrupt the normal course of business of itself, any Post-Closing Affiliate or
the Company, violate the terms of any applicable Law or rules of any national
stock exchange applicable to it or its Affiliates or any Contract to which any
of them is a party or to which any of them or any of
14
<PAGE>
their assets are subject (to the extent described in reasonable detail in
response to any request for information specified above) or grant access to any
of their proprietary or confidential information not related to the Business.
(b) Subject to Section 3.2, whether or not the Closing occurs, Purchaser
will, and will cause its Affiliates other than Seller to, treat in confidence
all documents, materials and other information (including without limitation
information relating to supply and sales agreements and relationships with third
persons or entities) disclosed by any other party that is not its Affiliate,
whether before, during or after the course of the negotiations leading to the
execution of this Agreement or thereafter, including without limitation in its
investigation of the other parties and in the preparation of agreements,
schedules and other documents relating to the consummation of the transactions
contemplated hereby. Prior to the Closing, and in the event that this Agreement
is terminated, neither Purchaser nor any of its Affiliates will, and if the
Closing occurs, Seller will not and will cause its Affiliates not to, disclose
to any third party any confidential information, except as required by Law or
rules of any national stock exchange or any Governmental Authority applicable to
it or its Affiliates or Purchaser determines is required to be disclosed in
connection with the financing described in Section 2.2.3, subject to Seller's
right to review and reasonably object to such disclosure. If this Agreement is
terminated, Purchaser and each of its Affiliates will return to Seller all
originals and copies of all non-public documents and materials of the type
provided for in this Section 3.1 which have been furnished or made available in
connection with this Agreement, and Purchaser will destroy all notes, analyses,
compilations, studies or other documents which contain or otherwise reflect such
information.
3.2. Press Releases. Prior to the Closing, no party will issue or cause the
publication of any press release or other public announcement with respect to
this Agreement or the transactions contemplated hereby without the prior consent
of the other parties, which consent will not be unreasonably withheld or
delayed; provided, however, that nothing herein will prohibit any party from
issuing or causing publication of any such press release or public announcement
to the extent that such party determines such action to be required by Law or
the rules of any national stock exchange applicable to it or its Affiliates or
prohibit Purchaser from making any disclosure it determines may be reasonably
necessary in furtherance of obtaining the financing contemplated by Section
2.2.3, in which event the party making such determination will, if practicable
in the circumstances, use
15
<PAGE>
reasonable efforts to allow the other parties reasonable time to comment on such
release or announcement in advance of its issuance.
3.3. Regulatory Filings. (a) Not later than two business days after the
date hereof, Purchaser will, and Seller will cause the ultimate parent entity of
Seller to, make such filings, if any, as may be required by the HSR Act with
respect to the consummation of the transactions contemplated by this Agreement.
Thereafter, Purchaser will, and Seller will cause the ultimate parent entity of
Seller to, file or cause to be filed as promptly as practicable with the United
States Federal Trade Commission (the "FTC") and the United States Department of
Justice (the "DOJ") supplemental information, if any, which may be required or
requested by the FTC or the DOJ pursuant to the HSR Act. To the extent required
by Law, Seller will make, or cause any of its Affiliates to make, such filings
and use its reasonable efforts to obtain the governmental approvals and the
other third party consents (if any) referred to in Section 2.1.3, and Purchaser
will each make such filings and use its reasonable efforts to obtain the
governmental approvals and the other third party consents (if any) referred to
in Section 2.2.2. All filings referred to in this Section 3.3(a) will comply in
all material respects with the requirements of the respective Laws pursuant to
which they are made.
(b) Without limiting the generality or effect of Section 3.3(a), each of
the parties will (i) use their respective reasonable efforts to comply as
expeditiously as possible with all lawful requests of Governmental Entities for
additional information and documents pursuant to the HSR Act, if applicable,
(ii) not (A) extend any waiting period under the HSR Act or (B) enter into any
agreement with any Governmental Entity not to consummate the transactions
contemplated by this Agreement, except with the prior consent of each of the
other parties hereto, and (iii) cooperate with each other and use reasonable
efforts to prevent the entry of, and to cause the lifting or removal of, any
temporary restraining order, preliminary injunction or other judicial or
administrative order which may be entered into in connection with the
transactions contemplated by this Agreement, including without limitation the
execution, delivery and performance by the appropriate entity of such
divestiture agreements or other actions, as the case may be, as may be necessary
to secure the expiration or termination of the applicable waiting periods under
the HSR Act or the removal, dissolution, stay or dismissal of any temporary
restraining order, preliminary injunction or other judicial or administrative
16
<PAGE>
order which prevents the consummation of the transactions contemplated hereby or
requires as a condition thereto that all or any part of the Business be held
separate and, prior to or after the Closing, pursue the underlying litigation or
administrative proceeding diligently and in good faith.
3.4. Injunctions. Without limiting the generality or effect of any
provision of Section 3.3, Section 3.6 or Section 3.9 or Article IV, if any
Governmental Entity having jurisdiction over any party issues or otherwise
promulgates any injunction, decree or similar order prior to the Closing which
prohibits the consummation of the transactions contemplated hereby, the parties
will use their respective reasonable efforts to have such injunction dissolved
or otherwise eliminated as promptly as possible and, prior to or after the
Closing, to pursue the underlying litigation diligently and in good faith.
3.5. Operation of the Business. Except in connection with or as a result of
any matter listed or described on Schedule 3.5, as expressly contemplated herein
or as otherwise consented to by Purchaser or requested by Purchaser or any of
its Affiliates, from the date hereof to the Closing Date, Seller will cause the
Company to:
(a) Use reasonable efforts to keep the Business intact (including
without limitation relationships with customers, employees, suppliers and
others) and not take or permit to be taken or do or suffer to be done
anything other than in the ordinary course of business of the Business as
presently conducted, and use reasonable efforts to maintain the goodwill
associated with the Business; without limiting the generality or effect of
the foregoing, (i) in all events Seller will take all actions so that, as
of immediately prior to the Closing, the total accounts payable and accrued
liabilities (other than any liabilities under the Canadian Pension Plan)
included in the C&A Imperial Canada Assumed Liabilities total not more than
$5.0 million and (ii) not effect any transaction between Imperial Canada or
C&A Canada, on the one hand, and any of the Purchased Imperial Companies,
on the other hand, except in the ordinary course of business;
(b) Continue existing practices relating to maintenance of the assets
owned, leased or otherwise held by the Company for use in the Business
("Assets") in good repair, ordinary wear and tear excepted, and continue to
make capital expenditures substantially in accordance with
17
<PAGE>
budgets previously delivered to Purchaser (and Imperial hereby agrees to
continue to make capital expenditures only substantially in accordance with
budgets previously delivered to Purchaser unless each other party otherwise
consents);
(c) Not purchase, sell, lease or dispose of, or enter into any
Contract for the purchase, sale, lease or disposition of, or subject to
Lien, any of the Assets other than (i) Products or (ii) in the ordinary
course of business of the Business;
(d) Not adopt or make any amendment to any Employee Plan or increase
the general rates of compensation of Employees, except (i) as required by
Law or (ii) pursuant to any Contract in effect on the date of this
Agreement (Seller representing that, to the Knowledge of Seller, no
Contract providing for such adoption, amendment or increase is in effect
other than collective bargaining agreements the terms of which have been
previously disclosed to Purchaser);
(e) Not enter into, amend, modify or cancel any material Contract
except in the ordinary course of business consistent with past practice;
(f) Not incur indebtedness for borrowed money, or assume, guarantee,
endorse or otherwise become responsible for the obligations of any other
person or entity, or make loans or advances to any person or entity (other
than advances to Employees in the ordinary course of business consistent
with past practice reflected on the Company's books and records);
(g) Not enter into any joint venture, partnership or similar
arrangement;
(h) Not amend its Certificate of Incorporation or ByLaws;
(i) Not dispose of, permit to lapse or otherwise fail to preserve any
of its Intellectual Property or other similar rights, dispose of or permit
to lapse any material Permit, or dispose of or disclose to any person or
entity other than an authorized representative of Purchaser, any trade
secret (except for such of the foregoing as may occur by operation of Law
or the terms of any of the foregoing);
18
<PAGE>
(j) Not make any change in the accounting methods, principles or
practices of the Business, except as required by GAAP;
(k) Not sell or factor any account receivable of the Business or
otherwise participate in any accounts receivable facility other than to
accept payments made by account debtors to the Company at an existing
lock-box of the Company (which lock-box arrangement will be terminated as
promptly as practicable);
(l) With respect to the Pension Plan for Salaried Employees of
Imperial Wallcoverings (Canada), Inc.(the "Canadian Pension Plan"), (1) not
withdraw any assets from the Canadian Pension Plan other than to pay
benefits in accordance with its existing terms, (2) not make any amendment
to the Canadian Pension Plan and (3) other than as may be required by Law,
make any change to the actuarial assumptions used in determining the
actuarial present value of the liabilities of the Canadian Pension Plan;
(m) Not fail to pay when due any amount owed to a third party,
including without limitation, any Taxes, in accordance with the applicable
payment terms;
(n) Not prepay any obligation of the Company other than (i) in the
ordinary course of business consistent with past practice or (ii)
Indebtedness; and
(o) Not enter into a Contract to do any of the foregoing (other than
as may be required by Section 3.5(a) or 3.5(b).
For purposes of this Agreement, "Intellectual Property" means all patents and
trademarks and all material trade names, service marks and registered
copyrights, and registrations and applications therefor, used or held for use in
the conduct of the Business.
3.6. Satisfaction of Conditions. Without limiting the generality or
effect of any provision of Section 3.3, 3.4 or 3.9 or Article IV, prior to the
Closing, each of the parties hereto will use its respective reasonable efforts
with due diligence and in good faith to satisfy promptly all conditions required
hereby to be satisfied by such party in order to expedite the consummation of
the transactions contemplated hereby.
19
<PAGE>
3.7. Negotiations With Others. From the date hereof until the termination
of this Agreement in accordance with its terms or the Closing, Seller and its
Affiliates will not, and will cause its and their respective officers,
directors, investment bankers, attorneys, accountants and other agents not to:
(i) initiate, solicit (including by way of furnishing information) or accept,
any offer or proposal which constitutes, an Alternative Proposal or (ii) in the
event of an unsolicited Alternative Proposal, engage in substantive discussions
or negotiations, or enter into any Contract, with, or furnish information to,
any Person relating to any Alternative Proposal. All such negotiations prior to
the date hereof have been terminated. For purposes of this Agreement,
"Alternative Proposal" means any proposal or offer from any Person relating to
any acquisition or purchase of all or substantially all of the assets or common
stock of the Company or any merger, consolidation, business combination or
similar transaction involving the Company, other than the transactions
contemplated by this Agreement.
3.8. Certain Additional Covenants. Seller will use its reasonable best
efforts to cause the independent accountants that issued the reports relating to
the Offering Financial Statements to consent to Purchaser's use of the Offering
Financial Statements as may be required by applicable Law in the disclosure
documents relating to the financing contemplated by this Agreement or any
subsequent financing involving a public offering.
3.9. Efforts to Consummate. Subject to the terms and conditions herein
provided, Seller and Purchaser will use their reasonable efforts to take or
cause to be taken, all actions and to do, or cause to be done, all things
necessary to consummate and make effective the transactions contemplated by this
Agreement and to cooperate with the other in connection with the foregoing.
Seller will, at its sole expense, cause to be included in the assets and
properties of the Company prior to the Closing all assets, properties, permits,
authorizations, rights and related obligations which are being used or held for
use primarily or exclusively by the Company (whether or not such assets,
properties, permits, authorizations, rights and related obligations are
presently owned or held by the Company), all on terms and conditions, and
pursuant to documentation, reasonably acceptable to Purchaser.
3.10. Resignations. Prior to the Closing, upon Purchaser's specific
request, Seller will cause to resign or to
20
<PAGE>
be removed from office such officers and directors of Imperial and each of the
Subsidiaries whose full-time employment is not in the Business.
3.11. Certain Conditions. Notwithstanding any other provision hereof, in
the event that the condition to the Closing set forth in Section 4.2.4 is not
satisfied, Purchaser will have no liability or obligation to Seller or any other
Person under any provision of, or actual or alleged breach of, this Article III
(other than Section 3.1(b) or 3.2), the parties hereby expressly acknowledging
and agreeing that Purchaser will have no liability or obligation hereunder if
the Borden Recap shall not have been consummated.
3.12. Certain Pre-Closing Transactions. Prior to the Closing, Seller will
cause Imperial to Transfer to C&A Canada the Imperial-Owned Imperial Canada
Shares for $1.00 and will cause the Imperial Canada Liquidation to be effected
with the result described in the recitals to this Agreement; such Transfer and
Imperial Canada Liquidation will be deemed not to constitute a breach of any
representation, warranty or covenant herein.
IV. THE CLOSING
4.1. Conditions Precedent to Obligations of Purchaser and Seller. The
obligations of Purchaser and Seller under this Agreement to consummate the
transactions contemplated hereby will be subject to the satisfaction, at or
prior to the Closing, of the conditions that there shall be no injunction,
restraining order or decree of any nature of any court or governmental agency or
body of competent jurisdiction that is in effect that prohibits the Closing and
the waiting period (and any extension thereof) applicable to the Imperial Canada
Business Acquisition and the purchase and sale of the Imperial Shares
contemplated hereby under the HSR Act shall have lapsed or been terminated. The
foregoing conditions may be waived (i) insofar as it is a condition to the
obligations of Purchaser, by Purchaser at its option and (ii) insofar as it is a
condition to the obligations of Seller, by Seller at its option.
4.2. Additional Conditions Precedent to Obligations of Purchaser. The
obligations of Purchaser under this Agreement to consummate the transactions
contemplated hereby will be subject to the satisfaction, at or prior to the
Closing, of all of the following conditions, any one or more of which may be
waived at the option of Purchaser:
21
<PAGE>
4.2.1. No Material Breach. There shall have been no material breach by
Seller in the performance of any of the covenants herein to be performed by it
in whole or in part prior to the Closing.
4.2.2. Transfer Documents, Etc. Seller shall have delivered or caused to be
delivered to Purchaser the certificates representing the Imperial Shares, and
certificates representing all shares of capital stock of the Subsidiaries, which
certificates shall have been duly endorsed for transfer or accompanied by duly
executed stock powers, with (if applicable) any required tax stamps affixed
thereto and a Bill of Sale and other transfer documents for the C&A Imperial
Canada Assets, including without limitation, a deed of sale for the owned real
property included in the C&A Imperial Canada Assets, in a form reasonably
acceptable to Purchaser.
4.2.3. Other Documents. Seller shall have duly executed and delivered to
Purchaser a Management Services Agreement in substantially the form of Schedule
4.2.3(a) (the "MSA") and a Noncompetition Agreement in substantially the form of
Schedule 4.2.3(b) (the "NCA"), and Seller shall have delivered to Purchaser an
opinion of Cravath, Swaine & Moore, counsel to Seller, substantially to the
effect set forth in Schedule 4.2.3(c).
4.2.4. Borden Closing. The conditions to the obligations of Purchaser to
consummate the Borden Recap shall have been satisfied or duly waived in
accordance with the requirements thereof.
4.2.5. Material Adverse Change. Since September 26, 1997, there shall not
have occurred (a) a Material Adverse Effect or (b) any event which could
reasonably be expected to have a Material Adverse Effect.
4.2.6. No Litigation. There shall not be pending or threatened any
litigation seeking to enjoin this Agreement or the transactions contemplated
hereby or the Borden Recap or seeking substantial damages as a result thereof.
4.2.7. Certain Approvals. All filings and approvals specified in Schedule
2.1.3 shall have been made or obtained and shall be in full force and effect.
4.2.8. Release of Liens. Seller shall have delivered to Purchaser evidence
reasonably satisfactory to Purchaser of the
22
<PAGE>
release and termination of all Liens in respect of Indebtedness and any
guarantees of indebtedness of Seller or any Post-Closing Affiliate.
4.2.9. Evidence of Imperial Canada Liquidation. Seller shall have furnished
to Purchaser evidence reasonably satisfactory to Purchaser that the Imperial
Canada Liquidation has been effected and that, as a result of the Imperial
Canada Liquidation, C&A Canada has all right, title and interest in and to the
assets of Imperial Canada.
4.3. Additional Conditions Precedent to Obligations of Seller. The
obligations of Seller under this Agreement to consummate the transactions
contemplated hereby will be subject to the satisfaction, at or prior to the
Closing, of all the following conditions, any one or more of which may be waived
at the option of Seller:
4.3.1. No Material Breach. There shall have been no material breach by
Purchaser in the performance of any of the covenants herein to be performed by
it in whole or in part prior to the Closing.
4.3.2. Closing Payment. Purchaser shall have delivered the Closing Payment
to Seller in the manner specified in Section 1.2.
4.3.3. Option. Purchaser shall have executed and delivered to Seller an
Option Agreement in substantially the form of Exhibit A (the "Option Agreement")
under which Seller will have the right (the "Option") to purchase 6.7% of the
common stock of BDPH issuable in the Merger calculated as specified in Footnote
1 of Exhibit A at an initial option exercise price (the "Initial Exercise
Price") calculated in accordance with Note 2 of Exhibit A and otherwise on the
terms set forth in Exhibit A. The Initial Exercise Price will be proportionately
increased to the extent that stockholders of Purchaser make any additional
contributions to the capital of BDPH to fund any adjustments required by Section
1.3 and the comparable provisions of the Borden Agreement.
4.3.4. Other Documents. Purchaser shall have caused the Company to have
duly executed and delivered to Seller the MSA and the NCA, and Purchaser shall
have delivered to Seller an opinion of Jones, Day, Reavis & Pogue, counsel to
Purchaser, substantially to the effect set forth in Schedule 4.3.4.
23
<PAGE>
4.4. The Closing. Subject to the fulfillment or waiver of the conditions
precedent specified in Sections 4.1, 4.2 and 4.3, the consummation of the
purchase and sale of the Shares contemplated hereby (the "Closing") will take
place on December 31, 1997 (or as soon as practicable thereafter as all of the
conditions to the Closing set forth in Section 4.3 are satisfied or waived) (the
actual date of the Closing, the "Closing Date"). The Closing will take place at
10:00 A.M., Eastern Time, at the offices of Jones, Day, Reavis & Pogue, 599
Lexington Avenue, New York, New York 10022 or at such other time or place or on
such date as shall be agreed upon the parties. At the Closing, the parties will
execute and deliver such transfer and assumption documentation as may be
customary to evidence the Transfer of the C&A Imperial Canada Assets and the
assumption of the C&A Imperial Canada Assumed Liabilities, as contemplated
herein.
4.5. Termination. Notwithstanding anything contained in this Agreement to
the contrary, this Agreement may be terminated at any time prior to the Closing:
(a) By the mutual written consent of Purchaser and Seller; (b) By
Purchaser or Seller if the Closing shall not have occurred on or before May
31, 1998 (the "Drop Dead Date");
(c) By either Purchaser or Seller if there shall have been entered a
final, nonappealable order or injunction of any Governmental Entity
restraining or prohibiting the consummation of the transactions
contemplated hereby or any material part thereof;
(d) By Purchaser, in its sole discretion, on December 5, 1997 or, if
later, the fifth day following Seller's delivery of the Offering Financial
Statements, but neither before nor after such date, if the Offering
Financial Statements reflect an adverse difference from the financial
information for the first three quarters of fiscal year 1997 previously
provided to Purchaser by Imperial in any material respect as determined by
Purchaser, which determination will be conclusive for all purposes; or
(e) By Purchaser, in its sole discretion, by notice given to Seller
prior to 5:00 p.m., New York time, on November 5, 1997.
24
<PAGE>
In the event of the termination of this Agreement under this Section 4.5, each
party hereto will pay all of its own fees and expenses. There will be no further
liability hereunder on the part of any party hereto if this Agreement is so
terminated, except under Sections 3.1(b), 3.2 and 7.2 or by reason of a breach
of any covenant or representation or warranty contained in this Agreement,
including without limitation the covenants contained in Sections 3.3, 3.4 and
3.7.
V. SURVIVAL AND INDEMNIFICATION
5.1. Survival of Representations, Warranties and Covenants. (a) Each of the
representations and warranties contained in Article II and in the last sentence
of Section 6.1.3(a) will survive the Closing and remain in full force and effect
until the later of (i) the expiration of the applicable statute of limitations
and (ii) the fifth anniversary of the Closing Date, except that the
representations and warranties contained in clauses (ii) and (iii) of the first
sentence of Section 2.1.3 and Sections 2.1.4, 2.2.2 and 2.2.4 will not survive
the Closing. Any claim for indemnification with respect to such matters which is
not asserted by a notice given as herein provided specifically identifying the
particular breach underlying such claim (whether or not the Indemnifiable Loss
has been actually incurred as of the date of such notice) and the facts and
Indemnifiable Loss relating thereto (to the extent reasonably determinable as of
the date of such notice), within such specified periods of survival may not be
pursued and is hereby irrevocably waived.
(b) The covenants contained in Sections 3.1(b), 3.3(b), 3.4,
3.5(a)(i)-(ii), 3.5(l), 3.5(m), 3.5(n), 3.8 and 3.9 (second sentence only), in
this Article V and in Articles I, VI and VII (the "Post-Closing Covenants") will
survive the Closing and remain in effect indefinitely unless a specified period
is otherwise set forth in this Agreement (in which event such specified period
will control). All other covenants contained in this Agreement will terminate,
without further action, upon the occurrence of the Closing, with the result that
any claim for an alleged breach of any such covenant may not be pursued and is
hereby irrevocably waived.
5.2. Limitations on Liability. (a) For purposes of this Agreement, (i)
"Indemnity Payment" means any amount of Indemnifiable Losses required to be paid
pursuant to this Agreement, (ii) "Indemnitee" means any person or entity
entitled to indemnification under this Agreement, (iii) "Indemnifying
25
<PAGE>
Party" means any person or entity required to provide indemnification under this
Agreement, (iv) "Indemnifiable Losses" means any and all claims, demands,
actions, suits or proceedings (by any person or entity, including without
limitation any Governmental Entity), settlements and compromises relating
thereto and reasonable attorneys' fees and expenses in connection therewith or
in enforcing the Indemnifying Party's obligations hereunder, losses,
liabilities, costs and expenses, reduced by the amount of insurance proceeds
actually received from any person or entity that is not an Affiliate of the
Indemnitee, and (v) "Third Party Claim" means any claim, demand, action, suit or
proceeding made or brought by any person or entity who or which is not a party
to this Agreement or an Affiliate of a party to this Agreement.
(b) After the Closing, as between Seller and any Post-Closing Affiliate, on
the one hand, and Purchaser, the Purchased Imperial Companies and any Affiliate
of either of them, on the other hand, the rights and obligations set forth in
this Article V will be the sole and exclusive remedies for breach of this
Agreement.
5.3. Indemnification. (a) Subject to Sections 5.1, 5.2 and 5.4, Seller
will indemnify, defend and hold harmless Purchaser and its Affiliates and their
respective directors, officers, partners, shareholders, employees, agents and
representatives (including, without limitation, any predecessor or successor to
any of the foregoing) (such persons and entities, "Purchaser Indemnitees") from
and against any and all Indemnifiable Losses relating to, resulting from or
arising out of:
(i) Any breach by Seller of any of the representations or warranties
of Seller contained in this Agreement;
(ii) Any breach by Seller of any Post-Closing Covenant of Seller
contained in this Agreement;
(iii) Any controlled group liability under (A) Title IV of ERISA, (B)
Section 302 of ERISA, (C) Sections 412 and 4971 of the Internal Revenue
Code of 1986, as amended (the "Code"), (D) continuation coverage
requirements of Sections 601, et seq. of ERISA and Section 4980B of the
Code, and (E) corresponding or similar provisions of foreign Laws, other
than such liabilities that arise solely out of, or relate solely to,
Employees or Former Employees;
26
<PAGE>
(iv) All Indemnifiable Losses incurred by any Purchaser Indemnitee by
reason of any liability or obligation of Seller or any of its Post-Closing
Affiliates that does not solely arise out of the Business or the Company;
and
(v) The assertion against Purchaser or any of its Affiliates of any
liability or obligation of Imperial Canada or C&A Canada that is not a C&A
Imperial Canada Assumed Liability.
(b) Subject to Sections 5.1, 5.2 and 5.4, Purchaser will, and, if the
Closing occurs, Imperial, jointly and severally with Purchaser will, indemnify,
defend and hold harmless Seller and each Post-Closing Affiliate and their
respective directors, officers, partners, shareholders, employees, agents and
representatives (including, without limitation, any predecessor or successor to
any of the foregoing) (such persons and entities, "Seller Indemnitees") from and
against any and all Indemnifiable Losses relating to, resulting from or arising
out of:
(i) Any breach by Purchaser of any of the representations or
warranties of Purchaser contained in this Agreement;
(ii) Any breach by Purchaser of any Post-Closing Covenant of Purchaser
contained in this Agreement;
(iii) The Assumed Push-Down Liabilities;
(iv) All Indemnifiable Losses incurred by any Seller Indemnitee by
reason of any liability or obligation of the Company that solely arises out
of the Business or the operations of the Company, provided, however, that
this Section 5.3(b)(iv) will not apply to any matter for which Purchaser is
entitled to indemnification under Section 5.3(a); and
(v) The assertion against Seller or any of its Post-Closing Affiliates
of any C&A Imperial Canada Assumed Liability.
5.4. Defense of Claims. (a) If any Indemnitee receives notice of the
assertion or commencement of any Third Party Claim against such Indemnitee with
respect to which an Indemnifying Party is obligated to provide indemnification
under this Agreement, the Indemnitee will give such Indemnifying Party
27
<PAGE>
reasonably prompt written notice thereof, but in any event not later than 30
calendar days after receipt of such written notice of such Third Party Claim.
Such notice by the Indemnitee will describe the Third Party Claim in reasonable
detail, will include copies of all material written evidence thereof and will
indicate the estimated amount, if reasonably practicable, of the Indemnifiable
Loss that has been or may be sustained by the Indemnitee. The Indemnifying Party
will have the right to participate in, or, by giving written notice to the
Indemnitee, to assume, the defense of any Third Party Claim at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel (reasonably
satisfactory to the Indemnitee), and the Indemnitee will cooperate in good faith
in such defense.
(b) If, within ten calendar days after giving notice of a Third Party
Claim to an Indemnifying Party pursuant to Section 5.4(a), an Indemnitee
receives written notice from the Indemnifying Party that the Indemnifying Party
has elected to assume the defense of such Third Party Claim as provided in the
last sentence of Section 5.4(a), the Indemnifying Party will not be liable for
any legal expenses subsequently incurred by the Indemnitee in connection with
the defense thereof; provided, however, that if the Indemnifying Party fails to
take reasonable steps necessary to defend diligently such Third Party Claim
within ten calendar days after receiving written notice from the Indemnitee that
the Indemnitee believes the Indemnifying Party has failed to take such steps or
if the Indemnifying Party has not undertaken fully to indemnify the Indemnitee
in respect of all Indemnifiable Losses relating to the matter, the Indemnitee
may assume its own defense, and the Indemnifying Party will be liable for all
reasonable costs or expenses paid or incurred in connection therewith. Without
the prior written consent of the Indemnitee, the Indemnifying Party will not
enter into any settlement of any Third Party Claim which would lead to liability
or create any financial or other obligation on the part of the Indemnitee for
which the Indemnitee is not entitled to indemnification hereunder, or which
provides for injunctive or other non-monetary relief applicable to the
Indemnitee or does not include an unconditional release of all Indemnified
Parties. If a firm offer is made to settle a Third Party Claim without leading
to liability or the creation of a financial or other obligation on the part of
the Indemnitee for which the Indemnitee is not entitled to indemnification
hereunder and the Indemnifying Party desires to accept and agree to such offer,
the Indemnifying Party will give written notice to the Indemnitee to that
effect. If the Indemnitee fails to consent to such firm offer within ten
calendar days after its receipt of such notice, the Indemnitee
28
<PAGE>
may continue to contest or defend such Third Party Claim and, in such event, the
maximum liability of the Indemnifying Party as to such Third Party Claim will
not exceed the amount of such settlement offer.
(c) Any claim by an Indemnitee on account of an Indemnifiable Loss which
does not result from a Third Party Claim (a "Direct Claim") will be asserted by
giving the Indemnifying Party reasonably prompt written notice thereof, but in
any event not later than 30 calendar days after the Indemnitee becomes aware of
such Direct Claim. Such notice by the Indemnitee will describe the Direct Claim
in reasonable detail, will include copies of all material written evidence
thereof and will indicate the estimated amount, if reasonably practicable, of
the Indemnifiable Loss that has been or may be sustained by the Indemnitee. The
Indemnifying Party will have a period of 30 calendar days within which to
respond in writing to such Direct Claim. If the Indemnifying Party does not so
respond within such 30 calendar day period, the Indemnifying Party will be
deemed to have rejected such claim, in which event the Indemnitee will be free
to pursue such remedies as may be available to the Indemnitee on the terms and
subject to the provisions of this Agreement.
(d) A failure to give timely notice or to include any specified information
in any notice as provided in Sections 5.4(a), 5.4(b) or 5.4(c) will not affect
the rights or obligations of any party hereunder except and only to the extent
that, as a result of such failure, any party which was entitled to receive such
notice was deprived of its right to recover any payment under its applicable
insurance coverage or was otherwise prejudiced as a result of such failure.
(e) If the amount of any Indemnifiable Loss, at any time subsequent to the
making of an Indemnity Payment to the Indemnitee, is reduced by recovery,
settlement or otherwise under or pursuant to any insurance coverage, or pursuant
to any claim, recovery, settlement, rebate or other payment by or against any
other person or entity, the amount of such reduction, less any costs, expenses,
premiums or taxes incurred in connection therewith, will promptly be repaid by
the Indemnitee to the Indemnifying Party. Upon making any Indemnity Payment the
Indemnifying Party will, to the extent of such Indemnity Payment, be subrogated
to all rights of the Indemnitee against any third person or entity that is not
an Affiliate of the Indemnitee in respect of the Indemnifiable Loss to which the
Indemnity Payment relates; provided, however, that (i) the Indemnifying Party
shall
29
<PAGE>
then be in compliance with its obligations under this Agreement in respect of
such Indemnifiable Loss and (ii) until the Indemnitee recovers full payment of
its Indemnifiable Loss, any and all claims of the Indemnifying Party against any
such third person or entity on account of said Indemnity Payment will be
subrogated and subordinated in right of payment to the Indemnitee's rights
against such third person or entity. Without limiting the generality or effect
of any other provision hereof, each such Indemnitee and Indemnifying Party will
duly execute upon request all instruments reasonably necessary to evidence and
perfect the above-described subrogation and subordination rights.
VI. OTHER POST-CLOSING COVENANTS
6.1. Personnel Matters.
6.1.1. Employees and Employee Benefit Plans. (a) Purchaser and Imperial,
jointly and severally, will indemnify Seller and each of its Affiliates for any
Indemnifiable Loss relating to, resulting from or arising out of any change by
Purchaser or any of its affiliates, including the Company, in employee plan
benefits or levels of compensation following the Closing Date from those
existing on the Closing Date or any liability or obligation to any Employee in
the event that Purchaser or any of its affiliates, including the Company,
terminates the employment of any person who is an Employee as of the Closing
Date. Subject to Section 6.1.4, effective as of the Closing Date, Purchaser
will, or will cause one of its Affiliates to, offer employment to each person
employed as of the Closing Date by C&A Canada that would have been employed by
Imperial Canada but for the Imperial Canada Liquidation ("Imperial Canada
Employees").
(b) Purchaser agrees that, under any employee benefit plan made available
or established after the Closing, Employees will receive credit for their years
of service with Seller, any Post-Closing Affiliate or the Company prior to the
Closing in determining eligibility and vesting thereunder, and in determining
the amount of benefits under any applicable sick leave, vacation or severance
plan. Purchaser will, or will cause one of its Affiliates to, cover Employees
and Former Employees as of the Closing under a group health plan and waive any
preexisting condition limitations applicable to Employees under any group health
plan made available to Employees to the extent that an Employee's condition
would not have operated as a preexisting condition limitation under any
applicable group health plan prior to the Closing, and Purchaser will, or will
30
<PAGE>
cause one of its Affiliates to, take all action necessary to ensure that
Employees and Former Employees are given full credit for all co-payments and
deductibles incurred under any group health plan for the plan year that includes
the Closing Date.
(c) For purposes of this Agreement, the term "Employee Plan" means each
employee benefit plan as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and each other material plan,
program, agreement or arrangement, whether or not subject to ERISA, that (i)
provides benefits for Employees or Former Employees and (ii) is maintained by
Seller, any Post-Closing Affiliate or the Company or to which Seller, any
Post-Closing Affiliate or the Company contributes or is obligated to contribute,
or under which Seller, any Post-Closing Affiliate or the Company is liable in
respect of Employees or Former Employees. As used in this Agreement, (A) the
term "Employee" means each person (if any) listed or described as such on
Schedule 6.1.1 and each person who is an Imperial Canada Employee or is employed
by the Company as of the Closing(Seller hereby covenanting that no such person
will be so employed who also works for Seller or any Post-Closing Affiliate) and
(B) the term "Former Employee" means any person formerly so employed by the
Company in the conduct of the Business but does not include person who became an
employee of Seller (or any entity that is or was an Affiliate of Seller)
following the termination of their employment with the Company. The terms
"Employee" and "Former Employee" will include, where an Employee Plan provides
benefits for beneficiaries or dependents, the beneficiaries and dependents of an
Employee or Former Employee.
6.1.2. Assumption of Obligations. (a) Effective as of the Closing,
Purchaser will cause the Company to assume and be solely responsible for all
liabilities and obligations of any of Seller and each Post-Closing Affiliate
arising at any time and relating to the employment or termination of employment
of any Employee or Former Employee, except to the extent that any of such
liabilities or obligations are expressly retained by any Seller or any
Post-Closing Affiliate pursuant to this Section 6.1. Notwithstanding the
foregoing but subject to the provisions of Section 6.1.1, Seller will retain and
be solely responsible for all liabilities and obligations relating to or arising
out of the deemed termination of any Imperial Canada Employee arising solely by
virtue of the fact that the Imperial Canada Business Transaction is in the form
of a sale to Purchaser of assets rather than the capital stock of Imperial
Canada.
31
<PAGE>
(b) Except as provided in Section 6.1.3, effective as of the Closing,
Purchaser will cause the Company to, assume and be solely responsible for all
liabilities and obligations of Seller or any Post-Closing Affiliate with respect
to Employees and Former Employees under any Employee Plan and Seller and each
Post-Closing Affiliate will be relieved of all liabilities and obligations with
respect to such Employee Plans. The liabilities and obligations assumed by
Purchaser and all of its Affiliates pursuant to this Section 6.1.2(b) include
without limitation (i) any liability or obligation relating to (x) short-term
and long-term disability benefits, (y) group medical benefits, and (z) retiree
health and life insurance benefits; including in each case any claims for
disability, medical, health and life insurance benefits incurred prior to the
Closing; and (ii) any liability or obligation to provide such Employees and
Former Employees and their qualified beneficiaries with continuation coverage
(within the meaning of Section 4980B(f)(2) of the Code) under each Employee Plan
that is a group health plan, and any liability or obligation relating to such
coverage, including without limitation any liability or obligation to provide
such Employees and Former Employees with the notice required under Section
4980B(f)(6) of the Code with respect to qualifying events that occur as a result
of the Transfer of the Assets. Notwithstanding the foregoing, neither Purchaser
nor any of its Affiliates will assume any liabilities or obligations with
respect to Seller's cafeteria plan arrangement arising out of any failure of
Seller to set forth the terms of such plan in a written plan document.
(c) Purchaser and Seller will, and Seller will cause C&A Canada to, take
all steps (i) as are necessary (including obtaining all required governmental or
third party consents) to effect the assumption by Purchaser or one of
Purchaser's Affiliates of the Employee Benefit Plans (other than the plans
referred to in Section 6.1.3) maintained or sponsored by Imperial Canada prior
to the Imperial Canada Liquidation and the collective bargaining agreements
covering Employees employed by Imperial Canada prior to the Imperial Canada
Liquidation and (ii) as are reasonably calculated to ensure that Purchaser or
its Affiliate assuming such plans and collective bargaining agreements do not
incur any obligations or liabilities with respect to such plans and agreements
that are greater than, or in addition to, C&A Canada's obligations or
liabilities as successor to Imperial Canada's obligations or liabilities under
the terms of such plans and agreements as of the Closing Date.
6.1.3. Retirement Plans. (a) As of the Closing, Seller will cause Employees
to fully vest in their accrued benefits
32
<PAGE>
under the Collins & Aikman Corporation Employees' Profit Sharing and Personal
Savings Plan (the "Savings Plan") and the Collins & Aikman Corporation
Employees' Pension Account Plan (the "Pension Plan" and, together with the
Savings Plan, the "Retirement Plans"). Except as provided in Section 6.1.3(b),
neither Purchaser nor any of its Affiliates will assume any liabilities or
obligations with respect to the Retirement Plans, which will be retained by
Seller. As soon as practicable after the Closing, to the extent permitted by Law
and the terms of the Pension Plan, Seller will permit distributions to Employees
of their accrued benefits under the Pension Plan. Purchaser will, or will cause
one of its Affiliates to, take all action necessary to cause one or more
qualified retirement plans maintained by Purchaser or any one of its Affiliates
to accept an eligible rollover distribution (within the meaning of Section
402(f)(2) of the Code) of the amounts distributed from the Pension Plan to each
Employee who shall become an employee of Purchaser's affiliated group and a
rollover contribution (within the meaning of Section 408(d)(3) of the Code) with
respect to such amounts. To the extent distributions from the Pension Plan are
not permitted under Law, Purchaser and Seller will take such mutually agreed
upon action with respect to Employees' benefits, whether that be a spin-off,
trustee-to-trustee transfer to a plan maintained by Purchaser or any of its
Affiliates, or retention in the Pension Plan for eventual distribution pursuant
to the terms of such plan. All distributions under the Pension Plan will satisfy
all requirements for funding as are required by Law giving effect to the
transactions contemplated by this Agreement. Seller represents and warrants that
distributions to Employees as contemplated by this Section 6.1.3 are permitted
by the terms of the Pension Plan.
(b) As soon as reasonably practicable following the Closing, Seller will
cause the trustee of the Savings Plan to transfer the account balances of
Employees and Former Employees to the trustee of a qualified defined
contribution plan maintained by Purchaser or any one of its Affiliates
("Purchaser's Plan"). Such transferred account balances will be made in cash
except to the extent any portion of an account balance represents a participant
loan, in which case the participant's loan obligation will be transferred to the
trustee of Purchaser's Plan. The assets transferred from the Savings Plan to
Purchaser's Plan will be equal to the account balances of the transferring
Employees and Former Employees as of the valuation date immediately preceding
the date of transfer. No transfer of assets to Purchaser's Plan will occur until
Purchaser and Seller have received such assurances as are reasonable that
33
<PAGE>
the applicable provisions of the Code have been satisfied. Purchaser will take
such action as may be necessary to cause Purchaser's Plan to provide each such
Employee and Former Employee after the transfer with an initial account balance
that is at least equal to the account balance transferred with respect to such
Employee and Former Employee from the Savings Plan, and to provide all benefits
protected by law, including optional forms of benefit.
(c) Purchaser and Seller will, and Seller will cause Imperial Canada to,
take all steps as are necessary or reasonably requested by Purchaser, to
transfer the sponsorship of the Canadian Pension Plan to Purchaser, or one of
Purchaser's Affiliates (including obtaining all required governmental and third
party consents). To the extent such a transfer is not permitted by the terms of
the Canadian Pension Plan or applicable Law, Seller and Purchaser will permit
distributions or make other arrangements in the same manner as contemplated with
respect to Pension Plan by the third and fourth sentences of Section 6.1.3(a),
subject to applicable law.
6.1.4. Employment and Plan Amendments or Terminations. Except as provided
in Section 6.1.1, no provision of this Section 6.1 will limit Purchaser's or any
of its Affiliates' right and authority to discontinue, suspend or modify the
employment of any Employee or benefits provided to any or all Employees or
Former Employees after the Closing; provided, however, that in the event of any
such discontinuance, suspension or modification Purchaser will, or will cause
one of its Affiliates to, remain liable for all Employee Plan and other employee
benefit liabilities or obligations assumed pursuant to this Agreement and will
indemnify, defend and hold harmless Seller, each Post-Closing Affiliate and
their respective directors, officers, partners, employees, agents and
representatives (including without limitation any predecessor or successor to
any of the foregoing) from and against any and all Indemnifiable Losses they may
suffer or incur as a result thereof. Neither Seller nor any Post-Closing
Affiliate will be liable for any liability or obligation that may arise from the
amendment or termination by Purchaser or any of its Affiliates of any employee
benefit plan assumed, established or continued by Purchaser or any of its
Affiliates under this Section 6.1.
6.1.5. Transitional Matters. Each of Seller and Purchaser will use its
respective reasonable efforts to cooperate to (a) transfer to Purchaser or any
of its Affiliates any insurance and administrative services contracts that
Purchaser wishes to
34
<PAGE>
continue with respect to any Employee Plan that Purchaser or any of its
Affiliates is assuming or continuing pursuant to this Agreement and (b) cause
any insurance carrier administering workers' compensation and other employee
benefit liabilities or obligations assumed by Purchaser or any of its Affiliates
to deal directly with Purchaser or such Affiliate.
6.1.6. Employee Information. Each of Seller and Purchaser will provide the
other, in a timely manner, any information with respect to any Employee's or
Former Employee's employment with and compensation from Seller, any Post-Closing
Affiliate or Purchaser or any of its Affiliates, as the case may be, or rights
or benefits under any employee benefit plan which the other party hereto may
reasonably request.
6.2. General Post-Closing Matters.
6.2.1. Post-Closing Notifications. Purchaser and Seller will, and each will
cause its respective Affiliates to, comply with any post-Closing notification or
other requirements, to the extent then applicable to such party, of any
antitrust, trade competition, investment, control or other Law of any
Governmental Entity having jurisdiction over the Business.
6.2.2. Access. (a) On the Closing Date, or as soon thereafter as
practicable, and in no event later than 30 calendar days after the Closing Date,
Seller will deliver or cause to be delivered to Purchaser all original
agreements, documents, books, records, including without limitation Employee
records and records relating to obligations of the Company to Employees under
Employee Plans retained or assumed by Purchaser or the Company hereunder, and
files primarily relating to the Business or the Company (collectively,
"Records") in the possession of Seller or any Post-Closing Affiliate to the
extent not in the possession of the Company or Purchaser, subject to the
following exceptions:
(i) Purchaser recognizes that certain Records may contain only
incidental information relating to the Company or may primarily relate
to Seller or any Post-Closing Affiliate, or the businesses of Seller
or any Post-Closing Affiliate other than the Business, and Seller and
its Post-Closing Affiliates may retain such Records and Seller may
deliver appropriately excised copies of such Records; and
(ii) Seller and each Post-Closing Affiliate may retain any Tax
Returns so long as true and complete copies of the portions thereof
relating to the Business are delivered to
35
<PAGE>
Purchaser at or before the Closing or made available to Purchaser
following the Closing.
After the Closing, each party will, and will cause its Affiliates to, retain all
Records (except those Records referred to in Section 6.2.2(a)(i) and (ii))
required to be retained pursuant to obligations imposed by any applicable Law.
Except as provided in the immediately preceding sentence, each party will, and
will cause its Affiliates to, retain all Records for a period of seven years
after the Closing Date. After the end of such seven-year period, before
disposing, or permitting its Affiliates to dispose, of any such Records, each
party will, and will cause its Affiliates to, give notice to such effect to the
other party and give the other party at its cost and expense an opportunity to
remove and retain all or any part of such Records as the other party may elect.
(b) After the Closing, upon reasonable notice, each party hereto will give,
or cause to be given, to the representatives, employees, counsel and accountants
of the other parties hereto access, during normal business hours, to Records
relating to periods prior to or including the Closing, and will permit such
persons to examine and copy such Records to the extent reasonably requested by
the other party in connection with tax and financial reporting matters
(including, without limitation, any Tax Return relating to state or local real
property transfer or gains taxes), audits, legal proceedings, governmental
investigations and other business purposes and to make inquiries relating
thereto of the relevant personnel; provided, however, that nothing herein will
obligate any party to take actions that would unreasonably disrupt the normal
course of its business, violate the terms of any contract to which it is a party
or to which it or any of its assets is subject or grant access to any of its
proprietary, confidential or classified information (except to the extent
required for purposes of defending or prosecuting any third party lawsuits or
administrative or other adjudicative proceedings ("Legal Proceedings")). Each
party will, and will cause its respective Affiliates controlled by it to,
provide or make available to the other and the other's respective Affiliates
access to employees of Purchaser and the Company for the purposes of, and with
the limitations described in, the preceding sentence (including without
limitation for the purpose of providing, and preparing to provide, testimony in
connection with third party Legal Proceedings).
6.2.3. Certain Tax Matters. (a) Seller will prepare and file or cause to be
prepared and filed all Income Tax Returns for
36
<PAGE>
the Purchased Imperial Companies required to be filed with the appropriate
foreign, United States, state and local taxing authorities for any taxable
period that ends on or before the Closing Date (each a "Pre-Closing Tax
Period"). Seller will prepare and, if required to do so by applicable Law,
deliver to Purchaser for signing and filing any Income Tax Returns of the
Purchased Imperial Companies with respect to any Pre-Closing Tax Period
(including any short period) that have not been filed prior to the Closing Date.
Seller will pay all Taxes required to be paid with respect to such Tax Returns.
Seller will prepare and file or cause to be prepared and filed all Income Tax
Returns for Imperial Canada and will pay all Income Taxes required to be paid
with respect to such Tax Returns.
(b) Except as otherwise provided in Section 6.2.3(a) or Section 6.2.3(c),
Purchaser will prepare and file or cause to be prepared and filed all Tax
Returns for the Purchased Imperial Companies that are required to be filed with
the appropriate United States, state, local and foreign taxing authorities for
all periods as to which such Tax Returns are due after the Closing Date (taking
into account all extensions of due dates). Subject to Section 6.2.3(r) and
Section 6.2.3(v), Purchaser will pay or cause to be paid all Taxes required to
be paid with respect to such Tax Returns.
(c) With respect to any taxable period that would otherwise include but not
end on the Closing Date, to the extent permissible pursuant to applicable Law,
Seller will, and Purchaser will cause the Purchased Imperial Companies and
Imperial Canada to, insofar as possible, (i) take all steps as are or may be
reasonably necessary, including without limitation the filing of elections or
returns with applicable taxing authorities, to cause such period to end on the
Closing Date or (ii) if clause (i) is inapplicable, report (insofar as possible)
the operations of the Purchased Imperial Companies only for the portion of such
period ending on the Closing Date in a combined, consolidated or unitary Tax
Return filed by Seller or a Post-Closing Affiliate, and report the operations of
Imperial Canada only for the portion of such period ending at the close of
business on the Closing Date, notwithstanding that such taxable period does not
end on the Closing Date. If clause (ii) applies to a taxable period of the
Purchased Imperial Companies, the portion of such taxable period included in
such return filed by Seller will be treated as a Pre-Closing Tax Period
described in Section 6.2.3(a) and Purchaser will not be responsible for filing
such return for such portion of such year pursuant to Section 6.2.3(b), provided
that the foregoing will not relieve
37
<PAGE>
Purchaser of its obligation under Section 6.2.3(b) to file a Tax Return
reporting the operations of the Purchased Imperial Companies for the portion of
such taxable period beginning after the Closing Date. If it is not possible for
a Tax Return to be filed for Non-Income Taxes that reports the operations of
Imperial Canada only for the period ending at the close of business on the
Closing Date, the parties shall cooperate in preparing a return for the whole
taxable period.
(d) Purchaser will prepare and deliver, or will cause to be prepared and
delivered, within 60 calendar days of receipt of Seller's request therefor, to
Seller, Seller's standard international, federal and state Income Tax Return
data gathering packages relating to the Purchased Imperial Companies, and
Seller's standard Tax Return data gathering packages relating to the Non-Income
Taxes of Imperial Canada (if appropriate pursuant to Section 6.2.3(c)). Such
packages will be prepared on a basis consistent with the prior year's Income Tax
or Non-Income Tax (if appropriate) Returns. In addition to providing such
packages to Seller, Purchaser will promptly provide or cause to be provided to
Seller such other information as Seller may reasonably request in order for the
operations of the Company to be properly reported in such Income Tax or
Non-Income Tax(if appropriate) Returns.
(e) Seller will indemnify, defend and hold harmless Purchaser and each of
its Affiliates from and against any and all liability for any taxable period as
a result of Treasury Regulation Section 1.1502-6 (or any comparable provision of
state, local or foreign law) for Income Taxes of any corporation, other than the
Purchased Imperial Companies which is or has been affiliated with Seller or
Collins & Aikman Corporation, a Delaware corporation ("C&A Corp.").
(f) Purchaser is eligible to and will make a timely and effective election
under Section 338(g) of the Code (and any comparable provision of state or local
law) with respect to the purchase of the Imperial Shares hereunder. Both Seller
and Purchaser are eligible to, and Purchaser will make and Seller will cause C&A
Corp. to make, a timely and effective election under Section 338(h)(10) of the
Code (and any comparable provision of state or local law) with respect to such
purchase (the "Section 338(h)(10) Election").
(g) At the Closing, Purchaser will deliver to Seller a completed Internal
Revenue Service Form 8023A, and the required schedules thereto ("Form 8023A"),
providing for the Section
38
<PAGE>
338(h)(10) Election. Provided that the information on such Form 8023A is, in the
reasonable determination of Seller, correct and complete in all material
respects, Seller will, at the Closing, execute and deliver such Form 8023A to
Purchaser. If any changes or supplements are required to the Form 8023A as a
result of any information that is first available after the Closing, Seller and
Purchaser will promptly agree upon and make such changes. Purchaser and Seller
(or C&A Corp.) will timely file the Form 8023A, and any required supplements
thereto, and will provide written evidence to the other that it has done so.
(h) Purchaser and Seller agree that neither of them will take, or permit
their Affiliates to take, any action to modify or revoke the elections contained
in or the content of any Form 8023A without the express written consent of the
other party.
(i) Seller will pay and indemnify and hold Purchaser and Imperial harmless
from (i) any and all Taxes arising from the Section 338(h)(10) Election and (ii)
any Tax liability, cost or expense arising out of the failure to pay such Tax.
Seller will also pay any state or local Tax (and indemnify and hold Purchaser
and the Purchased Imperial Companies harmless against any Tax liability, cost or
expense arising out of any failure to pay such Tax) attributable to any election
under state or local law comparable to the election available under Section
338(g) of the Code (or which results from the making of an election under
Section 338(g) of the Code) with respect to Purchaser's acquisition of the
Purchased Imperial Companies.
(j) Purchaser and Seller agree to report transactions under this Agreement
consistent with the Section 338(h)(10) Election and will take no position
contrary thereto unless required to do so pursuant to a final determination by
any Taxing authority or judicial proceeding.
(k) Seller will cause any tax sharing agreements between the Company and
Seller or any other Post-Closing Affiliate to be terminated, effective as of the
Closing Date, to the extent that any such agreement relates to the Company.
(l) Purchaser and Seller agree that for purposes of all Tax Returns and
other appropriate documents, (i) $10 million of the Purchase Price will be
allocated to the Imperial Canada Business Acquisition, (ii) the balance of the
Purchase Price and the liabilities of the Purchased Imperial Companies (plus
other relevant items) will be allocated to the assets of the Purchased Imperial
Companies (with the Option deemed for this purpose to be
39
<PAGE>
valued at $6 million) in a manner consistent with the purchase price allocation
to be determined by the parties in accordance with Treasury Regulation Section
1.338(h)(10)-1, and (iii) the sum of $10 million and the C&A Imperial Assumed
Liabilities will be allocated among the C&A Imperial Canada Assets as follows:
(A) Purchaser will propose such an allocation and (B) if Seller disagrees in
good faith, after consultation with its Canadian tax advisors, with Purchaser's
proposed allocation, Purchaser, Seller and their respective Canadian tax
advisors will negotiate to determine such an allocation based on the principle
that Purchaser's proposed allocation will be used to the maximum extent
permitted by Canadian tax law. Such allocation as finally determined will be
evidenced by a writing signed by Seller and Purchaser. The parties agree that,
if requested by Seller, the parties will make any election under Canadian tax
law necessary to permit C&A Canada or Imperial Canada to treat any loss on
accounts receivable as an ordinary loss unless Purchaser determines in its sole
discretion that such election could have a negative impact on Purchaser or any
of its Affiliates.
(m) On or before the Closing Date, Seller agrees to provide Purchaser and
the Company with all required clearance certificates or similar documents that
may be required by any state, local or other Taxing authority in order, to the
extent allowed, to relieve Purchaser of any obligation to withhold any portion
of the Purchase Price. If necessary to avoid sales or use Taxes, Seller will, to
the extent allowed, provide Purchaser with all appropriate state and local
resale certificates.
(n) Seller will furnish to Purchaser on or before the Closing Date a
certification of Seller's non-foreign status as set forth in Treasury Regulation
Section 1.1445-2(b).
(o) Seller, Purchaser and the Company will reasonably cooperate with each
other in connection with the preparation and filing of all Tax Returns or any
audit examinations for any period, including without limitation the timely
furnishing or making available of records, books of account and any other
information necessary for the preparation of the Tax Returns.
(p) (i) With respect to any Income Tax Return of the Purchased Imperial
Companies for a Pre-Closing Tax Period and any Income Tax Return of Imperial
Canada for any tax period, Seller and its duly appointed representatives will
have the sole right, at its or their expense, to supervise or otherwise
coordinate any examination process and to negotiate, resolve, settle or contest
any asserted Tax deficiencies or assert and prosecute any claims
40
<PAGE>
for refund; notwithstanding the foregoing, without the express written consent
of Purchaser or Imperial, which consent will not be unreasonably withheld or
delayed, Seller will not file any amended Tax Return, settle any Tax claim or
assessment, or surrender any right to claim a refund of Tax, if such action
could have the effect of increasing the Tax liabilities of the Purchased
Imperial Companies or Purchaser.
(ii) With respect to any other Tax Return of C&A Imperial Canada or the
Purchased Imperial Companies, Purchaser, the Purchased Imperial Companies and
their duly appointed representatives will have the sole right, at the expense of
Purchaser or the Purchased Imperial Companies, to supervise or otherwise
coordinate any examination process and to negotiate, resolve, settle or contest
any asserted Tax deficiencies or assert and prosecute any claims for refund;
notwithstanding the foregoing, without the express written consent of Seller,
which consent will not be unreasonably withheld or delayed, neither Purchaser
nor the Purchased Imperial Companies will file any amended Tax Return, settle
any Tax claim or assessment, or surrender any right to claim a refund of Tax, if
such action could have the effect of increasing the Tax liabilities of Seller or
any Post-Closing Affiliate.
(iii) Each party hereto will notify the other within 30 calendar days
(unless action is required sooner, then as soon as practicable) of the assertion
of any claim or the commencement of any suit, action, proceeding, investigation
or audit with respect to the operations of the Company that is the subject of
this Section 6.2.3(p), and will provide the other copies (subject to deletion of
nonrelevant information) of all correspondence relating to such contest.
(q) (i) "Income Tax" or "Income Taxes" means all Taxes imposed on, measured
by or which require reference to, net or taxable income (including any income,
franchise, estimated, alternative, minimum, add-on minimum or other Tax imposed
on, measured by or which require reference to, net or taxable income), together
with interest and penalties thereon and estimated payments thereof, (ii) "Taxes"
means all federal, state, local, foreign and other taxes (including without
limitation income, profits, premium, estimated, excise, sales, use, occupancy,
gross receipts, franchise, ad valorem, severance, capital levy, production,
transfer, withholding, social security, employment, unemployment compensation,
payroll-related and property taxes, alternative minimum, estimated stamp, value
added, windfall profits, import duties and other governmental
41
<PAGE>
charges and assessments), whether or not measured in whole or in part by net
income, and including deficiencies, interest, additions to tax or additional
amounts, interest and penalties with respect thereto (such term shall also
include any "Taxes" as to which the Company is liable as a successor or
transferee or pursuant to a contractual obligation), (iii) "Non-Income Taxes"
means all Taxes that are not Income Taxes, and (iv) "Tax Returns" means all
returns, reports or information returns or statements relating to Taxes as are
required to be filed with any United States, state, local and foreign taxing
authorities.
(r) Seller will defend, indemnify and hold harmless Purchaser and the
Purchased Imperial Companies and their respective directors, officers,
employees, agents and representatives (including, without limitation, any
predecessor or successor to any of the foregoing) from and against any breach of
a covenant contained in this Section 6.2.3 and against the following Taxes and,
except as otherwise provided in Section 6.2.3(s), against any loss, damage,
liability, or expense, including reasonable fees for attorneys and consultants,
incurred in contesting or otherwise in connection with any such Taxes and in
enforcing their rights under this Section 6.2.3: (i) all Income Taxes imposed on
the Purchased Imperial Companies with respect to taxable periods ending before
or on the Closing Date, (ii) all Income Taxes of Imperial Canada with respect to
any Tax period, (iii) with respect to taxable periods beginning before the
Closing Date and ending after the Closing Date, Income Taxes imposed on the
Purchased Imperial Companies that are allocable, pursuant to Section 6.2.3(s),
to the portion of such period ending on the Closing Date, (iv) all Non-Income
Taxes of Imperial Canada that arise or accrue after the close of business on the
Closing Date, and (v) all Canadian Non-Income Taxes arising out of or related to
the pre-Closing transfer pricing practices of Seller and its Affiliates.
(s) Purchaser will, and, if the Closing occurs, Imperial jointly and
severally with Purchaser will, indemnify, defend and hold harmless Seller, each
Post-Closing Affiliate and their respective directors, officers, partners,
employees, agents and representatives (including, without limitation, any
predecessor to any of the foregoing) from and against (i) all Income Taxes
imposed on the Purchased Imperial Companies with respect to taxable periods
beginning after the Closing Date and, with respect to taxable periods beginning
before the Closing Date and ending after the Closing Date, Income Taxes imposed
on the Purchased Imperial Companies that are allocable, pursuant to Section
6.2.3(t), to the portion of such period beginning after
42
<PAGE>
the Closing Date, (ii) all Income Taxes relating to or arising out of the
operation by Purchaser or any of its Affiliates of the business of Imperial
Canada after the Closing Date, (iii) all Non-Income Taxes of the Purchased
Imperial Companies with respect to any Tax period and Non-Income Taxes of
Imperial Canada that arise or accrue through the close of business on the
Closing Date, in each case other than sales and transfer Taxes which are
Seller's responsibility pursuant to Section 6.2.3(v) and Taxes which are
Seller's responsibility pursuant to Section 6.2.3(r)(v), and (iv) any loss,
damage, liability, or expense, including reasonable fees for attorneys and
consultants, incurred in contesting or otherwise in connection with any such
Taxes and in enforcing their rights under this Section 6.2.3.
(t) In the case of Income Taxes of the Purchased Imperial Companies and
Non-Income Taxes of Imperial Canada that are payable with respect to a taxable
period that begins before the Closing Date and ends after the Closing Date, the
portion of any such Tax that is allocable to the portion of the period ending on
the Closing Date or, in the case of Non-Income Taxes of Imperial Canada, at the
close of business on the Closing Date, will be deemed equal to the amount that
would be payable if the taxable year ended immediately prior to the Closing Date
(including the taxable years of organizations in which the Company owns a
partnership interest or equity interest) (except that, solely for purposes of
determining the marginal tax rate applicable to income or receipts during such
period in a jurisdiction in which such tax rate depends upon the level of income
or receipts, annualized income or receipts may be taken into account if
appropriate for an equitable sharing of such Taxes). The portion of Tax
allocable to the portion of the period ending on the Closing Date shall be
computed on a per diem basis in the case of Taxes that are neither (x) Income
Taxes nor (y) imposed in connection with any sale or other transfer or
assignment of property, real or personal, tangible or intangible.
(u) Any Tax refund (or comparable benefit resulting from a reduction in Tax
liability) for a period ending on or before the Closing Date arising out of the
carryback of a loss or credit incurred by the Purchased Imperial Companies in a
taxable period (or allocable portion thereof) ending after the Closing Date will
be the property of Purchaser and, if received by Seller or any Post-Closing
Affiliate will be paid over promptly to Purchaser (including any interest
received from or credited thereon by the applicable taxing authority). Any other
Income Tax refund for a period ending on or before the Closing Date or for the
allocable portion of a period including the Closing Date will be the
43
<PAGE>
property of Seller. Purchaser will pay or cause the Company to pay to Seller all
refunds or credits of Taxes (including any interest received from or credited
thereon by the applicable taxing authority) received by Purchaser or any of its
Affiliates after the Closing Date and attributable to Income Taxes paid by the
Purchased Imperial Companies or any other Post-Closing Affiliate with respect to
a Pre-Closing Tax Period or by Seller. Such payment will be made to Seller
promptly after receipt of any such refund from, or allowance of such credit by,
the relevant taxing authority. In all other events, any Tax refund will be the
property of the Purchased Imperial Companies and paid to the Purchased Imperial
Companies.
(v) Seller and Purchaser will each pay one-half of all sales and transfer
Taxes, if any, which may be payable with respect to the consummation of the
transactions contemplated by this Agreement, including any and all sales,
transfer, recording and other Taxes arising from the Imperial Canada Business
Acquisition being effected in the form of a purchase and sale of assets rather
than a stock acquisition, and to the extent any exemptions from such Taxes are
available Seller and Purchaser will cooperate to prepare any certificates or
other documents necessary to claim such exemptions.
6.2.4. Insurance. With respect to any loss, liability or damage suffered by
Purchased Imperial Companies after the Closing Date relating to, resulting from
or arising out of the conduct of the Business prior to the Closing Date or
included in the C&A Imperial Canada Assumed Liabilities, for which Seller or any
Post-Closing Affiliate would be entitled to assert, or cause any other Person to
assert, a claim for recovery under any policy of insurance maintained by Seller
or a Post-Closing Affiliate or for the benefit of Seller or the Company, in
respect of the Business, products, employees or the Company ("Insurance"), at
the request of Purchaser, Seller will use its reasonable efforts to assert, or
to assist Purchaser or the Purchased Imperial Companies to assert, one or more
claims under such Insurance covering such loss, liability or damage if Purchaser
or any of the Purchased Imperial Companies is not itself entitled to assert such
claim, provided that all of Seller's and any Post-Closing Affiliate's
out-of-pocket costs and expenses incurred in connection with the foregoing,
including without limitation any liability, obligation or expense referred to in
the last sentence of this Section 6.2.4, are promptly reimbursed by Purchaser.
Seller will be deemed, solely for the purpose of asserting claims for Insurance
pursuant to the immediately preceding sentence, to have assumed or retained
liability for such loss, liability or damage to the
44
<PAGE>
extent of the policy limits of the applicable policy of Insurance; provided,
however, that (a) Purchaser's obligations under Section 5.3(b) will not be
affected by the provisions of this Section 6.2.4 and (b) with respect to any
claim made at the request of Purchaser or the Purchased Imperial Companies by
Seller or any Seller Affiliate under any Insurance pursuant to this Section
6.2.4, Purchaser will indemnify, defend and hold harmless Seller and each
Post-Closing Affiliate and their respective directors, officers, partners,
employees, agents and representatives (including without limitation any
predecessor or successor of any of the foregoing) from and against any
Indemnifiable Loss relating to, resulting from or arising out of any deductible,
policy limit, obligation, indemnity, reinsurance due to the liquidation or
insolvency of the reinsurer, self-insurance retention, premium adjustments
resulting from claims made at the request of Purchaser or the Purchased Imperial
Companies under this Section 6.2.4 or other like arrangement by which any such
entity retains any liability or obligation under any such policy of Insurance or
otherwise.
6.2.5. Receivables. As of the Closing, Seller will terminate any agreements
to which Imperial or any of the Subsidiaries is a party that is related to the
accounts receivables facility operated by a finance subsidiary of Seller for its
affiliates and Seller will indemnify, defend and hold harmless the Company or
Purchaser for any Indemnifiable Loss arising out of the Company's prior
participation in this facility or performance under such agreements, provided,
however, that the foregoing indemnity obligation will not apply to any loss on
the sale of receivables prior to the Closing Date or the collection (or failure
to collect) the receivables. Seller hereby agrees that all monies (regardless of
any prior discount or loss on sale) collected after the Closing by Seller or any
Post-Closing Affiliate with respect to receivables attributable to the Company
will be paid to the Company within three business days of Seller's or
Post-Closing Affiliate's receipt thereof.
6.2.6. Surety Obligations. (a) From and after the Closing, Purchaser will,
and will cause the Company to, use reasonable efforts to obtain and have issued
replacements for any guarantee, performance bond, letter of credit or other
agreement guaranteeing or securing liabilities and obligations (including
without limitation in respect of operating or other leases and the surety bonds
listed on Schedule 6.2.6) (collectively, "Surety Obligations") relating to the
Business or the Company under which Seller or any Post-Closing Affiliate has any
liability to a third party and to obtain any amendments, novations, releases,
waivers,
45
<PAGE>
consents or approvals necessary to release Seller and each Post-Closing
Affiliate to such Surety Obligations from all liability thereunder relating to
the Business or the Company, in each case as promptly as practicable. In the
event and for the period that Purchaser and the Company fail to obtain any such
replacement, amendment, novation, release, waiver, consent or approval, without
limiting the generality of Section 5.3(b), Purchaser will indemnify, defend, and
hold harmless Seller and each Post-Closing Affiliate and their respective
directors, officers, partners, employees, agents and representatives (including
without limitation the predecessors or successors of any of the foregoing) from
and against any Indemnifiable Loss relating to, resulting from or arising out of
any such failure by Purchaser or the Company.
(b) From and after the Closing, Seller will use reasonable efforts to
obtain and have issued replacements for any Surety Obligations relating to any
business other than the Business or any Post-Closing Affiliate or under which
the Company has any liability to a third party and to obtain any amendments,
novations, releases, waivers, consents or approvals necessary to release the
Company from all liability thereunder relating to any business other than the
Business or any Post-Closing Affiliate, in each case as promptly as practicable.
In the event and for the period that Seller fails to obtain any such
replacement, amendment, novation, release, waiver, consent or approval, without
limiting the generality of Section 5.3(a), Seller will indemnify, defend, and
hold harmless the Company and its respective Affiliates, directors, officers,
partners, employees, agents and representatives (including without limitation
the predecessors or successors of any of the foregoing) from and against any
Indemnifiable Loss relating to, resulting from or arising out of any such
failure by Seller.
6.2.7. Assumed Push-Down Liabilities. Without further action, effective as
of the Closing, the Company will assume the liabilities of Seller listed on
Schedule 6.2.7 (the "Assumed Push-Down Liabilities") but only to the extent
related exclusively to the Business.
6.2.8. 1994 Financial Statements. Seller will deliver as promptly as
practicable after Purchaser's written request, audited consolidated balance
sheets of the Company as of January 28, 1995 and the related audited
consolidated statements of stockholders' equity, operations and cash flows for
the fiscal year then ended, accompanied by the accountant's report thereon.
46
<PAGE>
6.2.9. Certain Contracts. (a) Notwithstanding anything to the contrary in
this Agreement, to the extent that (i) any Contract that is a C&A Imperial
Canada Asset (an "Assumed Contract") is not capable of being assigned to
Purchaser in connection with the Closing without the consent or waiver of a
third Person (including without limitation a Governmental Entity) which has not
been obtained on or before the Closing Date, or (ii) any of the transactions
contemplated by this Agreement constituted or would constitute a breach of any
Assumed Contract, or a violation of any Law or Order or other governmental
edict, Seller will be deemed not to have Transferred, and will not be obligated
to Transfer, to Purchaser any direct or indirect right, title or interest in or
to any such Contract without first having obtained all necessary consents and
waivers. Seller will use reasonable efforts to obtain such consents and waivers
as may be necessary to cure such potential breach or violation; provided,
however, but without affecting Seller's obligations under Section 5.3, Seller
will not be obligated to pay any consideration therefor to the party from whom
the consent or waiver is requested. Purchaser agrees that neither Seller nor any
of its Affiliates will have any liability whatsoever arising out of or relating
to the failure to obtain any consents or waivers that may have been or may be
required in connection with the transactions contemplated by this Agreement or
because of a breach of, default under or termination of any Assumed Contract as
a result thereof.
(b) To the extent that the consents and waivers referred to in the
immediately preceding paragraph are not obtained, or until the breaches or
violations referred to in the immediately preceding paragraph are resolved,
Seller will use reasonable efforts, (i) with reasonable costs of Purchaser and
its Affiliates related thereto to be promptly reimbursed by Seller, to provide
to Purchaser, at its request, the benefits of any such Contract and cooperate in
any reasonable and lawful arrangement designed to provide such benefits to
Purchaser, without incurring any financial obligation to Seller or any of its
Affiliates, and (ii) with reasonable costs of Seller and its Affiliates related
thereto to be promptly reimbursed by Purchaser, to enforce, at the request and
for the account of Purchaser, any rights of Seller arising from any such
Contract against the other party or parties to such Contract (including the
right to elect to terminate in accordance with the terms thereof upon the advice
of Purchaser). Notwithstanding any provision to the contrary contained herein,
Purchaser will perform or pay for the benefit of the other party or parties
47
<PAGE>
thereto the obligations of Seller under or in connection with any such Contract
and will indemnify and hold Seller and its Affiliates harmless from any
Indemnifiable Losses relating to, resulting from or arising out of any failure
by Purchaser so to perform or pay. Purchaser will comply with all reasonable
requests of Seller for cooperation in connection with the performance of
Seller's obligations under this Section 6.2.9.
VII. MISCELLANEOUS PROVISIONS
7.1. Notices. All notices and other communications required or
permitted hereunder will be in writing and, unless otherwise provided in this
Agreement, will be deemed to have been duly given when delivered in person or by
a nationally recognized overnight courier service or when dispatched during
normal business hours by electronic facsimile transfer (confirmed in writing by
mail simultaneously dispatched) to the appropriate party at the address
specified below:
(a) If to Purchaser, to:
BDPI Holdings Corporation
c/o The Blackstone Group
345 Park Avenue
New York, New York 10154
Facsimile No.: (212) 754-8720
Attention: Mr. David A. Stockman
Senior Managing Director
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Facsimile No.: (212) 755-7306
Attention: Robert A. Profusek, Esq.
(b) If to Seller, to:
Collins & Aikman Products Co.
701 McCullough Drive
Charlotte, North Carolina 28262
Facsimile No.: (704) 548-2010
Attention: Corporate Counsel
48
<PAGE>
with a copy to:
Collins & Aikman Products Co.
1556 Third Avenue
Suite 603
New York, New York 10128
Facsimile No.: (212) 410-9314
Attention: Elizabeth R. Philipp, Esq.
Executive Vice President - Law
or to such other address or addresses as any such party may from time to time
designate as to itself by like notice.
7.2. Expenses. Except as otherwise expressly provided herein, (a) Seller
will pay or cause to be paid all expenses incurred by Seller incident to this
Agreement and in preparing to consummate and consummating the transactions
provided for herein and (b) Purchaser will pay any expenses incurred by it
incident to this Agreement and in preparing to consummate and consummating the
transactions provided for herein, including without limitation the fees and
expenses of any broker, finder, financial advisor or similar person engaged by
such party.
7.3. Successors and Assigns. (a) Subject to Section 7.3(b), this Agreement
will be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but will not be assignable or
delegatable by any party without the prior written consent of the other parties
hereto. Notwithstanding the foregoing sentence, Purchaser may assign any of its
rights or obligations under this Agreement to any lender to Purchaser or any
subsidiary of Purchaser as security for obligations to such lender in respect of
the financing arrangements entered into in connection with the transactions
contemplated hereby and any refinancings, extensions, refundings or renewals
thereof, or to any subsidiary of Purchaser or BDPH or any entity of which
Purchaser is a subsidiary, provided however, that no assignment hereunder shall
in any way affect Purchaser's or the Company's obligations or liabilities under
this Agreement.
(b) Nothing in this Agreement is intended to limit Purchaser's ability to
sell or to Transfer the Shares following the Closing Date provided that such
sale or Transfer will not result in a termination of any of Purchaser's
covenants, duties, responsibilities, obligations or liabilities hereunder,
including without limitation under Sections 3.1(b) and Articles V and VI,
49
<PAGE>
unless the person or entity acquiring the Shares pursuant to such sale or
Transfer assumes all of such covenants, duties, responsibilities, obligations
and liabilities in a written instrument reasonably satisfactory to Seller.
7.4. Waiver. Either Purchaser or Seller by written notice to the other may
(a) extend the time for performance of any of the obligations or other actions
of the other under this Agreement, (b) waive any inaccuracies in the
representations or warranties of the other contained in this Agreement, (c)
waive compliance with any of the conditions or covenants of the other contained
in this Agreement, or (d) waive or modify performance of any of the obligations
of the other under this Agreement; provided, however, that neither Purchaser nor
Seller may, without the prior written consent of the other, make or grant such
extension of time, waiver of inaccuracies or compliance or waiver or
modification of performance with respect to its (or any of its Affiliates')
representations, warranties, conditions or covenants hereunder. Except as
provided in the immediately preceding sentence, no action taken pursuant to this
Agreement will be deemed to constitute a waiver of compliance with any
representations, warranties or covenants contained in this Agreement and will
not operate or be construed as a waiver of any subsequent breach, whether of a
similar or dissimilar nature.
7.5. Entire Agreement. This Agreement (including the Schedules hereto)
supersedes any other agreement, whether written or oral, that may have been made
or entered into by any party or any of their respective Affiliates (or by any
director, officer or representative thereof) prior to the date hereof relating
to the matters contemplated hereby. This Agreement (together with the Schedules
hereto) constitutes the entire agreement by and among the parties hereto and
there are no agreements or commitments by or among such parties or their
Affiliates except as expressly set forth herein.
7.6. Amendments, Supplements, Etc. This Agreement may be amended or
supplemented at any time by additional written agreements as may mutually be
determined by Purchaser and Seller to be necessary, desirable or expedient to
further the purposes of this Agreement, or to clarify the intention of the
parties hereto.
7.7. Rights of the Parties. Except as provided in Article V or in Sections
6.2.3 and 7.3, nothing expressed or implied in this Agreement is intended or
will be construed to confer upon or give any person or entity other than the
parties
50
<PAGE>
hereto and their respective Affiliates any rights or remedies under or
by reason of this Agreement or any transaction contemplated hereby.
7.8. Further Assurances. From time to time, whether at or after the Closing
as and when requested by either Purchaser or Seller, the other will execute and
deliver, or cause to be executed and delivered, all such documents and
instruments as may be reasonably necessary or otherwise reasonably requested by
Purchaser or Seller to consummate the transactions contemplated by this
Agreement or otherwise to carry out the intent and purpose of this Agreement and
to assure that the Company holds all of the assets, properties, permits,
authorizations, rights and related obligations used or held for use primarily or
exclusively in the Business, including without limitation the proper filing,
registration or recordation of such documents and instruments.
7.9. Applicable Law; Jurisdiction. This Agreement and the legal relations
among the parties hereto will be governed by and construed in accordance with
the substantive Laws of the State of New York, without giving effect to the
principles of conflict of laws thereof.
7.10. Titles and Headings. Titles and headings to Sections herein are
inserted for convenience of reference only, and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
7.11. Certain Interpretive Matters and Definitions. (a) Unless the context
otherwise requires, (i) all references to Sections or Schedules are to Sections
or Schedules of or to this Agreement, (ii) each term defined in this Agreement
has the meaning assigned to it, (iii) each accounting term not otherwise defined
in this Agreement has the meaning assigned to it in accordance with GAAP, (iv)
"or" is disjunctive but not necessarily exclusive, (v) words in the singular
include the plural and vice versa, (vi) the terms "subsidiary" and "Affiliate"
have the meanings given to those terms in Rule 12b-2 of Regulation 12B under the
Securities Exchange Act of 1934, as amended, provided, however, that, except
with respect to Section 1.3, none of Purchaser, its parent or any entity
controlled by either of them will be deemed to be Affiliates of Seller and none
Seller, C&A Corp. or any entity controlled by either of them will be deemed to
be Affiliates of Purchaser, (vii) all references to "$" or dollar amounts will
be to lawful currency of the United States of America, and (viii) "Knowledge of
Seller" means solely to the actual knowledge of the persons listed
51
<PAGE>
on Schedule 7.11(a), and (ix) "Knowledge of Purchaser" means solely to the
actual knowledge of the persons listed on Schedule 7.11(b).
(b) No provision of this Agreement will be interpreted in favor of, or
against, any of the parties hereto by reason of the extent to which any such
party or its counsel participated in the drafting thereof or by reason of the
extent to which any such provision is inconsistent with any prior draft hereof
or thereof.
7.12. Bulk Transfer Laws. Purchaser hereby waives compliance by Seller with
the provisions of any so-called "bulk transfer" Law of any jurisdiction in
connection with the sale of the C&A Imperial Canada Assets to Purchaser.
52
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
COLLINS & AIKMAN PRODUCTS CO.
By:_____________________________
Name:______________________
Title:_____________________
IMPERIAL WALLCOVERINGS, INC.
By:_____________________________
Name:______________________
Title:_____________________
BDPI HOLDINGS CORPORATION
By:_____________________________
Name:______________________
Title:_____________________
<PAGE>
AGREEMENT
This Agreement, dated as of March 13, 1998, is made and entered into
by and among The Imperial Home Decor Group Inc., a Delaware corporation (the
"Company"), Collins & Aikman Products Co., a Delaware corporation ("C&A" and,
together with its Permitted Transferees of Option Shares, collectively
"Holder"), and The Imperial Home Decor Group Holdings LLC, a Delaware limited
liability company and a stockholder of the Company ("Holdings").
RECITALS
A. BDPI Holdings Corporation, a Delaware corporation ("Purchaser"),
agreed to acquire the entire issued and outstanding share capital of Imperial
Wallcoverings, Inc., a Delaware corporation ("Imperial") and the assets and
liabilities of C&A's Imperial Canada business, pursuant to an Amended and
Restated Acquisition Agreement, dated as of November 4, 1997 and amended and
restated as of March 9, 1998, among C&A, Imperial and Purchaser (the
"Acquisition Agreement");
B. Purchaser effected the recapitalization of the Company pursuant to,
among other transactions, the merger (the "Merger") of Purchaser into the
Company, whereupon by virtue of the Merger the Company assumed Purchaser's
obligations under the Acquisition Agreement; and
C. The Acquisition Agreement provides for this Agreement to be entered
into by the parties hereto.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the parties hereto hereby agree as follows:
1. Grant of Option. The Company hereby grants to C&A an option (the
"Option") to purchase 397,812 shares (the "Option Shares") of Common Stock at a
purchase price per Option Share payable upon the exercise of the Option (the
"Option Price") of $20.80 per Option Share, payable in cash in immediately
available funds upon exercise of the Option as provided in Section 2. The
Option Price and the number and kind of Option Shares purchasable upon exercise
of the Option are subject to adjustment pursuant to Section 3.
2. Exercise of Option. (a) The Option may be exercised by C&A, in
whole or in part, at any time and, subject to the last sentence of this Section
2, from time to time after the date hereof and prior to 5:00 p.m., New York,
New York time on March 13, 2003, (the "Expiration Date") by delivering to the
Company, at its principal office designated for such purpose, the following:
<PAGE>
(i) a written notice of exercise of the Option duly
executed by Holder (a "Notice of Exercise"); and
(ii) cash, a certified or bank cashier's check payable to
the order of the Company or a wire transfer to an account designated
by the Company, in each case in an amount in immediately available
funds equal to the product of (A) the number of Option Shares and (B)
the Option Price.
If Holder delivers a Notice of Exercise as to less than all of the Option
Shares, the Option will expire without further action to the extent then
unexercised unless such Notice of Exercise is given in respect of a transaction
referred to in Section 7.3 or 7.4, in which event the Option may be exercised
in part (to the extent that Option Shares are included in any such transaction)
and will remain in effect in accordance with its terms with respect to the
unexercised portion thereof.
(b) As promptly as practicable after the exercise of the
Option in accordance with Section 2(a), and in any event within 10 Business
Days after such exercise, the Company will (i) requisition from any transfer
agent for the Common Stock certificates representing the Option Shares, (ii)
after receipt of such certificates, cause them to be delivered to C&A,
registered in C&A's name, and (iii) if applicable, deliver to or upon the order
of C&A the amount of cash to be paid in lieu of the issuance of fractional
Option Shares in accordance with the provisions of Section 4.
(c) The Company will take all such action as may be necessary
to ensure that all Option Shares delivered upon exercise of the Option, at the
time of delivery of the certificates for such Option Shares, will (subject to
payment of the Option Price) be (i) duly and validly authorized and issued,
fully paid and nonassessable and (ii) if shares of Common Stock are then listed
on any national securities exchange (as defined in the Securities Exchange Act
of 1934, as amended) or qualified for quotation on the National Association of
Securities Dealers, Inc. Automated Quotation System, duly listed or qualified
for quotation thereon, as the case may be.
(d) The Company will pay all expenses of the preparation,
issuance and delivery of certificates representing Option Shares in connection
with any exercise of the Option in accordance with Section 2(a), including any
documentary or stamp taxes payable as a result of the issuance of Option Shares
to C&A. In connection with any exercise of the Option in accordance with
Section 2(a), the Option will be deemed to have been exercised, any certificate
representing Option Shares issued on account thereof will be deemed to have
been issued and the Person in whose name any such certificate is issued will be
deemed for all purposes to have become a holder of record of the Option Shares
represented thereby as of the date of such exercise.
3. Adjustments of Option Price and Option Shares. The Option Price and
the number and kind of Option Shares purchasable upon exercise of the Option
will be subject to
2
<PAGE>
adjustment from time to time upon the occurrence of certain events as provided
in this Section 3.
3.1. Mechanical Adjustments. The Option Price and the number and kind
of Option Shares purchasable upon exercise of the Option will be subject to
adjustment as follows:
(a) Subject to Section 3.1(c), if the Company (i) pays a
dividend or otherwise distributes to holders of its Common Stock, as
such, shares of its capital stock (whether Common Stock or capital
stock of any other class), (ii) subdivides its outstanding shares of
Common Stock into a greater number of shares of Common Stock, (iii)
combines its outstanding shares of Common Stock into a smaller number
of shares of Common Stock, or (iv) issues any shares of its capital
stock in a reclassification of its outstanding shares of Common Stock
(excluding any such reclassification in connection with a
consolidation, merger or other business combination transaction), then
the number and kind of Option Shares purchasable upon exercise of the
Option immediately prior thereto will be adjusted so that C&A will be
entitled to receive (A) in the case of a dividend or distribution, the
sum of (1) the number of Option Shares that, if the Option had been
exercised immediately prior to such adjustment, C&A would have
received upon such exercise and (2) the number and kind of additional
shares of capital stock that C&A would have been entitled to receive
as a result of such dividend or distribution by virtue of its
ownership of the Option Shares, (B) in the case of a subdivision or
combination, the number of Option Shares that, if the Option had been
exercised immediately prior to such adjustment, C&A would have
received upon such exercise, adjusted to give effect to such
subdivision or combination as if the Option Shares had been subject
thereto, or (C) in the case of an issuance in a reclassification, the
sum of (1) the number of Option Shares that, if the Option had been
exercised immediately prior to such adjustment, C&A would have
received upon such exercise and retained after giving effect to such
reclassification as if the Option Shares had been subject thereto and
(2) the number and kind of additional shares of capital stock that C&A
would have been entitled to receive as a result of such
reclassification as if the Option Shares had been subject thereto. An
adjustment made pursuant to this Section 3.1(a) will become effective
immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution in the
case of a dividend or distribution and will become effective
immediately after the effective date of such subdivision, combination
or reclassification in the case of a subdivision, combination or
reclassification.
(b) (i) In the event of a distribution by the
Company to holders of its outstanding common stock of stock of a
subsidiary or securities convertible into or exercisable for such
stock, then in lieu of an adjustment in the number of Option Shares
purchasable upon the exercise of the Option, C&A will be entitled to
(A) receive from such subsidiary, an option (a "Subsidiary Option")
having terms (including adjustments of number of option shares and
exercise price) substantially similar to the terms of the
3
<PAGE>
Option and (B) an adjustment to the Option Price, such that the
Exercise Price plus the exercise price of the Subsidiary Option shall
equal the Option Price immediately prior to such distribution.
(ii) If the Company distributes to holders of its Common
Stock evidences of indebtedness of the Company or assets or securities
other than Common Stock (including any contractual or other right to
purchase Common Stock but excluding ordinary cash dividends payable
out of consolidated retained earnings and dividends or distributions
referred to in Section 3.1(a)) (any such evidences of indebtedness,
assets or securities, the "assets or securities"), then, in each case,
the Option Price shall be adjusted by subtracting from the Option
Price then in effect the fair market value of the assets or securities
that C&A would have been entitled to receive as a result of such
distribution had the Option been exercised and the relevant Option
Shares issued in the name of C&A immediately prior to the record date
for such distribution; provided, however, that if such adjustment
would result in an Option Price of less than $0.01 per share (or such
other amount equal to the then par value of the Common Stock), then
the Company shall distribute such assets or securities to C&A as if
C&A had exercised the Option and the Option Shares had been issued in
the name of C&A immediately prior to the record date for such
distribution.
(c) No adjustment in the number of Option Shares purchasable
upon the exercise of the Option will be required unless such
adjustment would require an increase or decrease in the number of
Option Shares purchasable upon the hypothetical exercise of the Option
of at least 1%. All calculations with respect to the number of Option
Shares will be made to the nearest one-thousandth of a share and all
calculations with respect to the Option Price will be to the nearest
whole cent.
(d) Whenever the number of Option Shares purchasable upon the
exercise of the Option is adjusted as herein provided, the Option
Price will be correspondingly adjusted by multiplying the Option Price
in effect immediately prior to such adjustment by a fraction, the
numerator of which will be the number of Option Shares purchasable
upon the exercise of the Option immediately prior to such adjustment,
and the denominator of which will be the number of Option Shares so
purchasable immediately thereafter.
(e) For the purpose of this Section 3, the term "Common
Stock" means (i) the class of shares designated as the Common Stock of
the Company as of the date of this Agreement, (ii) all shares of any
class or classes (however designated) of the Company, now or hereafter
authorized, the holders of which have the right, without limitation as
to amount, either to all or to a part of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of
which are ordinarily entitled to vote generally in the election of
directors of the Company, or (iii) any other class of shares resulting
from
4
<PAGE>
successive changes or reclassifications of such shares consisting
solely of changes in par value, or from par value to no par value, or
from no par value to par value.
3.2. Notice of Adjustment. Whenever the Option Price or the number or
kind of Option Shares purchasable upon exercise of the Option is adjusted
pursuant to any of the provisions of this Agreement, the Company will promptly
give notice to C&A of such adjustment or adjustments, together with a
certificate of a firm of independent public accountants selected by the Company
(who may be the regular accountants employed by the Company) setting forth the
adjustments in the Option Price and the number or kind of Option Shares
purchasable upon exercise of the Option, and also setting forth a brief
statement of the facts requiring such adjustments and the computations upon
which such adjustments are based. Such certificate will be conclusive evidence
of the correctness of such adjustments.
3.3. Preservation of Purchase Rights Upon Merger, Consolidation, Etc.
In case of any consolidation of the Company with or merger of the Company into
another corporation or in case of any sale or transfer to another entity in any
one transaction or series of related transactions effected pursuant to a common
plan of all or substantially all the assets of the Company (any such
transaction, a "Company Sale"), the Company or such successor, as the case may
be, will execute an agreement providing that C&A will have the right
thereafter, upon payment of an amount equal to the amount payable upon the
exercise of the Option immediately prior thereto, to purchase upon exercise of
the Option in accordance with Section 2 the kind and amount of securities or
property that it would have owned or have been entitled to receive after giving
effect to the Company Sale on account of the Option Shares that would have been
purchasable upon the exercise of the Option had the Option been exercised
immediately prior thereto, provided that (a) to the extent that C&A would have
been so entitled to receive cash on account of such Option Shares, C&A may
elect in connection with the exercise of the Option in accordance with Section
2.1 to reduce the amount of cash that it would be entitled to receive upon such
exercise in exchange for a corresponding reduction in the amount payable upon
such exercise), (b) no adjustment in respect of dividends, interest or other
income on or from such shares or other securities or property will be made
during the term of the Option or upon the exercise of the Option, and (c)
nothing herein will diminish or otherwise affect the provisions of Sections 7.3
and 7.4. Such agreement will provide for adjustments that will be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 3. The provisions of this Section 3.3 will similarly apply to
successive consolidations, mergers, sales or transfers.
4. Fractional Interests. The Company may, but will not be required to,
issue fractional Option Shares or fractional interests in any other securities
on the exercise of the Option. If any fraction of an Option Share or other
security would, except for the provisions of this Section 4, be issuable upon
the exercise of the Option, the Company will pay or issue, as the case may be,
such fractional interest or, at the Company's option, an amount in cash (a) in
lieu of a fractional Option Share, equal to the Current Market Price for one
share of Common Stock on the Trading Day immediately preceding the date on
which the Option is presented for exercise, multiplied by such fraction of an
Option Share, or (b) in lieu of a
5
<PAGE>
fractional interest in any other security, equal to the fair value of such
fractional interest, determined in a manner as similar as possible, taking into
account the difference in the fractional interest being valued, to the
calculation described in clause (a) of this Section 4.
5. Notices to C&A. Nothing contained in this Agreement will be
construed as conferring upon Holder the right to vote, or to receive dividends,
or to consent or to receive notice as a stockholder in respect of any meeting
of stockholders for the election of directors of the Company or any other
matter or any rights whatsoever as a stockholder of the Company; provided,
however, that if, at any time prior to the Expiration Date and prior to the
exercise of the Option, any of the following events occurs:
(a) The Company declares any dividend payable in any
securities upon its shares of Common Stock or makes any distribution
(other than a regular cash dividend payable out of consolidated
retained earnings) to the holders of its shares of Common Stock;
(b) The Company offers to the holders of its Common Stock any
shares of capital stock of the Company or any Subsidiary or securities
convertible into or exchangeable for shares of capital stock of the
Company or any Subsidiary or any option, right or warrant to subscribe
for or purchase any thereof;
(c) The Company distributes to the holders of its Common
Stock evidences of indebtedness or assets (including any cash dividend
which would result in an adjustment under Section 3.1) of the Company
or any Subsidiary;
(d) Any reclassification of the Common Stock, any
consolidation of the Company with or merger of the Company into
another entity, any sale, transfer or lease to another entity of all
or substantially all the property of the Company; or
(e) Any proposal by the Company to effect a dissolution,
liquidation or winding up of the Company that has been publicly
announced by the Company;
then in any one or more of such events the Company will give notice of such
event to Holder, as provided in Section 10 hereof, such giving of notice to be
completed at least ten Business Days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution or subscription rights, or
for the determination of stockholders entitled to vote on such proposed
reclassification, consolidation, merger, sale, transfer or lease, dissolution,
liquidation or winding up. Such notice will specify such record date or the
date of closing the transfer books, as the case may be, for such event. Failure
to mail or receive such notice or any defect therein or in the mailing thereof
will not affect the validity of any action taken in connection with such event.
6. Reports to C&A. (a) To the extent such documents are required to be
sent by the Company to the holders of outstanding Common Stock, the Company
will provide to C&A,
6
<PAGE>
within 15 calendar days after it files them with the SEC, copies of its annual
report and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act.
(b) The Company will provide to C&A copies of its annual
financial statements and quarterly financial statements in the forms provided
to its senior bank lenders, within 15 calendar days after they are provided to
such lenders.
7. Agreements of Holder and the Company with Respect to Option Shares.
The provisions of this Section 7 will apply to all Option Shares acquired upon
exercise of the Option and any other shares of Common Stock which Holder
hereafter acquires by means of a stock split, stick dividend, distribution,
exercise of options or warrants or otherwise (other than pursuant to a Public
Offering) (all such Option Shares or other shares, "Shares").
7.1. Limitations on Transfer. (a) No Holder may Transfer any Shares
(i) other than in accordance with Sections 7.2, 7.3, 7.4 or 7.5 or (ii) to a
Transferee engaged in the business of the development, production, marketing,
distribution or sale of vinyl and/or paper decorative surface products (a
"Competitor"). C&A may not, directly or indirectly, Transfer the Option in part
or to a Competitor and may Transfer its entire rights in and under the Option
only in the circumstances, and subject to the same conditions, permitted and
specified in Sections 7.3 and 7.5 as applicable to Transfers of Shares.
(b) In the event of any purported Transfer of the Option or
any Shares in violation of the provisions of this Agreement, such purported
transfer will be void and the Company will not give effect to such Transfer.
(c) Each certificate representing Shares issued to Holder
will bear the following legend on the face thereof:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO AN AGREEMENT AMONG THE COMPANY, BDPI HOLDINGS LLC AND THE
HOLDER HEREOF, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH OPTION
AGREEMENT. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH
OPTION AGREEMENT.
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY
7
<PAGE>
HAVE BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE."
The aforesaid legend will be removed by the Company by the delivery of
substitute certificates without such legend in the event of (i) a Transfer
permitted by this Agreement and in which the Transferee is not required to
enter into an Assumption Agreement or (ii) the termination of Sections 7.1, 7.2
and 7.5 pursuant to the terms hereof, provided however, that the second
paragraph of such legend will only be removed if at such time it is no longer
required for purposes of the Securities Act.
7.2. Transfers to Affiliates. Subject to Section 7.1, Holder may
Transfer the Option as an entirety or any or all of the Shares held by it to
any of its Affiliates who duly executes and delivers an Assumption Agreement,
provided that in connection therewith the Company has been furnished with an
opinion in form and substance reasonably satisfactory to the Company of counsel
reasonably satisfactory to the Company that such Transfer is exempt from or not
subject to the provisions of Section 5 of the Securities Act and any other
applicable securities laws.
7.3. Tag-Along Rights. (a) So long as this Agreement remains in
effect, with respect to any proposed Transfer by Holdings or any Person to whom
Holdings assigns its rights in accordance with Section 7.4(c) of shares of
Common Stock to any Person not an Affiliate of Holdings, other than in a Public
Offering, whether pursuant to a stock sale, a tender or exchange offer or a
similar transaction (any such transaction, a "Holdings Sale"), Holdings will
have the obligation, and Holder will have the right, to require the proposed
Transferee or acquiring Person to purchase from a Holder who exercises its
rights under Section 7.3(b) (a "Tagging Stockholder") a number of Shares up to
the product (rounded up to the nearest whole number) of (i) the quotient
determined by dividing (A) the aggregate number of Shares owned by such Tagging
Stockholder by (B) the aggregate number of shares of Common Stock owned by
Holdings, the Tagging Stockholder and any other Stockholder entitled to
participate in such transaction, and (ii) the total number of shares of Common
Stock proposed to be directly or indirectly Transferred to the Transferee or
acquiring Person in the contemplated Holdings Sale, at the same price per share
of Common Stock and upon the same terms and conditions (including, without
limitation, time of payment and form of consideration) as to be paid and given
to Holdings; provided, that in order to be entitled to exercise its right to
sell Shares to the proposed Transferee or acquiring Person pursuant to this
Section 7.3, each Tagging Stockholder must agree to make to the Transferee or
acquiring Person substantially the same representations, warranties, covenants,
indemnities and agreements as Holdings agrees to make in connection with the
proposed Holdings Sale. Each Tagging Stockholder will be responsible for its
proportionate share of the costs of the Holdings to the extent not paid or
reimbursed by the Company or the Transferee.
(b) Holdings will give notice to each Tagging Stockholder of
each proposed Holdings Sale at least 15 Business Days prior to the proposed
consummation of such Holdings Sale, setting forth the number of shares of
Common Stock proposed to be so Transferred, the name and address of the
proposed Transferee or acquiring Person, the proposed amount and form of
consideration (and if such consideration consists in part or in whole of
property other than
8
<PAGE>
cash, Holdings will provide such information, to the extent reasonably
available to Holdings, relating to such consideration as the Tagging
Stockholder may reasonably request in order to evaluate such non-cash
consideration) and other terms and conditions of payment offered by the
proposed Transferee or acquiring Person, and a representation that the proposed
Transferee or acquiring Person has been informed of the tag-along rights
provided for in this Section 7.3. Holdings will deliver or cause to be
delivered to each Tagging Stockholder copies of all transaction documents
relating to the proposed Holdings Sale (including draft and final versions of
such documents) as the same become available. The tag-along rights provided by
this Section 7.3 must be exercised by each Tagging Stockholder within 12
Business Days following receipt of the notice required by the preceding
sentence by delivery of a written notice to Holdings indicating the desire of
such Tagging Stockholder to exercise its or his rights and specifying the
number of Shares it desires to sell. The Tagging Stockholder will be entitled
under this Section 7.3 to Transfer to the proposed Transferee or acquiring
Person the number of Shares calculated in accordance with Section 7.3(a).
(c) If any Tagging Stockholder exercises its rights under
Section 7.3(a), the closing of the purchase of the Shares with respect to which
such rights have been exercised will take place concurrently with the closing
of the sale of Holdings' Common Stock to the proposed Transferee or acquiring
Person.
7.4. Drag-Along Rights. (a) So long as this Agreement remains in
effect, if Holdings receives a bona fide offer from a Person other than an
Affiliate of Holdings (a "Third Party") to purchase in an arms'-length
transaction of a type referred to in the first sentence of Section 7.3(a) at
least a majority of the shares of Common Stock then outstanding and such offer
is accepted by Holdings, then Holder hereby agrees that it will Transfer to
such Third Party on the terms of the offer so accepted by Holdings, including
the same time of payment and per Share consideration, the number of Shares
equal to the number of Shares owned by Holder multiplied by the percentage of
the then-outstanding shares of Common Stock to which the Third Party offer is
applicable.
(b) Holdings will give notice (the "Drag-Along Notice") to
Holder of any proposed Transfer giving rise to the rights of Holdings set forth
in Section 7.4(a) as soon as practicable following Holdings' acceptance of the
offer referred to in Section 7.4(a). The Drag- Along Notice will set forth the
number of shares of Common Stock proposed to be so Transferred, the name of the
proposed Transferee or acquiring Person, the proposed amount and form of
consideration (and if such consideration consists in part or in whole of
property other than cash, Holdings will provide such information, to the extent
reasonably available to Holdings, relating to such consideration as Holder may
reasonably request in order to evaluate such non-cash consideration), the
number of shares of Common Stock sought and the other terms and conditions of
the offer. Holdings will notify Holder at least ten Business Days in advance of
entering into a definitive agreement in connection with such offer. In any such
agreement, Holder will be required (i) to make the same representations,
warranties and indemnities as Holdings makes, so long as they are made
severally and not jointly, and (ii) to pay its proportionate share of the costs
of such Transfer to the extent not paid or reimbursed by the Company or the
Transferee or acquiring Person. If the Transfer referred to in the Drag-Along
Notice is not consummated
9
<PAGE>
within 180 days from the date of the Drag-Along Notice, Holdings must deliver
another Drag- Along Notice in order to exercise its rights under this Section
7.4 with respect to such Transfer or any other Transfer.
(c) Notwithstanding Section 12, Holdings may assign its
rights under this Section 7.4 to a single Transferee of at least a majority of
the shares of Common Stock then owned by Holdings, provided, however, that upon
such an assignment Holdings' rights under this Section 7.4 will terminate.
(d) If more than one Person is included in Holder when the
Company exercises drag-along rights under this Section 7.4, each such Person
will participate pro rata by reference to the number of Shares owned by each
such Person.
(e) If the Company has drag-along rights similar to this
Section 7.4 with respect to any holder of Common Stock other than Holder, then
the Company may not exercise its drag-along rights under this Section 7.4
unless it simultaneously exercises (to the maximum proportional extent
permitted) its drag-along rights against such other holder.
7.5. Right of First Offer. (a) Except as otherwise expressly permitted
by Sections 7.2, 7.3 or 7.4, during the period from the date hereof until the
earlier to occur of the completion of an IPO and the fifth anniversary of the
date on which a Notice of Exercise is given (the "ROFO Period"), prior to any
Holder proposing to effect a Transfer of Common Stock to any Person not an
Affiliate of the Transferor (a "Third-Party Sale"), such Holder (the "Offering
Stockholder") will deliver to Holdings a written Notice (an "Offer Notice")
specifying (i) the aggregate amount of cash consideration (the "Offer Price")
for which the Offering Stockholder proposes to sell the Common Stock to be
offered in such Third-Party Sale (the "Offered Stock"), (ii) the identity of
the purchaser in such Third-Party Sale (if then known), and (iii) all other
material terms of the proposed Third-Party Sale.
(b) Prior to negotiating (or committing to negotiate) with
any third party in respect of a possible sale Third-Party Sale of any Common
Stock, the Offering Stockholder will negotiate with Holdings in good faith
concerning the possible sale to Holdings of the Common Stock proposed or
otherwise intended to be sold in a Third Party Sale for a period of 30 calendar
days following the date on which Holdings receives the Offer Notice. If
Holdings delivers to the Offering Stockholder a written Notice (an "Acceptance
Notice") within such 30 calendar day period (such period being referred to
herein as the "ROFO Acceptance Period") stating that Holdings is willing to
purchase all of the Offered Stock for the Offer Price and on the other terms
set forth in the Offer Notice, the Offering Stockholder will sell all of the
Offered Stock to Holdings, and Holdings will purchase such Offered Stock from
the Offering Stockholder, on the proposed terms and subject to the conditions
set forth below.
(c) The consummation of any purchase of the Offered Stock by
Holdings pursuant to this Section 7.5 (the "ROFO Closing") will occur no more
than 90 calendar days following the delivery of the Acceptance Notice (such 90
calendar day period being referred to herein as the "ROFO Closing Period") at
10:00 a.m. (Eastern Time) at the offices of Jones, Day, Reavis &
10
<PAGE>
Pogue at 599 Lexington Avenue, New York, New York 10022, or at such other time
of day and place as may be mutually agreed upon by the Offering Stockholder and
Holdings. At the ROFO Closing, (i) Holdings will deliver to the Offering
Stockholder by certified or official bank check or wire transfer to an account
designated by the Offering Stockholder an amount in immediately available funds
equal to the Offer Price, (ii) the Offering Stockholder will deliver one or
more certificates evidencing the Common Stock, together with such other duly
executed instruments or documents (executed by the Offering Stockholder) as may
be reasonably requested by Holdings to acquire the Offered Stock free and clear
of any and all claims, liens, pledges, charges, encumbrances, security
interests, options, trusts, commitments and other restrictions of any kind
whatsoever (collectively, "Encumbrances"), except for Encumbrances created by
this Agreement, federal or state securities laws or Holdings or as specified in
the Offer Notice ("Permitted Encumbrances"), and (iii) the Offering Stockholder
will be deemed to represent and warrant to Holdings that, upon the ROFO
Closing, the Offering Stockholder will convey and Blackstone will acquire the
entire record and beneficial ownership of, and good and valid title to, the
Offered Stock, free and clear of any and all Encumbrances, except for Permitted
Encumbrances.
(d) If no Acceptance Notice relating to the proposed
Third-Party Sale is delivered to the Offering Stockholder prior to the
expiration of the ROFO Acceptance Period, or an Acceptance Notice is so
delivered to the Offering Stockholder but the ROFO Closing fails to occur prior
to the expiration of the ROFO Closing Period (unless Holdings was ready,
willing and able prior to the expiration of the ROFO Closing Period to
consummate the transactions to be consummated by Holdings at the ROFO Closing),
the Offering Stockholder may (without affecting its rights, if any, arising out
of such failure) consummate the Third-Party Sale, but only (i) during the 90
calendar day period immediately following the expiration of the ROFO Acceptance
Period (in the event that no Acceptance Notice was timely delivered to the
Offering Stockholder) or the 90 calendar day period immediately following the
expiration of the ROFO Closing Period (in the event that an Acceptance Notice
was timely delivered to the Offering Stockholder but the ROFO Closing failed
timely to occur), (ii) at a price at least equal to the Offer Price, (iii) upon
other terms not materially less favorable to the Offering Stockholder than
those set forth in the Offer Notice, (iv) if the transferee in the Third-Party
Sale enters into an Assumption Agreement, and (v) if the Third-Party Sale is
not to or with a Competitor or for consideration other than cash.
(e) This Section 7.5 will not apply to any transaction in
which the consideration payable in the Third-Party Sale is other than cash.
7.6 Registration Rights. Holder will be entitled to cause the Company
to register Option Shares in accordance with the terms and conditions of
Appendix A hereto, which is incorporated herein by reference.
7.7 Conflicting Provisions. (a) The Company will not enter into any
agreement that prevents it from complying with its obligations under this
Agreement (including Sections 7.3, 7.4 and 7.6).
11
<PAGE>
(b) If the Company grants to Borden, Inc. (or any of its
Affiliates or transferees) transfer rights, tag-along rights, preemptive
rights, or registration rights, with respect to the Common Stock, more
favorable to such Person than the comparable rights granted to Holder
hereunder, the Company will offer to amend this Agreement to include such
favorable rights.
8. Reservation of Common Stock. The Company will, for so long as the
Option remains outstanding, reserve and keep available, solely for issuance and
delivery upon the exercise of, a number of shares of Common Stock (or, if
applicable, other securities) sufficient to provide for the exercise of the
Option. The transfer agent for the Common Stock (or, if applicable, other
securities) will be irrevocably authorized and directed at all times until the
exercise or expiration of the Option to reserve such number of authorized
shares of Common Stock (or, if applicable, other securities) as necessary for
such purpose. The Company will keep copies of this Agreement on file with the
transfer agent and will supply the transfer agent with duly executed stock
certificates for such purpose.
9. Representations and Warranties of the Company. The Company hereby
represents and warrants to Holder that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to execute,
deliver and perform its obligations hereunder and to consummate the
transactions contemplated hereby;
(b) The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of the Company;
(c) The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby in accordance with the terms hereof will not
conflict with, violate or constitute a breach of the Certificate of
Incorporation or By-Laws of the Company, or any material contract,
agreement or instrument by which the Company is bound or any judgment,
order, decree, law, statute, rule, regulation or other judicial or
governmental restriction to which the Company is subject;
(d) This Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally; and
(e) The Option, when issued and delivered to C&A as provided
in this Agreement, and the Option Shares issued upon exercise of the
Option, when issued,
12
<PAGE>
paid for and delivered as provided in this Agreement, will be duly and
validly issued and outstanding, fully paid and nonassessable.
10. Notices. All notices, requests, waivers, releases, consents and
other communications required or permitted by this Agreement (collectively,
"Notices") must be in writing. Except as expressly otherwise provided herein
with respect to manner of delivery, notices will be deemed sufficiently given
for all purposes when delivered in person, when dispatched by telegram or
electronic facsimile transmission, when sent by first-class mail, postage
prepaid, or upon confirmation of receipt when dispatched by a nationally
recognized overnight courier service to the appropriate party as follows: (a)
if to Holder, at 701 McCullough Drive, Charlotte, North Carolina 28262,
Attention: Controller, Telecopy: (704) 548-2278 and (b) if to the Company or
Holdings, c/o The Blackstone Group, 345 Park Avenue, New York, New York 10054,
Attention: David A. Stockman, Telecopy No. (212) 754-8720, or at such other
address as either such party may from time to time designate in writing.
11. Amendment and Waiver. No failure or delay of the Holder in
exercising any power or right hereunder (other than a failure to exercise the
Option in accordance with the provisions hereof) will operate as a waiver
thereof, nor will any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No notice or demand on the Company in any case will entitle the
Company to any other or future notice or demand in similar or other
circumstances. The terms of this Agreement cannot be changed, waived, released
or discharged otherwise than by a writing signed by each party thereto. Any
such amendment, modification, or waiver effected pursuant to and in accordance
with the provisions of this Section 11 will be binding upon Holder and the
Company.
12. Successors and Assigns. This Agreement will be binding upon and
inure to the benefit of the parties hereto, their respective successors and
permitted assigns, but will not be assignable or delegable by any party in
whole or in part without the prior written consent of the other parties, except
as otherwise provided in Section 7.4. In the absence of such prior written
consent, any purported assignment or delegation of any right or obligation
hereunder will be null and void.
13. Rights of the Parties. Except as provided in Section 12, nothing
expressed or implied in this Agreement is intended or will be construed to
confer upon or give any Person other than the Company and Holder any rights or
remedies under or by reason of this Agreement or any transaction contemplated
hereby. All rights of action in respect of this Agreement are vested in Holder,
and Holder may enforce its rights hereunder, including the right to exercise or
exchange the Option Certificate in accordance with the provisions hereof.
13
<PAGE>
14. Titles and Headings. Titles and headings to Sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
15. Termination. This Agreement will terminate and be of no further
force and effect (other than with respect to prior breaches) (i) with respect
to Sections 1 and 2 on the Expiration Date, (ii) with respect to Sections 3, 4,
5 and 8, six months after the Expiration Date, (iii) with respect to Sections 6
and 9, at such time as the Option is no longer exercisable and none of C&A or
any of its Affiliates owns any Option Shares, (iv) with respect to Sections 7.1
through 7.4, upon the consummation of an IPO, (v) with respect to Section 7.5,
upon the earlier to occur of (A) the fifth anniversary of the date on which a
Notice of Exercise is given and (B) the consummation of an IPO, (vi) with
respect to Section 7.6 and Appendix A (except for Section 5 of Appendix A), at
such time as no Holder holds any Registrable Securities (as defined in Appendix
A), (vii) with respect to Section 5 of Appendix A, upon expiration of the
applicable statutes of limitations, and (viii) with respect to all other
Sections of this Agreement, at such time as all Sections other than such
Sections have terminated.
16. Certain Interpretive Matters and Definitions. (a) As used in this
Agreement, the following capitalized terms have the meanings set forth below:
"Affiliate" means, with respect to any Person, (i) any Person
that directly or indirectly controls, is controlled by or is under
common control with, such Person, (ii) any director, officer, partner
or employee of such Person or of any Person specified in clause (i)
above; provided, however, that no Person controlling or controlled by
Holdings will be deemed to be an Affiliate of C&A.
"Agreement" means this Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
"Assumption Agreement" means a writing reasonably
satisfactory in form and substance to the Company whereby a transferee
of Option Shares becomes a party to, and agrees to be bound to the
same extent as its transferor by the terms of, this Agreement.
"Business Day" means a day other than a Saturday, Sunday,
federal or New York State holiday or other day on which commercial
banks in New York City are authorized or required by law to close.
"Common Stock" means the shares of common stock, par value
$.01 per share, of the Company.
"Current Market Price" per share of Common Stock on any date
means the average of the daily closing prices for three Trading Days
before the date of such computation. The closing price for each day
will be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the average of the closing bid
and asked prices regular way for such day, in each case on the
principal
14
<PAGE>
national securities exchange on which the shares of the Common Stock
are listed or admitted to trading or, if not so listed or admitted to
trading, the Board of Directors of the Company will determine the
Current Market Price in good faith on the basis of such quotations or
other relevant information as it considers appropriate.
"IPO" means the initial Public Offering of Common Stock by
the Company.
"Permitted Transferees" means any Person to whom Option
Shares are Transferred in a Transfer pursuant to Section 7.2 or
Section 7.5 or otherwise not in violation of this Agreement and who is
required to, and does, enter into an Assumption Agreement, and
includes any Person to whom a Permitted Transferee (or a Permitted
Transferee of a Permitted Transferee) so further transfers shares and
who is required to, and does, become bound by the terms of this
Agreement.
"Person" means any individual, corporation, limited liability
company, partnership, trust, joint stock company, business trust,
unincorporated association, joint venture, governmental authority or
other entity of any nature whatsoever.
"Public Offering" means the sale of shares of any class of
the Common Stock to the public pursuant to an effective registration
statement (other than a registration statement on Form S-4 or S-8 or
any similar or successor form) filed under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, as the
same may be amended from time to time.
"Stockholders" means each of the holders of common stock of
the Company, and "Stockholder" means any one of the Stockholders.
"Trading Day" means any day on which shares of Common Stock
are traded on the principal national securities exchange on which the
shares of Common Stock are listed or admitted to trading or, if shares
of Common Stock are not so listed or admitted to trading, in the
over-the-counter market.
"Transfer" means a transfer, sale, assignment, pledge,
hypothecation or other disposition.
(b) Unless the context otherwise requires, (i) all references
to Sections or Exhibits are to Sections or Exhibits of or to this Agreement,
(ii) each term defined in this Agreement has the meaning assigned to it, (iii)
"or" is disjunctive but not necessarily exclusive and (iv) words in the
singular include the plural and vice versa. All references to "$" or dollar
amounts are to lawful currency of the United States of America.
15
<PAGE>
(c) No provision of this Agreement will be interpreted in
favor of, or against, any party hereto by reason of the extent to which such
party or its counsel participated in the drafting thereof or by reason of the
extent to which any such provision is inconsistent with any prior draft hereof
or thereof.
17. Injunctive Relief. The parties acknowledge and agree that a
violation of any of the terms of this Agreement will cause the non-breaching
party irreparable injury for which adequate remedy at law is not available.
Accordingly, it is agreed that each party will be entitled to an injunction,
restraining order or other equitable relief to prevent breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction, in addition to any
other remedy to which it may be entitled at law or equity.
18. Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and there
are no agreements among the parties hereto with respect thereto except as
expressly set forth herein.
19. Severability. In case any provision contained in this Agreement is
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions will not in any way be affected or impaired thereby
and the invalid, illegal or unenforceable term will be deemed replaced by a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
20. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflict of laws thereof.
21. Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed will be deemed to be an original; such
counterparts will together constitute but one agreement.
16
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement as of the date first above written.
HE IMPERIAL HOME DECOR GROUP
INC.
By:
- --------------------------
Name:
------------------------------------
Title:
---------------------------------
THE IMPERIAL HOME DECOR GROUP
HOLDINGS LLC
By:
-------------------------------------
Name:
----------------------------
Title:
----------------------------
COLLINS & AIKMAN PRODUCTS CO.
By:
-------------------------------------
Name:
----------------------------
Title:
----------------------------
17
<PAGE>
APPENDIX A
REGISTRATION RIGHTS
1. Certain Definitions. For purposes of this Appendix A, the
following terms will have the following meanings:
"Holdings" means The Imperial Home Decor Group Holdings LLC,
a Delaware limited liability company, and its transferees and their
transferees.
"Registrable Securities" means (i) any Option Shares, (ii)
any Common Stock issued as (or issuable upon the conversion or
exercise of any warrant, right, option or other convertible security
which is issued as) a dividend or other distribution with respect to,
or in exchange for, or in replacement of, such Option Shares, and
(iii) any Common Stock issued by way of a stock split of the Common
Stock referred to in clauses (i) or (ii) above. For purposes of this
Agreement, any Registrable Securities will cease to be Registrable
Securities when (w) a registration statement covering such Registrable
Securities has been declared effective and such Registrable Securities
have been disposed of pursuant to such effective registration
statement, (x) such Registrable Securities have been distributed
pursuant to Rule 144 (or any similar provision then in effect) under
the Securities Act or may be sold in a single transaction without
registration pursuant to Rule 144, (y) such Registrable Securities are
sold by a Person in a transaction in which rights under the provisions
of this Agreement are not assigned, or (z) such Registrable Securities
cease to be outstanding.
"Registration Expenses" means any and all expenses incident
to the performance by the Company of or compliance by the Company with
Section 2 or 3 hereof, including, without limitation, (i) all SEC,
stock exchange, National Association of Securities Dealers, Inc. and
other comparable regulatory agencies, registration and filing fees,
(ii) all fees and expenses of complying with securities or blue sky
laws (including fees and disbursements of counsel for the underwriters
in connection with blue sky qualifications), (iii) all printing,
messenger and delivery expenses, (iv) the fees and disbursements of
counsel for the Company and of its independent public accountants, (v)
the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special
audits and/or "cold comfort" letters required by or incident to such
performance and compliance, (vi) fees and disbursements of
underwriters (but not discounts or similar compensation) customarily
paid by issuers or sellers of securities, (vii) liability insurance if
the Company so desires or if the underwriters so require and (viii)
the reasonable fees and expenses of any special experts retained by
the Company in connection with the requested registration.
1
<PAGE>
2. Piggyback Rights. (a) Each time the Company is planning to file a
registration statement under the Securities Act in connection with the sale of
shares of securities of the Company that are of the type that are Registrable
Securities by (i) the Company (other than in connection with an IPO comprised
solely of the primary offer and sale of Common Stock by the Company or a
registration statement on Form S-4 or S-8 or any similar or successor form) or
(ii) any Stockholder (the Company or such Stockholder in such case, the
"Initiating Party"), the Company will give prompt written notice thereof to
Holder and to Holdings, at least 15 Business Days prior to the anticipated
filing date of such registration statement. Upon the written request of Holder
made within 20 Business Days after the receipt of any such notice from the
Company, which request will specify the Registrable Securities (the "Piggy-Back
Shares") intended to be disposed of by Holder in such offering, the Company
will use its reasonable best efforts to effect the registration under the
Securities Act of all Piggy-Back Shares which the Company has been so requested
to register by Holder to the extent required to permit the disposition of the
Piggy-Back Shares to be registered; provided, that (i) if, at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, any Initiating Party determines for any reason not to proceed
with the proposed registration, the Company may at its election give written
notice of such determination to each holder of Piggy-Back Shares and thereupon
will be relieved of its obligation to register any Piggy-Back Shares in
connection with such registration, and (ii) if such registration involves an
underwritten offering, Holder must sell the Piggy-Back Shares to the
underwriters on the same terms and conditions as apply to the Initiating
Parties.
(b) If a registration pursuant to this Section 2 involves an
underwritten offering and the managing underwriter or underwriters in good
faith advise the Company in writing that, in their opinion, (i) the number of
Registrable Securities which the Initiating Party intends to include in such
registration, together with the Piggy-Back Shares, exceeds the largest number
of such securities which can be sold in such offering without having an adverse
effect on such offering (including, but not limited to, the price at which the
Registrable Securities can be sold) or (ii) the inclusion of Registrable
Securities owned by Holder in such registration would have an adverse effect on
such offering, then the Company will include in such registration (A) first,
100% of the securities, if any, that the Company proposes to sell for its own
account, and (B) second, to the extent that the number of securities which the
Company proposes to sell is less than the number of securities which the
Company has been advised can be sold in such offering without having the
adverse effect referred to above, the number of Registrable Securities of
Holder determined on the basis of the relative percentage relationships of (x)
the number of Registrable Securities to be included by Holder and (y) the
number of Registrable Securities to be included by all other Stockholders.
3. Demand Registrations. (a) From and after 180 days following an IPO,
Holder may request in a written notice (the "Request") that the Company effect
the registration under the Securities Act of all or any part of the Registrable
Securities owned by Holder. Following the receipt of the Request, the Company
will (i) within ten days notify all other Stockholders having registration
rights of such Request in writing and (ii) thereupon, will as expeditiously as
practicable, effect the registration under the Securities Act of all or any
part of the Registrable Securities of Holder as are specified in the Request
and any Registrable Securities of any other
2
<PAGE>
Stockholder having registration rights as are specified in a subsequent Request
received by the Company, within ten days after the Company has given such
notice, and will cause such registration statement to remain effective for a
period of not less than 180 days; provided, however, that the Company will not
be required to effect more than one registration pursuant to this Section 3,
unless the Holder is unable to sell all of the Registrable Securities requested
be included in such offering because of the participation by Holdings and any
other Stockholders (other than Holder) in such offering, in which case Holder
will be entitled to make one additional Request.
(b) The Company and Holder will reasonably mutually agree on
the managing underwriter of any underwritten offering effected under this
Section 3.
(c) If a registration pursuant to this Section 3 involves an
underwritten offering and the managing underwriter or underwriters in good
faith advise the Company in writing that, in their opinion, the number of
Registrable Securities which Holder and any other Stockholders intend to
include in such registration exceeds the largest number of securities which can
be sold in such offering without having an adverse effect on such offering
(including, but not limited to, the price at which the securities can be sold),
then the number of Registrable Securities of each Stockholder to be included in
such offering will be determined on the basis of the relative percentage
relationships of (x) the number of Registrable Securities to be included by
such Stockholder and (y) the number of Registrable Securities to be included by
all other Stockholders.
4. Other Registration-Related Matters. (a) (i) If (A) during the term
of this Agreement, the Company files or proposes to file a registration
statement (other than in connection with the registration of securities
issuable pursuant to a continuous "at the market offering" pursuant to Rule
415(a)(4) under the Securities Act or an employee stock option, stock purchase,
dividend reinvestment plan or similar plan) with respect to any securities of
the Company, and (B) with reasonable prior notice, (1) the Company (in the case
of a non-underwritten offering pursuant to such registration statement) advises
Holder in writing that a sale or distribution of securities owned by Holder
would adversely affect such offering or (2) the managing underwriter or
underwriters (in the case of an underwritten offering) advise the Company in
writing (in which case the Company will notify Holder), that in their opinion a
sale or distribution of securities owned by Holder would adversely affect such
offering, then Company will not be obligated to effect the initial filing of a
registration statement pursuant to Section 3 (A) in the case of an IPO, during
the period commencing on the date that is 30 calendar days prior to the date
the Company in good faith estimates (as certified in writing by an officer of
the Company to the Holder following a request for registration pursuant to
Section 3) will be the date of the filing of, and ending on the date which is
90 calendar days following the effective date of, such registration statement
but in no event for more than 120 consecutive days, or (B) in the case of any
offering subsequent to an IPO, during the period commencing on the date that is
30 calendar days prior to the date the Company in good faith estimates (as
certified in writing by an officer of the Company to Holder following a request
for registration pursuant to Section 3) will be the date of filing of, and
ending on the date which is 60 calendar days following the effective date of,
such registration statement but in no event for more than 90 consecutive days.
3
<PAGE>
(ii) If the Board of Directors of the Company
determines in good faith that the registration and distribution of Registrable
Securities (A) would materially impede, delay or interfere with any pending
financing, acquisition, corporate reorganization or other significant
transaction involving the Company or (B) would require disclosure of non-public
material information, the disclosure of which would materially and adversely
affect the Company (collectively, a "Valid Business Reason"), the Company will
promptly give Holder written notice of such determination and will be entitled
to postpone the filing or effectiveness of a registration statement for a
reasonable period of time not to exceed the earlier of (i) such time as a Valid
Business Reason no longer exists and (ii) 180 calendar days (a "Section
4(a)(ii) Period"); provided, however, that in connection therewith the Company
will be required to deliver to Holder (as identified at such time to the
Company) a general statement, signed by an officer of the Company, describing
in reasonable detail the reasons for such postponement or restriction on use
and an estimate of the anticipated delay. The Company will promptly notify
Holder of the expiration or earlier termination of a Section 4(a)(ii) Period.
(b) The Company may require any Person that is selling shares
of Common Stock in a Public Offering pursuant to Section 2 or 3 to furnish to
the Company in writing such information regarding such Person and the
distribution of the shares of Common Stock which are included in a Public
Offering as may from time to time reasonably be requested in writing in order
to comply with the Securities Act.
(c) The Company will pay all Registration Expenses in
connection with each registration or proposed registration of Registrable
Securities pursuant to Section 2 or 3. Notwithstanding the foregoing, (y) the
fees or expenses of counsel to any Stockholder or of any other expert hired
directly by any Stockholder will be the sole responsibility of such Stockholder
and (z) each Stockholder will be responsible for its pro rata share (determined
by reference to the number of shares included in the applicable registration)
of all underwriting discounts and commissions and transfer taxes.
(d) Before filing a registration statement or prospectus, or
any amendments or supplements thereto, in connection with any registration or
proposed registration of Registrable Securities pursuant to Section 2 or 3, the
Company will furnish to Holder's counsel copies of all documents proposed to be
filed.
(e) The Company will furnish to each seller of Registrable
Securities such number of copies of the applicable registration statement and
of each amendment or supplement thereto (in each case including all exhibits),
such number of copies of the prospectus included in such registration statement
(including each preliminary prospectus and summary prospectus), in conformity
with the requirements of the Securities Act, and such other documents as such
seller may reasonably request in order to facilitate the disposition of
Registrable Securities by such seller.
(f) The Company will use its reasonable best efforts to
register or qualify Registrable Securities covered by a registration statement
under such other securities or blue sky laws of such jurisdictions as each
seller reasonably requests, and do any and all other acts and
4
<PAGE>
things which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such seller, except that the Company will not for any such purpose be
required to qualify generally to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this paragraph (f), it would
not be obligated to be so qualified, to subject itself to taxation in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction.
(g) The Company will use its reasonable best efforts to cause
the Registrable Securities covered by a registration statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to enable the seller thereof to consummate the disposition thereof.
(h) The Company will notify each seller of Registrable
Securities covered by a registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act within
the appropriate period of the Company's becoming aware that the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made, and at the request
of any such seller, promptly prepare and furnish to such seller a reasonable
number of copies of an amended or supplemental prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made.
(i) The Company will enter into such customary agreements
(including an underwriting agreement in customary form) and take such other
actions as sellers of a majority of holders of securities covered by a
registration statement or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of such Registrable Securities.
(j) The Company will make available for inspection by any
seller of Registrable Securities covered by a registration statement, by any
underwriter participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent retained
by any such seller or any such underwriter, all pertinent financial and other
records, pertinent corporate documents and properties of the Company, and cause
all of the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement.
(k) The Company will obtain a "cold comfort" letter or
letters from the Company's independent public accountants in customary form and
covering matters of the type customarily covered by "cold comfort" letters as
the sellers of a majority of the outstanding shares of Registrable Securities
covered by the registration statement reasonably requests.
(l) Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in paragraph (h)
Holder will forthwith discontinue
5
<PAGE>
disposition of securities pursuant to the registration statement covering such
Registrable Securities until Holder's receipt of the copies of the amended or
supplemented prospectus contemplated by paragraph (h) and, if so directed by
the Company, Holder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in Holder's possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice. In the event the Company gives any such notice, the period for
which the Company will be required to keep the registration statement effective
will be extended by the number of days during the period from and including the
date of the giving of such notice pursuant to paragraph (h) to and including
the date when each seller of Registrable Securities covered by such
registration statement has received the copies of the supplemented or amended
prospectus contemplated by paragraph (h).
(m) Holder will, in connection with an offering of the
Company's securities, upon the request of the Company or of the underwriters
managing any underwritten offering of the Company's securities, agree in
writing not to effect any sale, disposition or distribution of Registrable
Securities (other than those included in the registration) without the prior
written consent of the managing underwriter for such period of time (not to
exceed (i) 180 days, in the case of an IPO, or (ii) 90 days, in the case of any
other offering of Company securities) from the effective date of such
registration as the Company or the underwriters may specify.
5. Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities Act pursuant
to Section 2 or 3, the Company hereby indemnifies and agrees to hold harmless,
to the extent permitted by law, each party hereto who is a holder ("Selling
Holder") of Registrable Securities covered by such registration statement, each
Affiliate of such Selling Holder and their respective directors and officers,
employees, members, assignees or general and limited partners (and the
directors, officers, affiliates, employees, members, assignees and controlling
Persons thereof), each other Person who participates as an underwriter in the
offering or sale of such securities and each other Person, if any, who controls
such Selling Holder or any such underwriter within the meaning of the
Securities Act (collectively, the "Indemnified Parties"), against any and all
losses, claims, damages or liabilities, joint or several, and expenses to which
such Indemnified Party may become subject under the Securities Act, common law
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof, whether or not such Indemnified
Party is a party thereto) arise out of, relate to or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under
the Securities Act, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement thereto, or (ii) any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing, and the Company will reimburse such Indemnified
Party for any legal or other expenses reasonably incurred by it in connection
with investigating or defending any such loss, claim, liability, action or
proceeding; provided, that the Company will not be liable to any Indemnified
Party in any such case to the extent that any such loss, claim, damage,
liability (or action proceeding in respect thereof) or expense arises out
6
<PAGE>
of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, in any such
preliminary, final or summary prospectus, or any amendment or supplement
thereto in reliance upon and in conformity with written information with
respect to such Indemnified Party furnished to the Company by such Indemnified
Party for use in the preparation thereof; and provided, further, that the
Company will not be liable to any Person who participates as an underwriter in
the offering or sale of Registrable Securities or any other Person, if any, who
controls such underwriter within the meaning of the Securities Act, under the
indemnity agreement in this Section 5 with respect to any preliminary
prospectus or the final prospectus or the final prospectus as amended or
supplemented, as the case may be, to the extent that any such loss, claim,
damage or liability of such underwriter or controlling Person results from the
fact that such underwriter sold Registrable Securities to a Person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the final prospectus or of the final prospectus as then amended
or supplemented, whichever is most recent, if the Company has previously
furnished copies thereof to such underwriter. Such indemnity will remain in
full force and effect regardless of any investigation made by or on behalf of
such Selling Holder or any Indemnified Party and will survive the transfer of
such securities by such Selling Holder.
(b) Indemnification by the Selling Holders and Underwriters.
The Company may require, as a condition to including any Registrable Securities
in any registration statement filed in accordance with this Appendix A, that
the Company shall have received an undertaking reasonably satisfactory to it
from the Selling Holder of such Registrable Securities or any prospective
underwriter to indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 5(a)) the Company, all other Selling Holders or
any prospective underwriter, as the case may be, and any of their respective
Affiliates, directors, officers, employees, members and controlling Persons,
with respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement, if such statement
or alleged statement or omission or alleged omission was made in reliance upon
and in conformity with written information with respect to such Selling Holder
or underwriter furnished to the Company by such Selling Holder or underwriter
expressly for use in the preparation of such registration statement,
preliminary, final or summary prospectus or amendment or supplement, or a
document incorporated by reference into any of the foregoing. Such indemnity
will remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any of the Selling Holders, or any of their
respective affiliates, directors, officers or controlling Persons and will
survive the transfer of such securities by such Selling Holder.
(c) Notices of Claims, Etc. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 5, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, that the failure of the
indemnified party to give notice as provided herein will not relieve the
indemnifying party of its obligations under Sections 5(a) or 5(b), except to
the extent that the indemnifying party is actually prejudiced by such failure
to give notice. In case any such action is brought against an indemnified
party,
7
<PAGE>
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim, the indemnifying party will be entitled to participate in and to assume
the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory
to such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. If, in such
indemnified party's reasonable judgment, having common counsel would result in
a conflict of interest between the interests of such indemnified and
indemnifying parties, then such indemnified party may employ separate counsel
reasonably acceptable to the indemnifying party to represent or defend such
indemnified party in such action, it being understood, however, that the
indemnifying party will not be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for all such indemnified
parties (and not more than one separate firm of local counsel at any time for
all such indemnified parties) in such action. No indemnifying party will
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or litigation.
(d) Other Indemnification. Indemnification similar to that
specified in this Section 3.10 (with appropriate modifications) will be given
by the Company and each Selling Holder of Registrable Securities with respect
to any required registration or other qualification of securities under any
federal or state law or regulation or governmental authority other than the
Securities Act.
(e) Contribution. If recovery is not available under the
foregoing indemnification provisions of this Section 5 for any reason other
than as expressly specified therein, the parties entitled to indemnification by
the terms thereof will be entitled to contribution to liabilities and expenses
except to the extent that contribution is not permitted under Section 11(f) of
the Securities Act. In determining the amount of contribution to which the
respective parties are entitled, consideration will be given to the relative
benefits received by each party from the offering of the Registrable Securities
(taking into account the portion of the proceeds realized by each), the
parties' relative knowledge and access to information concerning the matter
with respect to which the claim was asserted, the opportunity to correct and
prevent any misstatement or omission and any other equitable considerations
appropriate under the circumstances.
(f) Non-Exclusivity. The obligations of the parties under
this Section 5 will be in addition to any liability which any party may
otherwise have to any other party.
8
<PAGE>
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of March 13, 1998,
among The Imperial Home Decor Group Inc., a Delaware corporation (the
"Company"), Imperial Home Decor Group Holdings LLC, a Delaware limited liability
company and a stockholder of the Company (together with its transferees and the
transferees of such transferees, "Holdings"), Borden, Inc., a New Jersey
corporation ("Borden"), and BDH One, Inc. a Delaware corporation and an indirect
wholly owned subsidiary of Borden ("BDH One") (Borden, BDH One and their
respective Permitted Transferees, collectively, the "Borden Investors").
RECITALS:
A. The Company, BDPI Holdings Corporation, a Delaware corporation
("MergerCo") and Borden are parties to a Recapitalization Agreement, dated as of
October 14, 1997 (the "Recapitalization Agreement"), pursuant to which, among
other things, the Company was recapitalized (the "Recap") and the Company's name
was changed to "The Imperial Home Decor Group Inc.";
B. Immediately following the Recap, the Borden Investors collectively held
653,125 shares of Common Stock and Holdings held 5,284,375 shares of Common
Stock; and
C. The parties hereto wish to provide for certain matters relating to their
respective holdings of Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
I. INTRODUCTORY MATTERS
1.1. Defined Terms. In addition to the terms defined elsewhere herein, the
following terms have the following meanings when used herein with initial
capital letters:
"Affiliate" has the meaning given to that term in Rule 405 promulgated
under the Securities Act; provided, that officers, directors or employees
of the Company will not be deemed to be Affiliates of a stockholder of the
Company for purposes hereof solely by reason of being officers, directors
or employees of the Company.
"Agreement" means this Agreement, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms hereof.
"Assumption Agreement" means a writing in substantially the form of
Exhibit A hereto.
<PAGE>
"Board" means the Board of Directors of the Company.
"Business Day" means a day other than a Saturday, Sunday, federal or
New York State holiday or other day on which commercial banks in New York
City are authorized or required by law to close.
"Common Stock" means the shares of common stock, par value $.01 per
share, of the Company.
"IPO" means the completion of an initial Public Offering and the sale
to the public of Common Stock by the Company.
"Permitted Transferees" means any Person to whom shares of Common
Stock are Transferred in a Transfer in accordance with Sections 3.2 or 3.3
or otherwise not in violation of this Agreement and who is required to, and
does, enter into an Assumption Agreement, and includes any Person to whom a
Permitted Transferee of any Borden Investor (or a Permitted Transferee of a
Permitted Transferee) so further Transfers shares of Common Stock and who
is required to, and does, become bound by the terms of this Agreement.
"Person" means any individual, corporation, limited liability company,
partnership, trust, joint stock company, business trust, unincorporated
association, joint venture, governmental authority or other legal entity of
any nature whatsoever.
"Public Offering" means the sale of shares of any class of the Common
Stock to the public pursuant to an effective registration statement (other
than a registration statement on Form S-4 or S-8 or any similar or
successor form) filed under the Securities Act.
"Registrable Securities" means (i) any Common Stock held by the Borden
Investors immediately following the Recap, (ii) any Common Stock issued as
(or issuable upon the conversion or exercise of any warrant, right, option
or other convertible security which is issued as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of,
such Common Stock, and (iii) any Common Stock issued by way of a stock
split of the Common Stock referred to in clauses (i), (ii) or (iii) above.
For purposes of this Agreement, any Registrable Securities will cease to be
Registrable Securities when (A) a registration statement covering such
Registrable Securities has been declared effective and such Registrable
Securities have been disposed of pursuant to such effective registration
statement, (B) all Registrable Securities may be offered and sold pursuant
to Rule 144 (or any similar provision then in effect) under the Securities
Act in a single transaction or series of transactions over a 90-day period,
(C) such Registrable Securities are sold by a person in a transaction in
which rights under the provisions of this Agreement are not assigned, or
(z) such Registrable Securities cease to be outstanding.
"Registration Expenses" means any and all expenses incident to the
performance by the Company of its obligations under Sections 4.1 or 4.2,
including without limitation
2
<PAGE>
(i) all SEC, stock exchange, National Association of Securities Dealers,
Inc. and other comparable regulatory agencies, registration and filing
fees, (ii) all fees and expenses of the Company in complying with
securities or blue sky laws (including fees and disbursements of counsel
for the underwriters in connection with blue sky qualifications), (iii) all
printing, messenger and delivery expenses of the Company, (iv) the fees and
disbursements of counsel for the Company and of its independent
accountants, including without limitation the expenses of any "cold
comfort" letters required by or incident to such performance and
compliance, and (v) fees and disbursements customarily paid by issuers or
sellers of securities (but not underwriters' or sales agents' discounts or
similar compensation).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, as the same may be amended
from time to time.
"Stockholders" means each of the holders of Common Stock.
"Transfer" means a transfer, sale, assignment, pledge, hypothecation
or other disposition, whether directly or indirectly pursuant to the
creation of a derivative security, the grant of an option or other right,
the imposition of a restriction on disposition or voting or transfer by
operation of law. Notwithstanding the foregoing, Transfer shall not mean
any change of control of Borden or a successor of Borden.
1.2 Construction. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rule
of strict construction will be applied against any party. Unless the context
otherwise requires: (a) "or" is disjunctive but not exclusive, (b) words in the
singular include the plural, and in the plural include the singular, and (c) the
words "hereof", "herein", and "hereunder" and words of similar import when used
in this Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Section references are to this Agreement unless
otherwise specified.
II. COMPOSITION OF THE BOARD OF DIRECTORS
2.1. Borden Board Representation. (a) Subject to Section 5.2, Holdings will
vote its shares of Common Stock at any regular or special meeting of the
stockholders of the Company called for the purpose of filling positions of the
Board, or in any written consent executed in lieu of such a meeting of
stockholders, and will take all actions necessary, to ensure that the Board
includes one individual selected by Borden (the "Borden Nominee"), provided,
however, that the foregoing covenant will not apply unless (a) if the Borden
nominee is an executive of Borden, the Borden Nominee has a level of seniority
of Executive Vice President or Senior Vice President or higher or (b) if the
Borden Nominee is not an executive of Borden, such Borden Nominee is reasonably
acceptable to Holdings, provided, however, that any executive of
3
<PAGE>
Kohlberg Kravis Roberts & Co. will be deemed to be acceptable to the Board for
purposes of this Section 2.2.
(b) Borden will at all times have the right to cause any person acting as
the Borden Nominee to be removed and replaced by another individual meeting the
requirements of Section 2.1(a), or if the individual acting as a Borden Nominee
resigns or is otherwise disabled from acting as a director, to name another
individual meeting the requirements of Section 2.1(a) to act as the Borden
Nominee. The right of Borden to designate the Borden Nominee and remove and
replace a Borden Nominee may be exercised only by delivering written notice of
such exercise to the Company and Holdings.
2.2. Borden Group Cooperation. Except to the extent inconsistent with its
rights to select, remove or replace the Borden Nominee under Section 2.1(a) or
(b), the Borden Group will take any and all actions requested of any of them in
writing by Holdings to elect to the Board such individuals as are designated by
Holdings and to remove or replace any individual so designated.
III. TRANSFERS
3.1. Limitations on Transfer. (a) No Borden Investor may Transfer any
shares of Common Stock other than (i) in connection with a Public Offering
effected in accordance with this Agreement or (ii) in accordance with Sections
3.2, 3.3, 3.4, or 3.5.
(b) In the event of any purported Transfer by any Borden Investor of any
shares of Common Stock in violation of the provisions of this Agreement, such
purported Transfer will be void and of no effect and the Company will not give
effect to such Transfer.
(c) Each certificate representing shares of Common Stock issued to any
Borden Investor will bear a legend on the face thereof substantially to the
following effect (with such additions thereto or changes therein as the Company
may be advised by counsel are required by law (the "Legend"):
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A STOCKHOLDERS' AGREEMENT AMONG THE COMPANY, IMPERIAL HOME DECOR GROUP
HOLDINGS LLC., BORDEN, INC. AND BDH ONE, INC., A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH
STOCKHOLDERS' AGREEMENT. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF
THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH
STOCKHOLDERS' AGREEMENT.
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THEY
4
<PAGE>
HAVE BEEN REGISTERED UNDER THAT ACT OR ANY OTHER APPLICABLE LAW OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE."
The Legend will be removed by the Company by the delivery of substitute
certificates without such Legend in the event of (i) a Transfer permitted by
this Agreement and in which the Transferee is not required to enter into an
Assumption Agreement or (ii) the termination of Article III pursuant to the
terms hereof, provided however, that the second paragraph of such Legend will
only be removed if at such time a legal opinion shall have been obtained to the
effect that such legend is no longer required for purposes of applicable
securities laws. In connection with the foregoing, the Company agrees that from
and after the consummation of an IPO if the Company is required to file reports
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for
so long as and to the extent necessary to permit any Borden Investor to sell the
shares of Common Stock pursuant to Rule 144, the Company shall use its
reasonable best efforts to file, on a timely basis, all reports required to be
filed with the SEC by it pursuant to Section 13 of the Exchange Act, so long as
it is subject to such requirement, furnish to the Borden Investors upon request
a written statement as to whether the Company has complied with such reporting
requirements during the 12 months preceding any proposed sale under Rule 144 and
otherwise use its reasonable efforts to permit such sales pursuant to Rule 144.
3.2. Right of First Offer. (a) Except in connection with a Transfer
pursuant to or as expressly permitted by Section 3.3, 3.4 or 3.5, during the
period from the date hereof until the earlier to occur of the completion of an
IPO and March 13, 2003 (the "ROFO Period"), prior to any Borden Investor
proposing to effect a Transfer of Common Stock to any Person not an Affiliate of
the Transferor (a "Third-Party Sale"), such Borden Investor (the "Offering
Stockholder") will deliver to Holdings a written Notice (an "Offer Notice")
specifying the aggregate amount of cash consideration (the "Offer Price") for
which the Offering Stockholder proposes to sell the Common Stock to be offered
in such Third-Party Sale (the "Offered Stock").
(b) Prior to negotiating with any third party (or committing to negotiate)
in respect of a possible Third-Party Sale of any Common Stock, the Offering
Stockholder will negotiate with Holdings in good faith concerning the possible
sale to Holdings of the Common Stock proposed or otherwise intended to be sold
in a Third Party Sale for a period of 30 calendar days following the date on
which Holdings receives the Offer Notice. If Holdings delivers to the Offering
Stockholder a written Notice (an "Acceptance Notice") within such 30 calendar
day period (such 30 calendar day period being referred to herein as the "ROFO
Acceptance Period") stating that Holdings is willing to purchase all of the
Offered Stock for the Offer Price and on the other terms set forth in the Offer
Notice, the Offering Stockholder will sell all of the Offered Stock to Holdings,
and Holdings will purchase such Offered Stock from the Offering Stockholder, on
the proposed terms and subject to the conditions set forth below.
(c) The consummation of any purchase of the Offered Stock by Holdings
pursuant to this Section 3.2 (the "ROFO Closing") will occur no more than 90
calendar days following the delivery of the Acceptance Notice (such 90 calendar
day period being referred to herein as the "ROFO Closing Period") at 10:00 a.m.
(Eastern Time) at the offices of Jones, Day, Reavis & Pogue at 599 Lexington
Avenue, New York, New York 10022, or at such other time of day and place as may
be mutually agreed upon by the Offering Stockholder and Holdings. At the ROFO
Closing, (i) Holdings will deliver to the Offering Stockholder by certified or
official bank
5
<PAGE>
check or wire transfer to an account designated by the Offering Stockholder an
amount in immediately available funds equal to the Offer Price, (ii) the
Offering Stockholder will deliver one or more certificates evidencing the
Offered Stock, together with such other duly executed instruments or documents
(executed by the Offering Stockholder) as may be reasonably requested by
Holdings to acquire the Offered Stock free and clear of any and all claims,
liens, pledges, charges, encumbrances, security interests, options, trusts,
commitments and other restrictions of any kind whatsoever (collectively,
"Encumbrances"), except for Encumbrances created by this Agreement, federal or
state securities laws or Holdings or as specified in the Offer Notice
("Permitted Encumbrances"), and (iii) the Offering Stockholder will be deemed to
represent and warrant to Holdings that, upon the ROFO Closing, the Offering
Stockholder will convey and Holdings will acquire the entire record and
beneficial ownership of, and good and valid title to, the Offered Stock, free
and clear of any and all Encumbrances, except for Permitted Encumbrances.
(d) If no Acceptance Notice relating to the proposed Third-Party Sale is
delivered to the Offering Stockholder prior to the expiration of the ROFO
Acceptance Period, or an Acceptance Notice is so delivered to the Offering
Stockholder but the ROFO Closing fails to occur prior to the expiration of the
ROFO Closing Period (unless Holdings was ready, willing and able prior to the
expiration of the ROFO Closing Period to consummate the transactions to be
consummated by Holdings at the ROFO Closing), the Offering Stockholder may
consummate the Third-Party Sale, but only (i) during the 90 calendar day period
immediately following the expiration of the ROFO Acceptance Period (in the event
that no Acceptance Notice was timely delivered to the Offering Stockholder) or
the 90 calendar day period immediately following the expiration of the ROFO
Closing Period (in the event that an Acceptance Notice was timely delivered to
the Offering Stockholder but the ROFO Closing failed timely to occur), (ii) at a
price at least equal to the Offer Price, (iii) upon other terms not materially
less favorable to the Offering Stockholder than those set forth in the Offer
Notice, if any, (iv) if the Transferee in the Third-Party Sale enters into an
Assumption Agreement, and (v) if the Third-Party Sale is not to or with a
Transferee engaged in the business of the development, production, marketing,
distribution or sale of vinyl and/or paper decorative surface products for
residential applications.
(e) For purposes of this Section 3.2, the value of any consideration other
than cash that is payable or receivable in the Third Party Sale will be as
determined by the Board in good faith.
3.3. Transfers to Affiliates. The Borden Investors may Transfer any or all
of the shares of Common Stock held by any of them to any of their respective
Affiliates controlled by the Transferor who duly executes and delivers an
Assumption Agreement, provided that in connection therewith the Company has been
furnished with an opinion in form and substance reasonably satisfactory to the
Company of counsel reasonably satisfactory to the Company that such Transfer is
exempt from or not subject to the registration requirements of Section 5 of the
Securities Act.
3.4. Tag-Along Rights. (a) So long as this Agreement remains in effect,
with respect to any proposed Transfer by Holdings, or any Person to whom
Holdings assigns its rights in accordance with Section 5.5, of shares of Common
Stock to any Person not an Affiliate of Holdings, other than in a Public
Offering, whether pursuant to a stock sale, a tender or exchange
6
<PAGE>
offer or a similar transaction (any such transaction, a "Holdings Sale"),
Holdings will have the obligation, and each Borden Investor will have the right,
to require the proposed Transferee or acquiring Person to purchase from each
Borden Investor who exercises its rights under Section 3.4(b) (a "Tagging
Stockholder") a number of shares of Common Stock up to the product (rounded up
to the nearest whole number) of (i) the quotient determined by dividing (A) the
aggregate number of shares of Common Stock owned by such Tagging Stockholder by
(B) the aggregate number of shares of Common Stock owned by Holdings, the
Tagging Stockholder and any other Stockholder entitled to participate in such
transaction, and (ii) the total number of shares of Common Stock proposed to be
directly or indirectly Transferred to the Transferee or acquiring Person in the
contemplated Holdings Sale (a "Proposed Transferee"), at the same price per
share of Common Stock and upon the same terms and conditions (including, without
limitation, time of payment and form of consideration) as to be paid and given
to Holdings; provided, that in order to be entitled to exercise its right to
sell shares of Common Stock to the Proposed Transferee pursuant to this Section
3.4, each Tagging Stockholder must agree to make to the Proposed Transferee
substantially the same representations, warranties, covenants, proportionate
indemnities and agreements as Holdings agrees to make in connection with the
proposed Holdings Sale, provided that such representations, warranties,
covenants, indemnities and agreements shall be made severally and not jointly by
each Tagging Stockholder. Each Tagging Stockholder will be responsible for its
proportionate share of the costs of the Holdings Sale to the extent not paid or
reimbursed by the Company or the Proposed Transferee, provided that such costs
shall exclude fees paid to Holdings and/or its affiliates.
(b) Holdings will give notice to each Tagging Stockholder of each proposed
Holdings Sale at least fifteen Business Days prior to the proposed consummation
of such Holdings Sale, setting forth the number of shares of Common Stock
proposed to be so Transferred, the name and address of the Proposed Transferee,
the proposed amount and form of consideration (and if such consideration
consists in part or in whole of property other than cash, Holdings will provide
such information, to the extent reasonably available to Holdings, relating to
such consideration as the Tagging Stockholder may reasonably request in order to
evaluate such non-cash consideration) and other terms and conditions of payment
offered by the Proposed Transferee, and a representation that the Proposed
Transferee has been informed of the tag-along rights provided for in this
Section 3.4. Holdings will deliver or cause to be delivered to each Tagging
Stockholder copies of all transaction documents relating to the proposed
Holdings Sale (including draft and final versions of such documents) as the same
become available. The tag-along rights provided by this Section 3.4 must be
exercised by each Tagging Stockholder within ten Business Days following receipt
of the notice required by the preceding sentence by delivery of a written notice
to Holdings indicating the desire of such Tagging Stockholder to exercise its or
his rights and specifying the number of shares of Common Stock it or he desires
to sell. The Tagging Stockholder will be entitled under this Section 3.4 to
Transfer to the Proposed Transferee the number of shares of Common Stock
calculated in accordance with Section 3.4(a).
(c) If any Tagging Stockholder exercises his or its rights under Section
3.4(a), the closing of the purchase of the Common Stock with respect to which
such rights have been exercised will take place concurrently with the closing of
the sale of Holdings's Common Stock to the Proposed Transferee.
7
<PAGE>
3.5. Drag-Along Rights. (a) So long as this Agreement remains in effect, if
Holdings receives an offer from a Person other than an Affiliate of Holdings (a
"Third Party") to purchase of a type referred to in the first sentence of
Section 3.4(a) at least a majority of the shares of Common Stock then
outstanding and such offer is accepted by Holdings, then each Borden Investor
hereby agrees that, if requested by Holdings, it will Transfer to such Third
Party on the terms of the offer so accepted by Holdings, including the same time
of payment, per share consideration and representations and warranties, the
number of shares of Common Stock equal to the number of shares of Common Stock
owned by such Borden Investor multiplied by the percentage of the then
outstanding shares of Common Stock to which the Third Party offer is applicable;
provided that such representations and warranties shall be made severally and
not jointly.
(b) Holdings will give notice (the "Drag-Along Notice") to each of the
Borden Investors of any proposed Transfer giving rise to the rights of Holdings
set forth in Section 3.5(a) as soon as practicable following Holdings's
acceptance of the offer referred to in Section 3.5(a). The Drag-Along Notice
will set forth the number of shares of Common Stock proposed to be so
Transferred, the name of the proposed Transferee or acquiring Person, the
proposed amount and form of consideration (and if such consideration consists in
part or in whole of property other than cash, Holdings will provide such
information, to the extent reasonably available to Holdings, relating to such
consideration as the Borden Investors may reasonably request in order to
evaluate such non-cash consideration), the number of shares of Common Stock
sought and the other terms and conditions of the offer. Holdings will notify the
Borden Investors at least ten Business Days in advance of entering into a
definitive agreement in connection with such offer. In any such agreement, the
Borden Investors will be required (i) to make or agree to the same
representations, warranties and proportionate indemnities as Holdings so long as
they are made severally and not jointly and (ii) to pay their proportionate
share of the costs of such Holdings Sale to the extent not paid or reimbursed by
the Company or the Transferee or acquiring Person, provided that in the case of
the foregoing clause (ii), such costs shall exclude fees paid to Holdings and/or
its Affiliates. If the Transfer referred to in the Drag-Along Notice is not
consummated within 180 days from the date of the Drag-Along Notice, Holdings
must deliver another Drag-Along Notice in order to exercise its rights under
this Section 3.5 with respect to such Transfer or any other Transfer.
(c) If there is more than one Borden Investor when the Company exercises
drag-along rights under this Section 3.5, each Borden Investor will participate
pro rata by reference to the number of shares of Common Stock owned by each such
Borden Investor.
IV. REGISTRATION RIGHTS
4.1. Piggyback Rights. (a) Each time the Company is planning to file a
registration statement under the Securities Act in connection with the sale of
Common Stock by (i) the Company (other than in connection with an IPO comprised
solely of the primary offer and sale of Common Stock by the Company or a
registration statement on Forms S-4 or S-8 or any similar or successor form) or
(ii) any Stockholder other than the Borden Investors (the Company or such
Stockholder in such case, the "Initiating Party"), the Company will give prompt
written notice thereof to each Borden Investor, at least 15 Business Days prior
to the anticipated filing
8
<PAGE>
date of such registration statement. Upon the written request of a majority in
interest of the Borden Investors made within 20 Business Days after the receipt
of any such notice from the Company, which request will specify the Registrable
Securities (the "Piggy-Back Shares") intended to be disposed of by such Borden
Investor in such offering, the Company will use reasonable best efforts to
effect the registration under the Securities Act of all Piggy-Back Shares which
the Company has been so requested to register by such Borden Investors to the
extent required to permit the disposition of the Piggy-Back Shares to be
registered; provided, that (i) if, at any time after giving written notice of
its intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, any
Initiating Party determines for any reason not to proceed with the proposed
registration, the Company may at its election give written notice of such
determination to each holder of Piggy-Back Shares and thereupon will be relieved
of its obligation to register any Piggy-Back Shares in connection with such
registration, and (ii) if such registration involves an underwritten offering,
each Borden Investor requesting to be included in the Company's registration
must sell its shares to the underwriters on the same terms and conditions as
apply to the Initiating Parties.
(b) If a registration pursuant to this Section 4.1 involves an underwritten
offering and the managing underwriter or underwriters advise the Company in
writing that, in their opinion, (i) the number of Registrable Securities which
the Initiating Party intends to include in such registration, together with the
Piggy-Back Shares, exceeds the largest number of such securities which can be
sold in such offering without having an adverse effect on such offering
(including, but not limited to, the price at which the Registrable Securities
can be sold) or (ii) the inclusion of Registrable Securities owned by the Borden
Investors in such registration would have an adverse effect on such offering,
then the Company will include in such registration (A) first, 100% of the
securities, if any, that the Company proposes to sell for its own account, and
(B) second, to the extent that the number of securities which the Company
proposes to sell is less than the number of securities which the Company has
been advised can be sold in such offering without having the adverse effect
referred to above, the number of Registrable Securities of each Initiating Party
and/or Borden Investor determined on the basis of the relative percentage
relationships of (y) the number of Registrable Securities to be included by such
Initiating Party and/or Borden Investor and (z) the number of Registrable
Securities to be included by all other Stockholders.
4.2. Demand Registrations. (a) From and after 180 days following the
completion of the IPO, the Borden Investors holding at least a majority of the
Registrable Securities held by the Borden Investors may request in a written
notice (the "Request") that the Company effect the registration under the
Securities Act of all of the Registrable Securities owned by the Borden
Investors. Following the receipt of the Request, the Company will (i) within ten
days notify all other Stockholders having registration rights of such Request in
writing and (ii) thereupon, will as expeditiously as practicable, effect the
registration under the Securities Act of all Registrable Securities of such
Borden Investors and any Registrable Securities of any other Stockholder having
registration rights as are specified in a subsequent Request received by the
Company, within ten Business Days after the Company has given such notice, and
will cause such registration statement to remain effective for a period of not
less than 180 days; provided, however, that the Company will not be required to
effect more than one registration pursuant to this Section 4.2, unless the
Borden Investors are unable to sell all of the Registrable Securities requested
be included in such offering because of the participation by any other
Stockholder
9
<PAGE>
(other than the Borden Investors) in such offering, in which case the Borden
Investors will be entitled to have one additional demand effected.
(b) The Company and Borden will reasonably mutually agree on the managing
underwriter of any underwritten offering effected under Section 4.2(a).
(c) If a registration pursuant to this Section 4.2 involves an underwritten
offering and the managing underwriter or underwriters advise the Company in
writing that, in their opinion, the number of Registrable Securities which the
Borden Investors and any other Stockholders intend to include in such
registration exceeds the largest number of securities which can be sold in such
offering without having an adverse effect on such offering (including, but not
limited to, the price at which the securities can be sold), then the number of
Registrable Securities of each Borden Investor to be included in such offering
will be determined on the basis of the relative percentage relationships of (y)
the number of Registrable Securities to be included by such Borden Investor and
(z) the number of Registrable Securities to be included by all other
Stockholders.
4.3. Other Registration-Related Matters. (a)(i) If (A) the Company files or
proposes to file a registration statement (other than in connection with the
registration of securities issuable pursuant to a continuous "at the market
offering" pursuant to Rule 415(a)(4) under the Securities Act or an employee
stock option, stock purchase, dividend reinvestment plan or similar plan) with
respect to any securities of the Company, and (B) with reasonable prior notice
(an "Offering Delay Notice"), (1) the Company (in the case of a non-underwritten
offering pursuant to such registration statement) advises Borden (on behalf of
the Borden Investors) in writing that a sale or distribution of securities owned
by the Borden Investors would adversely affect such offering or (2) the managing
underwriter or underwriters (in the case of an underwritten offering) advise the
Company in writing (in which case the Company will notify Borden on behalf of
the Borden Investors), that in their opinion a sale or distribution of
securities owned by the Borden Investors would adversely affect such offering,
then the Company will not be obligated to effect the initial filing of a
registration statement pursuant to Section 4.2 during the period commencing on
the date that is 30 calendar days prior to the date the Company in good faith
estimates (as certified in writing by an officer of the Company to the Borden
Investors following a request for registration pursuant to Section 4.2) will be
the date of filing of, and ending on the date which is 90 calendar days
following the effective date of, such registration statement but in no event for
more than 120 consecutive days.
(ii) If the Board determines in its good faith judgment that the
registration and distribution of Registrable Securities (A) would impede, delay
or interfere with any pending financing, acquisition, corporate reorganization
or other significant transaction involving the Company or (B) would require
disclosure of non-public material information, the disclosure of which would
adversely affect the Company (collectively a "Valid Business Reason"), the
Company will promptly give Borden (on behalf of the Borden Investors) written
notice of such determination and will be entitled to postpone the filing or
effectiveness of a registration statement relating to a request for registration
under this Section IV for a reasonable period of time not to exceed the earlier
of (i) such time as a Valid Business Reason no longer exists and (ii) 180
calendar days (a "Section 4.3(a)(ii) Period"); provided, however, that in
connection therewith the Company will be required to deliver to the Borden
Investors (as identified at such time to the
10
<PAGE>
Company) a statement (the "Statement of Delay"), signed by an officer of the
Company, describing in reasonable detail the reasons for such postponement or
restriction on use and an estimate of the anticipated delay. The Company will
promptly notify Borden (on behalf of the Borden Investors) of the expiration or
earlier termination of a Section 4.3(a)(ii) Period.
(iii) Notwithstanding the foregoing provisions of this subparagraph (a),
the Company shall be entitled to serve only one Offering Delay Notice or
Statement of Delay within any 180 day period.
(b) The Company may require any Person that is selling shares of Common
Stock in a Public Offering pursuant to Sections 4.1 or 4.2 to furnish to the
Company in writing such information regarding such Person and the distribution
of the shares of Common Stock which are included in a Public Offering as may
from time to time reasonably be requested in writing in order to comply with the
Securities Act.
(c) The Company will pay all Registration Expenses in connection with each
registration or proposed registration of Registrable Securities pursuant to
Sections 4.1 or 4.2. Notwithstanding the foregoing, (y) the fees or expenses of
counsel to any Borden Investor or of any other expert hired directly by any
Borden Investor will be the sole responsibility of such Borden Investor and (z)
each Borden Investor will be responsible for its pro rata share (determined by
reference to the number of shares included in the applicable registration) of
all underwriting discounts and commissions and transfer taxes.
(d) Before filing a registration statement or prospectus, or any amendments
or supplements thereto, in connection with any registration or proposed
registration of Registrable Securities pursuant to Sections 4.1 or 4.2, the
Company will furnish to Borden's counsel copies of all documents proposed to be
filed and shall provide Borden with the opportunity to review such registration
statement or prospectus, or any amendments or supplements thereto.
(e) The Company will furnish to each seller of Registrable Securities such
number of copies of the applicable registration statement and of each amendment
or supplement thereto (in each case including all exhibits), such number of
copies of the prospectus included in such registration statement (including each
preliminary prospectus and summary prospectus), and such other documents as such
seller may reasonably request, and will make available for inspection by each
Seller's counsel such financial and other information and books and records of
the Company, and cause the officers, directors, employees, counsel and
independent certified public accountants of the Company to respond to such
inquiries, as shall be reasonably necessary, in the judgment of such seller's
counsel, to conduct a reasonable investigation within the meaning of Section 11
of the Securities Act, in order to facilitate the disposition of Registrable
Securities by such seller.
(f) The Company will use reasonable best efforts to register or qualify
Registrable Securities covered by a registration statement under such other
securities or blue sky laws of such jurisdictions as each seller reasonably
requests, and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the disposition in
such jurisdictions of the Registrable Securities owned by such seller, except
that the Company will not for any such purpose be required to qualify generally
to do business as a foreign
11
<PAGE>
corporation in any jurisdiction where, but for the requirements of this Section
4.3(f), it would not be obligated (i) to be so qualified, (ii) to subject itself
to taxation in any such jurisdiction, or (iii) to file a general consent to
service of process in any such jurisdiction.
(g) The Company will use reasonable best efforts to cause the Registrable
Securities covered by a registration statement to be registered with or approved
by each governmental agency or authority, whether federal, state or local, as
may be necessary to enable the seller thereof to effect registration or the
offering or sale in connection therewith or to consummate the disposition
thereof.
(h) The Company will promptly notify each seller of Registrable Securities
covered by a registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act within the
appropriate period of the Company's becoming aware that the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, and at the request of any such
seller, promptly prepare and furnish to such seller a reasonable number of
copies of an amended or supplemental prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made.
(i) The Company will enter into such customary agreements (including an
underwriting agreement in customary form) and take such other actions as sellers
of a majority of the number of shares of securities covered by a registration
statement or the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities.
(j) The Company will make available for inspection by any seller of
Registrable Securities covered by a registration statement, by any underwriter
participating in any disposition to be effected pursuant to such registration
statement and by any attorney, accountant or other agent retained by any such
seller or any such underwriter, all pertinent financial and other records,
pertinent corporate documents and properties of the Company, and cause all of
the Company's officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement.
(k) The Company will obtain a "cold comfort" letter or letters from the
Company's independent public accountants in customary form and covering matters
of the type customarily covered by "cold comfort" letters as the sellers of a
majority of the outstanding shares of Registrable Securities covered by the
registration statement reasonably requests.
(l) Each Borden Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 4.3(h)
such Borden Investor will forthwith discontinue disposition of securities
pursuant to the registration statement covering such Registrable Securities
until such Borden Investor's receipt of the copies of the amended or
supplemented prospectus contemplated by Section 4.3(h) and, if so directed by
the
12
<PAGE>
Company, such Borden Investor will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in such Borden
Investor's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company gives
any such notice, the period for which the Company will be required to keep the
registration statement effective will be extended by the number of days during
the period from and including the date of the giving of such notice pursuant to
Section 4.3(h) to and including the date when each seller of Registrable
Securities covered by such registration statement has received the copies of the
supplemented or amended prospectus contemplated by Section 4.3(h).
(m) Each Borden Investor will, in connection with an offering of the
Company's securities, upon the request of the Company or of the underwriters
managing any underwritten offering of the Company's securities, agree in writing
not to effect any sale, disposition or distribution of Registrable Securities
(other than those included in the registration) without the prior written
consent of the managing underwriter for such period of time (not to exceed (i)
180 days, in the case of an IPO, or (ii) 90 days, in the case of any other
offering of Company securities) from the effective date of such registration as
the Company or the underwriters may specify.
(n) Holdings will use its reasonable efforts (taking into account the
interests of the Company) to make available the executive officers of the
Company to participate in customary "road show" presentations that may be
reasonably requested by the holders of Registrable Securities and the managing
underwriter in any underwritten offering; provided that the participation of
such officers shall not interfere with the conduct of their duties to the
Company.
4.4. Indemnification. (a) Indemnification by the Company. In the event of
any registration of any securities of the Company under the Securities Act
pursuant to Sections 4.1 or 4.2, the Company hereby indemnifies and agrees to
hold harmless, to the extent permitted by law, each party hereto who is a holder
("Holder") of Registrable Securities covered by such registration statement, and
all current and future directors, officers, employees, general and limited
partners, members, Affiliates and assignees of such Holder and of any of the
foregoing, each other Person who participates as an underwriter in the offering
or sale of such securities and each other Person, if any, who controls such
Holder or any such underwriter within the meaning of the Securities Act
(collectively, the "Indemnified Parties"), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses and disbursements of any kind (each, an
"Indemnified Liability") which may be imposed upon, incurred by or asserted
against each Indemnified Party in any manner relating to or arising out of (i)
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such securities were registered under
the Securities Act, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement thereto or (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and the Company will reimburse such Indemnified
Party for any legal or other expenses reasonably incurred by it in connection
with investigating or defending any Indemnified Liability; provided, that the
Company will not be liable to any Indemnified Party in any such case to the
extent that any such Indemnified Liability
13
<PAGE>
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, in any such
preliminary, final or summary prospectus, or any amendment or supplement thereto
in reliance upon and in conformity with written information with respect to such
Indemnified Party furnished to the Company by such Indemnified Party for use in
the preparation thereof; and provided, further, that the Company will not be
liable to any Person who participates as an underwriter in the offering or sale
of Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, under the indemnity
agreement in this Section 4.4 with respect to any preliminary prospectus or the
final prospectus or the final prospectus as amended or supplemented, as the case
may be, to the extent that any such loss, claim, damage or liability of such
underwriter or controlling Person results from the fact that such underwriter
sold Registrable Securities to a Person to whom there was not sent or given, at
or prior to the written confirmation of such sale, a copy of the final
prospectus or of the final prospectus as then amended or supplemented, whichever
is most recent, if the Company has previously furnished copies thereof to such
underwriter. Such indemnity will remain in full force and effect regardless of
any investigation made by or on behalf of such Holder or any Indemnified Party
and will survive the Transfer of such securities by such Holder.
(b) Indemnification by the Holders and Underwriters. The Company may
require, as a condition to including any Registrable Securities in any
registration statement filed in accordance with Sections 4.1 or 4.2, that the
Company shall have received an undertaking reasonably satisfactory to it from
the Holder of such Registrable Securities or any prospective underwriter to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 4.4(a)) the Company, all other Holders or any prospective
underwriter, as the case may be, and any of their respective current and future
directors, officers, employees, general and limited partners, members,
Affiliates and controlling Persons, with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary, final or summary prospectus contained therein, or any amendment
or supplement, if such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written information
with respect to such Holder or underwriter furnished to the Company by such
Holder or underwriter expressly for use in the preparation of such registration
statement, preliminary, final or summary prospectus or amendment or supplement,
or a document incorporated by reference into any of the foregoing. Such
indemnity will remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any of the Holders, or any of their
respective affiliates, directors, officers or controlling Persons and will
survive the Transfer of such securities by such Holder.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified party
hereunder of written notice of the commencement of any action or proceeding with
respect to which a claim for indemnification may be made pursuant to this
Section 4.4, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of the
commencement of such action; provided, that the failure of the indemnified party
to give notice as provided herein will not relieve the indemnifying party of its
obligations under Section 4.4(a) or 4.4(b), except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
14
<PAGE>
indemnifying party will be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. If, in such
indemnified party's reasonable judgment, having common counsel would result in a
conflict of interest between the interests of such indemnified and indemnifying
parties, then such indemnified party may employ separate counsel reasonably
acceptable to the indemnifying party to represent or defend such indemnified
party in such action, it being understood, however, that the indemnifying party
will not be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for all such indemnified parties (and not
more than one separate firm of local counsel at any time for all such
indemnified parties) in such action. No indemnifying party will consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation.
(d) Other Indemnification. Indemnification similar to that specified in
this Section 4.4 (with appropriate modifications) will be given by the Company
and each Holder of Registrable Securities with respect to any required
registration or other qualification of securities under any federal or state law
or regulation or governmental authority other than the Securities Act.
(e) Contribution. If recovery is not available under the foregoing
indemnification provisions of this Section 4.4 for any reason other than as
expressly specified therein, the parties entitled to indemnification by the
terms thereof will be entitled to contribution to liabilities and expenses
except to the extent that contribution is not permitted under Section 11(f) of
the Securities Act. In determining the amount of contribution to which the
respective parties are entitled, consideration will be given to the relative
benefits received by each party from the offering of the Registrable Securities
(taking into account the portion of the proceeds realized by each), the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
misstatement or omission and any other equitable considerations appropriate
under the circumstances.
(f) Non-Exclusivity. The obligations of the parties under this Section 4.4
will be in addition to any liability which any party may otherwise have to any
other party.
V. MISCELLANEOUS.
5.1. Additional Securities Subject to Agreement. Each Borden Investor
agrees that any other securities of the Company which it hereafter acquires by
means of a stock split, stock dividend, distribution, exercise of options or
warrants or otherwise (other than pursuant to a Public Offering) will be subject
to the provisions of this Agreement to the same extent as if held on the date
hereof.
5.2 Indemnity. The Company agrees to indemnify and hold harmless each
Indemnified Party from and against any liabilities, obligations, losses,
damages, penalties,
15
<PAGE>
actions, judgments, suits, claims, costs, attorneys' fees, expenses and
disbursements of any kind which may be imposed upon, incurred by or asserted
against any Indemnified Party in any manner relating to or arising out of (a)
any Indemnified Party's purchase and/or ownership of any shares of Common Stock,
(b) the operations of the Company or any current or future subsidiary of the
Company, or (c) any litigation to which any Indemnified Party is made a party in
its capacity as a shareholder or owner of securities (or a current or future
director, officer, employee, limited or general partner, Affiliate or assignee
of a shareholder or owner of securities) of the Company. Nothing in the
foregoing will in any way be deemed to contradict or diminish any Indemnified
Party's obligations under Section IV hereof or under the Recapitalization
Agreement or any agreement contemplated thereby and notwithstanding the
foregoing, no loss or diminution in value of any Indemnified Party's investment
in the Company will, in and of itself, be an indemnifiable loss under this
Agreement.
5.3. Termination. The provisions of this Agreement specified below will
terminate and be of no further force and effect (other than with respect to
prior breaches) as follows:
(a) with respect to Article II, upon the earlier to occur of (i)
following an IPO, the time at which the Borden Investors collectively
beneficially own less than 5% of the Common Stock and (ii) the Borden
Investors ceasing to beneficially own at least 75% of the 653,125 shares of
Common Stock issued to them pursuant to the Merger;
(b) with respect to Sections 3.1, 3.3, 3.4 and 3.5, upon completion of
an IPO;
(c) with respect to Section 3.2, upon the earlier to occur of (i) the
completion of an IPO and (ii) the fifth anniversary of the date of this
Agreement;
(d) as to any particular Borden Investor, with respect to Sections
4.1, 4.2 and 4.3, at such time as such Borden Investor no longer owns any
Registrable Securities;
(e) with respect to Section 4.4, upon the expiration of the applicable
statutes of limitations; and
(f) with respect to all other Sections of this Agreement, at such time
as all Sections of this Agreement other than such other Sections have
terminated.
5.4. Notices. All communications provided for hereunder must be in writing
and will be deemed to be given when delivered in person or by a nationally
recognized overnight courier, when faxed (receipt electronically confirmed by
sender's telecopy machine) or five calendar days after being deposited in the
United States mail, first-class, registered or certified, return receipt
requested, with postage paid and,
16
<PAGE>
If to Holdings: c/o The Blackstone Group
345 Park Avenue
New York, New York 10054
Attention: Mr. David A. Stockman
Senior Managing Director
Telephone: (212) 836-9818
Fax: (212) 754-8720
With a copy to: Jones, Day, Reavis & Pogue
599 Lexington Avenue
32nd Floor
New York, New York 10022
Attention: Robert A. Profusek, Esq.
Telephone: (212) 326-3800
Fax: (212) 755-7306
If to Borden: Itzhak Reichman
Vice President,
Strategic Planning
Borden, Inc.
180 East Broad Street
Columbus, Ohio 43215-3799
Fax: (614) 225-4108
With copies to: William F. Stoll
Senior Vice President and
General Counsel
Borden, Inc.
180 East Broad Street
Columbus, Ohio 43215-3799
Fax: (614) 627-8374
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: David J. Sorkin, Esq.
Fax: (212) 455-2502
If to the Company: The Imperial Home Decor Group, Inc.
23645 Mercantile Road
Cleveland, Ohio 44122
Attention: Controller
Fax: (216) 765-8677
17
<PAGE>
With a copies to: Holdings, Borden, Simpson Thacher & Bartlett,
and Jones, Day, Reavis & Pogue at their
respective addresses set forth above.
or to such other addresses as any such party designates by written notice to the
other parties hereto.
5.5. Further Assurances. The parties hereto will sign such further
documents, cause such meetings to be held, resolutions passed, exercise their
votes and do and perform and cause to be done such further acts and things as
may be necessary in order to give full effect to this Agreement and every
provision hereof.
5.6. Non-Assignability; Majority Action. (a) This Agreement will inure to
the benefit of and be binding on the parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned by any
party hereto without the express prior written consent of the other parties, and
any attempted assignment, without such consents, will be null and void;
provided, however, that Holdings may assign or delegate its rights hereunder to
any Affiliate of Holdings provided such Affiliate executes and delivers to the
Company an Assumption Agreement and provided Holdings remains liable hereunder.
(b) Notwithstanding the foregoing, Holdings may assign its rights and
delegate its duties under Article III and/or IV, as the case may be, to a single
Transferee of at least a majority of the shares of Common Stock then owned by
Holdings, provided, however, that upon such an assignment Holdings' separate
rights under Article III and/or IV, as the case may be, will terminate, and
Holdings may in all events retain the right to exercise its rights under Article
III and/or IV, as the case may be, for the benefit of a Transferee in connection
with any Transfer by it of less than a majority of its holdings of Common Stock.
(c) Any action to be taken under this Agreement either by Holdings and any
permitted Transferee or assignee of Holdings (the "Holdings Group") or by the
Borden Investors hereunder will be by a majority in interest of the Holdings
Group or the Borden Investors, as the case may be.
(d) Notwithstanding any other provision hereof, any amendment hereto or
other agreement or action hereunder between Holdings and any other Stockholder
will be binding to the extent therein contemplated by the parties thereto
regardless of whether it is binding on any other parties.
5.7. Amendment; Waiver. This Agreement may be amended, supplemented or
otherwise modified only by a written instrument executed by the Holdings Group
and the Borden Investors. No waiver by any party of any of the provisions hereof
will be effective unless explicitly set forth in writing and executed by the
party so waiving. Except as provided in the preceding sentence, no action taken
pursuant to this Agreement, including without limitation, any investigation by
or on behalf of any party, will be deemed to constitute a waiver by the party
taking such action of compliance with any covenants or agreements contained
herein. The waiver by any party hereto of a breach of any provision of this
Agreement will not operate or be construed as a waiver of any subsequent breach.
18
<PAGE>
5.8. Third Parties. This Agreement does not create any rights, claims or
benefits inuring to any person that is not a party hereto nor create or
establish any third party beneficiary hereto.
5.9. Governing Law. This Agreement will be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to the
principles of conflict of laws thereof.
5.10. Consent to Jurisdiction. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of the United States District Court for
the Southern District of New York located in the borough of Manhattan in the
City of New York, or if such court does not have jurisdiction, the Supreme Court
of the State of New York, New York County, for the purposes of any suit, action
or other proceeding arising out of this Agreement or any transaction
contemplated hereby. Each of the parties hereto further agrees that service of
any process, summons, notice or document by United States registered mail to
such party's respective address set forth in Section 5.3 will be effective
service of process for any action, suit or proceeding in New York with respect
to any matters to which it has submitted to jurisdiction as set forth above in
the immediately preceding sentence. Each of the parties hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (a) the United States District Court for the Southern District of New
York or (b) the Supreme Court of the State of New York, New York County, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
5.11. Specific Performance. Without limiting or waiving in any respect any
rights or remedies of the parties hereto under this Agreement now or hereinafter
existing at law or in equity or by statute, each of the parties hereto will be
entitled to seek specific performance of the obligations to be performed by the
other in accordance with the provisions of this Agreement.
5.12. Entire Agreement. This Agreement sets forth the entire understanding
of the parties hereto with respect to the subject matter hereof.
5.13. Titles and Headings. The section headings contained in this Agreement
are for reference purposes only and will not affect the meaning or
interpretation of this Agreement.
5.14. Severability. If any provision of this Agreement is declared by any
court of competent jurisdiction to be illegal, void or unenforceable, all other
provisions of this Agreement will not be affected and will remain in full force
and effect.
5.15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original and all of which
together will be deemed to be one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or
caused this Agreement to be executed on its behalf as of the date first written
above.
19
<PAGE>
THE IMPERIAL HOME DECOR GROUP, INC.
By: ________________________________
Name:
Title:
IMPERIAL HOME DECOR GROUP
HOLDINGS LLC
By: ________________________________
Name:
Title:
BDH ONE, INC.
By: ________________________________
Name:
Title:
BORDEN, INC.
By: ________________________________
Name:
Title:
20
<PAGE>
EXHIBIT A
---------
FORM OF ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT, dated as of __________ (this "Agreement"), by
__________ ("Transferee") in favor of Imperial Home Decor Group Holdings LLC
(together with its transferees and the transferees of such transferees,
"Holdings").
WHEREAS, The Imperial Home Decor Group, Inc. (the "Company"), Holdings,
Borden, Inc. ("Borden") and BDH One, Inc. ("BDH One") have entered into a
Stockholders' Agreement, dated as of March __, 1998, (the "Stockholders'
Agreement");
WHEREAS, capitalized terms used and not otherwise defined herein shall have
the meaning ascribed to them in the Stockholders' Agreement;
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
1. Transferee hereby acknowledges receipt from [__________] ("Transferor")
of __________ shares of Common Stock pursuant to Section [3.2] [3.3] of the
Stockholders' Agreement, and shall, and hereby agrees to, become a party to, and
be bound by, to the same extent as Transferor, the terms of the Stockholders'
Agreement.
2. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York, without giving effect to the principles of
conflict of laws hereto.
3. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or
caused this Agreement to be executed on its behalf as of the date first written
above.
[TRANSFEREE]
By:_________________________________
Name:
Title:
[TRANSFEROR]
By:_________________________________
Name:
Title:
Agreed and Accepted:
IMPERIAL HOME DECOR
GROUP HOLDINGS LLC
By:________________________
Name:
Title:
<PAGE>
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "Agreement"), dated November 3, 1997
and effective as of October 14, 1997, is by and among Blackstone Capital
Partners III Merchant Banking Fund L.P., a Delaware limited partnership ("BCP
III"), Blackstone Offshore Capital Partners III L.P., a Delaware limited
partnership ("BOCP III"), Blackstone Family Investment Partnership III L.P., a
Delaware limited partnership ("BFIP III", and together with BCP III and BOCP
III, collectively, the "Funds"), Imperial Home Decor Holdings LLC, a Delaware
limited liability company ("LLC"), and BDPI Holdings Corporation, a Delaware
corporation ("MergerCo").
RECITALS
A. This Agreement is entered into in connection with the Recapitalization
Agreement (the "Recapitalization Agreement"), dated as of October 14, 1997,
among Borden, Inc., a New Jersey corporation ("Borden"), Borden Decorative
Products Holdings, Inc. ("BDPH"), a Delaware corporation and an indirect wholly
owned subsidiary of Borden, and MergerCo and the Acquisition Agreement (the
"Acquisition Agreement"), dated as of November 3, 1997, among Collins & Aikman
Products Co., a Delaware corporation, Imperial Wallcoverings, Inc., a Delaware
corporation, and MergerCo;
B. Pursuant to the Recapitalization Agreement Merger Co will be merged (the
"Merger") with and into BDPH in a recapitalization transaction resulting in LLC
becoming the owner of 89% of the equity of BDPH; and
C. In the Merger BDPH's name will be changed to The Imperial Home Decor
Group, Inc. (such successor to MergerCo and BDPH, "IHDG").
NOW THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein and other good, valuable and sufficient
consideration, the receipt and sufficiency of which are hereby acknowledged,
each of the parties hereby agrees as follows:
1. Definitions. As used in this Agreement, the following terms have the
meanings set forth or referenced below. Capitalized terms used in this Agreement
but not defined in this Agreement have the meanings ascribed thereto in the
Recapitalization Agreement.
(a) "Indemnified Party" means, collectively, the Funds, each other entity
sponsoring, sponsored by or affiliated with the general partner of each Fund,
each general or limited partner of each Fund and each director, officer, agent,
representative, employee of any of the foregoing whether for itself or in its
capacity as such.
(b) "Indemnifying Party" means MergerCo and, from and after the Closing
Date, IHDG.
<PAGE>
(c) "Losses" means all losses, claims, demands, damages, liabilities,
judgments, settlements and expenses, including any attorneys' fees, expenses and
costs, and any actions or proceedings in respect thereof threatened or asserted
by any person or entity, including without limitation by any governmental
authority or by or in the right of MergerCo, BDPH or IHDG, of any kind, relating
to, resulting from or arising out of any actual or alleged breach or violation
of contract, tort or violation of law, or any liability or obligation of
MergerCo, BDPH or IHDG, or any subsidiary or affiliate of either of them,
regardless of (i) any actual or alleged participation by any Indemnified Party
therein or conduct (including without limitation conduct alleged to be
intentional, reckless or negligent) by any Indemnified Party in connection
therewith and (ii) any independent legal or statutory basis for the imposition
of liability on any Indemnified Party in connection with any such violation or
breach, it being the intention of the parties that no Indemnified Party suffer
any loss or incur any liability or cost by reason of such breach or violation.
Notwithstanding the foregoing, any loss or diminution in value of his, her or
its investment in MergerCo or IHDG, in and of itself, will not constitute a
"loss" under this Agreement.
2. Indemnification. The Indemnifying Party will indemnify, defend and hold
harmless the Indemnified Parties, and advance expenses therefor, from and
against any and all Losses. Notwithstanding the foregoing, no Indemnified Party
will be entitled to indemnification hereunder, and any expenses advanced shall
be returned to the Indemnifying Party, for any Losses that are determined by
final and nonappealable judgment of a court of competent jurisdiction to have
resulted primarily from actual fraud that resulted in the Indemnified Party in
fact receiving a financial benefit to which the Indemnified Party was not
legally entitled.
3. Certain Procedures. (a) After receipt by an Indemnified Party of notice
of any complaint or the commencement of any action or proceeding with respect to
which indemnification is being sought hereunder, such person will promptly
notify the Indemnifying Party in writing of such complaint or of the
commencement of such action or proceeding, but failure so to notify the
Indemnifying Party will not relieve it from any liability which it may have
hereunder. If the Indemnifying Party is requested by such Indemnified Party, the
Indemnifying Party will assume the defense of such action or proceeding,
including the employment of counsel reasonably satisfactory to the Fund and the
payment of the fees and disbursements of such counsel. In any action or
proceeding the defense of which the Indemnifying Party assumes, the Indemnified
Party will have the right to participate in such litigation. The Indemnifying
Party further agrees that it will not, without the prior written consent of the
Fund, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the Fund
or any other Indemnified Party is an actual or potential party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of the Fund and each other Indemnified Party
hereunder from all liability arising out of such claim, action, suit or
proceeding.
(b) If any indemnification sought by an Indemnified Party pursuant to this
Agreement is held by a court to be unavailable for any reason, then (whether or
not the Fund is the Indemnified
<PAGE>
Party) the Indemnifying Party will contribute to the Losses for which such
Indemnified Party is liable to the fullest extent lawful.
(c) The Indemnifying Party will promptly advance or reimburse any
Indemnified Party hereunder for all documented expenses (including fees and
disbursements of counsel) as they are incurred in connection with investigating,
preparing for or defending, or providing evidence in, any pending or threatened
action, claim, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not any Indemnified Party is a
party) and in enforcing this Agreement.
(d) The Indemnifying Party's indemnity, contribution, reimbursement and
other obligations under this Agreement are in addition to any liability that the
Indemnifying Party may otherwise have, at common law or otherwise, and shall be
binding on its successors and assigns.
3. Consent to Personal Jurisdiction. Solely for the purpose of enforcing
this Agreement, the Indemnifying Party hereby consents to personal jurisdiction,
service and venue in any court in which any claim or proceeding which is subject
to, or which may give rise to a claim for indemnification or contribution under,
this Agreement is brought against any Indemnified Party.
4. Governing Law. The provisions of this Agreement will be in addition to
any liability the Indemnifying Party may otherwise have to the Indemnified Party
and will not be limited by any rights that any Indemnified Party may otherwise
have. This Agreement will be deemed made in New York. This Agreement and all
controversies arising from or relating to performance under this Agreement will
be governed by and construed in accordance with the laws of the State of New
York, without giving effect to such state's rules concerning conflict of laws.
ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR ACTION ARISING OUT OF
THIS AGREEMENT IS HEREBY WAIVED.
5. Notices. All communications provided for hereunder shall be in writing
and shall be deemed to be given when delivered in person or by private courier
with receipt, when telefaxed and received (receipt electronically confirmed by
Sender's telecopy machine), or five days after being deposited in the United
States mail, first-class, registered or certified, return receipt requested,
with postage paid and,
If to MergerCo, the Funds or LLC:
c/o The Blackstone Group
345 Park Avenue
New York, New York 10054
Attention: Mr. David A. Stockman
Senior Managing Director
Telephone: (212) 836-9818
Fax: (212) 754-8720
With a copy to: Jones, Day, Reavis & Pogue
<PAGE>
599 Lexington Avenue
32nd Floor
New York, New York 10022
Attention: Robert A. Profusek, Esq.
Telephone: (212) 326-3800
Fax: (212) 755-7306
or to such other address as any such party shall designate by written notice to
the other parties hereto.
6. Non-Assignability. This Agreement shall inure to the benefit of and be
binding on the parties hereto and their respective successors and permitted
assigns. This Agreement shall not be assigned by any party hereto without the
express prior written consent of the other parties, and any attempted
assignment, without such consents, shall be null and void; provided, however,
that (i) any Indemnified Party may assign its rights hereunder to any affiliate
thereof and (ii) any Indemnified Party may assign its rights hereunder (or any
portion thereof) in connection with a sale or other transfer of its direct or
indirect ownership interest in IHDG.
7. Amendment; Waiver. This Agreement may be amended, supplemented or
otherwise modified only by a written instrument executed by the parties hereto.
No waiver by any party of any of the provisions hereof shall be effective unless
explicitly set forth in writing and executed by the party so waiving. Except as
provided in the preceding sentence, no action taken pursuant to this Agreement,
including without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants, or agreements
contained herein. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach.
8. Third Parties. Except as provided in Section 6 (to the extent
contemplated thereby) hereof and except as contemplated in the definition of
Indemnfied Party or Indemnifying Party, this Agreement does not create any
rights, claims or benefits inuring to any person that is not a party hereto nor
create or establish any third party beneficiary hereto.
9. Construction. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rule
of strict construction will be applied against any party. Any references to any
federal, state, local or foreign statute or law will also refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
Unless the context otherwise requires: (a) a term has the meaning assigned to it
by this Agreement; (b) "or" is disjunctive but not exclusive; (c) words in the
singular include the plural, and in the plural include the singular; and (d)
provisions apply to successive events and transaction.
10. Specific Performance. Without limiting or waiving in any respect any
rights or remedies of MergerCo under this Agreement now or hereinafter existing
at law or in equity or by
<PAGE>
statute, each of the parties hereto shall be entitled to seek specific
performance of the obligations to be performed by the other in accordance with
the provisions of this Agreement.
11. Entire Agreement. This Agreement sets forth the entire understanding of
the parties hereto and no modifications or amendments to this Agreement shall be
binding on the parties unless in writing and signed by the party or parties
unless in writing and signed by the party or parties to be bound by such
modification or amendment.
12. Severability. If any provision of this Agreement shall be declared by
any court of competent jurisdiction to be illegal, void or unenforceable, all
other provisions of this Agreement shall not be affected and shall remain in
full force and effect.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
BDPI HOLDINGS CORPORATION
By: ___________________________________
Name:
Title:
BLACKSTONE CAPITAL PARTNERS III MERCHANT
BANKING FUND, L.P.
By: BLACKSTONE MANAGEMENT ASSOCIATES III
L.L.C., its general partner
By: ___________________________________
Name:
Title:
BLACKSTONE OFFSHORE CAPITAL PARTNERS III, L.P.
By: BLACKSTONE MANAGEMENT ASSOCIATES III
L.L.C., its general partner
By: ___________________________________
Name:
Title:
BLACKSTONE FAMILY INVESTMENT
PARTNERSHIP III, L.P.
By: BLACKSTONE MANAGEMENT ASSOCIATES III
L.L.C., its general partner
By: ___________________________________
Name:
Title:
IMPERIAL HOME DECOR GROUP HOLDINGS LLC
By: ___________________________________
Name:
Title:
<PAGE>
MONITORING AGREEMENT
MONITORING AGREEMENT (this "Agreement"), dated as of March 13, 1998, among
THE IMPERIAL HOME DECOR GROUP INC., a Delaware corporation ("IHDG"), and
BLACKSTONE MANAGEMENT ASSOCIATES III L.L.C., a Delaware limited liability
company ("BMP").
Recitals
A. BMP, by and through itself, its affiliates and their respective
officers, employees and representatives, has expertise in the areas of finance,
strategy, investment and acquisitions relating to the business of IHDG; and
B. IHDG desires to avail itself, for the term of this Agreement, of the
expertise of BMP in the aforesaid areas and BMP wishes to provide the services
to IHDG as herein set forth;
Agreement
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions contained herein, the parties hereto agree as follows:
1. Appointment. IHDG hereby engages BMP to render the advisory and
consulting services described in Section 2 hereof for the term of this
Agreement.
2. Services. BMP hereby agrees that during the term of this Agreement to
render to IHDG, by and through itself, its affiliates, and their respective
officers, employees and representatives as BMP in its sole discretion shall
designate from time to time, advisory and consulting services in relation to the
affairs of IHDG and its subsidiaries, including, without limitation, (i) advice
in designing financing structures and advice regarding relationships with IHDG
and its subsidiaries' lenders and bankers' (ii) advice regarding the structure
and timing of public offerings of debt and equity securities of IHDG and its
subsidiaries; (iii) advice regarding property dispositions or acquisitions; and
(iv) such other advice directly related or ancillary to the above financial
advisory services as may be reasonably requested by IHDG. It is expressly agreed
that the services to be performed hereunder shall not include investment banking
or other financial advisory services rendered by BMP or its affiliates to IHDG
in connection with any specific acquisition, divestiture, refinancing or
recapitalization by IHDG or any of its subsidiaries. BMP may be entitled to
receive additional compensation for providing services of the type specified in
the preceding sentence by mutual agreement of IHDG or such subsidiary and BMP.
3. Fees. In consideration of the services contemplated by Section 2 and for
similar services rendered prior to the date hereof (a) IHDG agrees to pay to BMP
the sum of $4,000,000, payable on the date hereof, and (b) for the term of this
Agreement, IHDG and its respective successors, jointly and severally, agree to
pay to BMP an annual fee (the "Monitoring Fee") of $1,500,000, payable in
quarterly installments on March 31, June 30, September 30 and
<PAGE>
December 31 of each year commencing on the date hereof through the date (the
"Termination Date") on which affiliates of BMP hold, directly, beneficial
ownership of less than 10% of the equity interest in IHDG acquired in the
Transactions, or such earlier date as IHDG and BMP shall agree. The Monitoring
Fee shall not be prorated for the first calendar year of this Agreement. Any
Monitoring Fee for the last calendar year of this Agreement shall be prorated
for the period of such year ending on the Termination Date. To the extent
required by any debt financing of IHDG or its subsidiaries, the Monitoring Fee
shall be deferred until the (i) dissolution of IHDG, and (ii) payment Monitoring
Fee shall bear interest at a rate of ten percent (10%) per annum, compounded
annually, from the date deferred until paid. The "Transactions" are the
transactions contemplated by the Recapitalization Agreement (the
"Recapitalization Agreement"), dated as of October 14, 1997, as amended, among
Borden, Inc., a New Jersey corporation, Borden Decorative Products Holdings,
Inc., a Delaware corporation, and BDPI Holdings Corporation ("MergerCo"), a
Delaware corporation and an Amended and Restated Acquisition Agreement (the
"Imperial Acquisition Agreement"), dated as of November 4, 1997 and amended and
restated on March 9, 1998, among Imperial Wallcoverings, Inc., a Delaware
corporation, Collins & Aikman Products Co., a Delaware corporation and MergerCo.
4. Reimbursements. In addition to the fees payable pursuant to this
Agreement, IHDG shall, pay directly or reimburse BMP for its Out-of-Pocket
Expenses. For the purposes of this Agreement, the term "Out-of-Pocket Expenses"
shall mean the reasonable out-of-pocket costs and expenses reasonably incurred
by BMP or its affiliates in connection with the services rendered hereunder in
pursuing, or otherwise related to, the business or IHDG and the transactions
contemplated by the Recapitalization Agreement and the Imperial Acquisition
Agreement, including, without limitation, (i) fees and disbursements of any
independent professionals and organizations, including independent accountants,
outside legal counsel or consultants, (ii) costs of any outside services or
independent contractors such as financial printers, couriers, business
publications, on-line financial services or similar services and (iii)
transportation, per diem costs, word processing expenses or any similar expense
not associated with its ordinary operations. All reimbursements for
Out-of-Pocket Expenses shall be made promptly upon or as soon as practicable
after presentation by BMP to IHDG of a written statement thereof.
5. Indemnification. (a) IHDG, will indemnify and hold harmless BMP, its
affiliates and their respective partners (both general and limited), members
(both managing and otherwise), officers, directors, employees, agents and
representatives (each such person being an "Indemnified Party") from and against
any and all losses, claims, damages and liabilities, whether joint or several
(the "Indemnifiable Losses"), related to, arising out of or in connection with
the advisory and consulting services contemplated by this Agreement or the
engagement of BMP pursuant to, and the performance by BMP of the services
contemplated by, this Agreement, whether or not pending or threatened, whether
or not an Indemnified Party is a party and whether or not such action, claim,
suit, investigation or proceeding is initiated or brought by IHDG, and will
reimburse any Indemnified Party for all reasonable costs and expenses (including
reasonable attorneys' fees and expenses) as they are incurred in connection with
investigating, preparing, pursuing, defending or assisting in the defense of any
action, claim, suit, investigation or proceeding for which the Indemnified Party
would be entitled to indemnification under the terms
2
<PAGE>
of this sentence, or any action or proceeding arising therefrom, whether or not
such Indemnified Party is a party thereto. IHDG will not be liable under the
foregoing indemnification provision with respect to any Indemnified Party, to
the extent that any loss, claim, damage, liability, cost or expense is
determined by a court, in a final judgment from which no further appeal may be
taken, to have resulted primarily from the willful misconduct of BMP. If an
Indemnified Party is reimbursed hereunder for any expenses, such reimbursement
of expenses shall be refunded to the extent it is finally judicially determined
that the Indemnifiable Losses in question resulted primarily from the willful
misconduct of BMP.
(b) Notwithstanding any provision herein to the contrary, no officer or
director of IHDG shall be liable for any obligations of IHDG hereunder,
including, without limitation, the payment of' the Monitoring Fee pursuant to
Section 3, the payment or reimbursement of Out-of-Pocket Expenses pursuant to
Section 4 and the indemnification obligations under Section 5(a).
6. Accuracy of Information. IHDG shall furnish or cause to be furnished to
BMP such information as BMP believes appropriate to its monitoring services
hereunder and to the ownership by affiliates of BMP of equity interests of IHDG
(all such information so furnished being the "Information"). IHDG recognizes and
confirms that BMP (i) will use and rely primarily on the Information and on
information available from generally recognized public sources in performing the
services contemplated by this Agreement without having independently verified
the same, (ii) does not assume responsibility for the accuracy or completeness
of the Information and such other information and (iii) is entitled to rely upon
the Information without independent verification.
7. Term. This Agreement shall be effective as of the date hereof and shall
continue until the Termination Date, provided that Section 4 shall remain in
effect with respect to Out-of-Pocket Expenses incurred, and any Monitoring Fee
that has become payable, prior to the Termination Date. The provisions of
Section 5, 6 and 8 and otherwise as the context so requires shall survive the
termination of this Agreement.
8. Permissible Activities. Subject to applicable law, nothing herein shall
in any way preclude BMP, its affiliates or their respective partners (both
general and limited), members (both managing and otherwise), officers,
directors, employees, agents or representatives from engaging in any business
activities or from performing services for its or their own account or for the
account of others, including for companies that may be in competition with the
business conducted by IHDG.
9. Miscellaneous.
(a) No amendment or waiver of any provision of this Agreement, or
consent to any departure by either party hereto from any such provision, shall
be effective unless the same shall be in writing and signed by all of the
parties hereto. Any amendment, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which
3
<PAGE>
given. The waiver by any party of any breach of this Agreement shall not operate
as or be construed to be a waiver by such party of any subsequent breach.
(b) Any notices or other communications required or permitted hereunder
shall be sufficiently given if delivered personally or sent by facsimile,
Federal Express, or other overnight courier, addressed as follows or to such
other address of which the parties may have given notice:
If to BMP: c/o The Blackstone Group L.P.
345 Park Avenue, 31st Floor
New York, New York 10154
Attention: Mr. David A. Stockman
Senior Managing Director
Facsimile: (212) 754-8720
Telephone: (212) 836-9818
If to IHDG: The Imperial Home Decor Group Inc.
James P. Toohey
President and Chief Executive Officer
23645 Mercantile
Cleveland, Ohio 44122
Facsimile: (216) 763-8677
Telephone: (216) 765-8661
Unless otherwise specified herein, such notices or other communications shall be
deemed received (i) on the date delivered, if delivered personally or sent by
facsimile, and (ii) one business day after being sent by Federal Express or
other overnight courier.
(c) This Agreement shall constitute the entire agreement between the
parties with respect to the subject matter hereof, and shall supersede all
previous oral and written (and all contemporaneous oral) negotiations,
commitments agreements and understandings relating hereto.
(d) This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York. This
Agreement shall inure to the benefit of, and be binding upon, BMP, IHDG and
their respective successors and assigns. The provisions of Section 5 shall
inure to the benefit of each Indemnified Party.
(e) This Agreement may be executed by one or more parties to this
Agreement on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
(f) The waiver by any party of any breach of this Agreement shall not
operate as or be construed to be a waiver by such party of any subsequent
breach.
4
<PAGE>
(g) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall be not invalidate or render
unenforceable such provision in any other jurisdiction.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized officers or agents as of the date first
above written.
BLACKSTONE MANAGEMENT ASSOCIATES
III L.L.C.
By: ____________________________
Name:
Title:
THE IMPERIAL HOME DECOR GROUP INC.
By: ______________________________
Name:
Title:
6
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT is between IMPERIAL WALLCOVERINGS, INC., a Delaware
corporation (the "Company"), and MICHAEL LANDAU (the "Employee").
WHEREAS, the Company is employing the Employee and desires to enter into an
agreement embodying the terms of such employment commencing as of February 1,
1998, or as soon thereafter as, or upon such earlier date as, Employee has
satisfied any obligation to give notice of termination to his current employer
(hereinafter "Commencement Date"), provided such notice is given promptly
following execution of this Agreement, and provided that during such notice
period Employee shall make his services available to the Company as often as is
reasonably consistent with his remaining obligations to his current employer
during such notice period; and
WHEREAS, the Employee has accepted such employment and desires to enter
into such agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. Term of Employment. Subject to the terms and conditions of this
Agreement, the Company hereby employs the Employee, and the Employee hereby
accepts such employment, for a period commencing on the Commencement Date and
ending January 31, 2001.
2. Duties. During the term of this Agreement, the Employee shall be
employed as President of a division or unit of Company or Imperial/Borden (as
hereinafter defined) with responsibility for the operations of such division or
unit in North America, reporting directly to the Chief Executive Officer ("CEO")
of the Company and shall perform such services for the Company and its
subsidiaries as may be assigned to him from time to time by the CEO, consistent
with such position. The Employee shall be entitled to a position as director of
Company. The Employee shall devote his full business time and attention to the
affairs of the Company and his duties in such positions.
3. Salary, Bonuses, Equity Package
3.1 Salary. The Company shall pay the Employee an initial base salary at an
annual rate of $400,000 during the term of his employment pursuant to this
Agreement. After the Employee's first full year of employment hereunder
following the Commencement Date, such amount can be increased, but not
decreased, by the Board of Directors of the Company or an appropriate committee
thereof (the Company's Board of Directors or such committee being referred to
herein as the "Compensation Board").
<PAGE>
3.2 Bonuses.
3.2.1 Signing Bonus.
(a) Subject to the terms and conditions set forth in this Agreement,
Company shall pay Employee a signing bonus of Seven Hundred Fifty Thousand
Dollars ($750,000.00) in accordance with the following schedule:
Amount Payment Date
------ ------------
$400,000.00 At signing
$200,000.00 January 31, 1999
$150,000.00 January 31, 2000
(b) If Employee voluntarily terminates his employment under this Agreement
without Good Reason, as defined hereinafter, or if Company terminates Employee's
employment for Cause, as defined hereinafter, any remaining payments of the
signing bonus under this Section 3.2.1 shall be forfeited, and Employee shall
repay Company an amount determined as follows: if such termination occurs before
January 31, 1999, multiply $400,000 by the fraction, the numerator of which is
the number of complete months of Employee's employment after the Commencement
Date of this Agreement, and the denominator of which is twelve (12). If such
termination occurs on or after January 31, 1999, but before January 31, 2000,
multiply $200,000 by the fraction, the numerator of which is the number of
complete months of Employee's employment after January 31, 1999, and the
denominator of which is twelve (12). If such termination occurs on or after
January 31, 2000, but before January 31, 2001, multiply $150,000 by the
fraction, the numerator of which is the number of complete months of Employee's
employment after January 31, 2000, and the denominator of which is twelve (12).
(c) At the time the parties sign this Agreement, or within a reasonable
administrative period following such execution, but not to exceed thirty (30)
days from such execution, Company shall deposit Three Hundred Fifty Thousand
Dollars ($350,000.00) in a trust for the purpose of paying the signing bonus
provided under this Section 3.2.1; provided any trust agreement created for this
purpose shall conform in all respects to the model trust contained in Revenue
Procedure 92-64 issued by the Internal Revenue Service, and provided that
Employee shall have an opportunity to review and comment on such trust.
3.2.2 Guaranteed and Discretionary Bonuses. In addition to the signing
bonus described above, Employee shall be guaranteed annual bonuses, payable in
accordance with the Company's customary practice regarding payment of executive
management bonuses, but in no event later than 60 days after the close of the
year for which the bonus has been earned, in the amount of (i) $200,000 for his
services rendered from the Commencement Date to January 31, 1999; and (ii)
$130,000 for services rendered in the following twelve (12) month period
(collectively, the "Guaranteed Bonuses"). In addition, the Employee shall be
eligible to receive discretionary cash bonuses as
-2-
<PAGE>
determined by the Compensation Board, in its sole discretion, based on the
Company's performance targets for earnings, before interest and taxes ("EBIT")
and/or cash flow ("Discretionary Bonus"). Guaranteed and any Discretionary
Bonuses awarded to the Employee shall not exceed $300,000 in any year. The
relevant performance targets shall be set by the Board in its sole discretion.
3.3 Equity Package. It is acknowledged and agreed by the Parties that any
rights to grants of options on the common stock of the Company under this
Section 3.3 may be satisfied with a grant or grants of options on the common
stock of Company or options on the stock of the entity (hereinafter
"Imperial/Borden") that succeeds to the business and operations of Company in a
transaction that combines, via merger, consolidation, or otherwise, the
Company's business and operations with the business and operations of Borden
Decorative Products, Inc., or the successor or purchaser of such business and
operations.
3.3.1 Time Share Options. The Employee shall be granted, subject to all
terms and conditions of the stock option plan hereafter adopted, including all
applicable transfer restrictions as may apply to stock acquired by exercise of
such options, an option to purchase one and four-tenths of one percent (1.4%) of
the Company's outstanding shares of common stock ("Time Share Options"). Time
Share Options shall vest at the rate of 20% per year with the initial 20%
vesting on the first anniversary of the Commencement Date and the final 20%
vesting on the fifth anniversary of the Commencement Date, provided that, unless
otherwise provided in this Agreement and the applicable stock option plan,
Employee is employed hereunder on each vesting date. Time Share Options shall
have an exercise price per share equal to the price of Company shares as of the
effective date of this Agreement or the share value established at the time of
the initial capitalization of Imperial/Borden, as applicable (hereinafter, the
"Stated Exercise Price"). The Employee shall be entitled to pay the Stated
Exercise Price for any vested Time Share Options by means of a cashless exercise
either through a broker or directly through the Company without use of a broker
by having the Company withhold from the number of shares to be issued upon
exercise the number of shares necessary to pay the Stated Exercise Price. No
modification of the stock option plan or successor or replacement plan may
reduce or negatively impact the rights granted to Employee hereunder. The
percentages used to determine the number of shares subject to any options
described by this Agreement are based on the capitalization of Company on the
Commencement Date of this Agreement or the initial equity contributions to
Imperial/Borden, as applicable, and the Compensation Board may adjust such
percentages as necessary to prevent inadvertent dilution or enlargement of the
options described herein.
3.3.2 Performance Options. The Employee shall be eligible to be granted
additional options by the Company to acquire an additional six-tenths of one
percent (.6%) of the Company's outstanding shares of Common stock subject to the
same terms and conditions as apply to the Time Share Options. The Board shall,
in its sole discretion, set the performance targets for the grant of such
options ("Performance Options").
3.3.3 Change of Control. Notwithstanding anything to the contrary set forth
in Section 3.3.1 or Section 3.3.2, if Blackstone Capital Partners L.P. ("BCP")
sells or exchanges, except in connection with the formation of Imperial/Borden,
fifty percent (50%) or more of its holdings of common stock of Company (or the
right to vote or control, or otherwise receive the benefit of such
-3-
<PAGE>
stock) in one or more private transaction to an unrelated third-party person
(which includes any individual or entity), and if Employee's employment is
terminated by Company without Cause or Employee terminates his employment with
Good Reason within the six month period following such sale or exchange, then a
"Change of Control" shall have occurred and any Time Share Options granted to
the Employee pursuant to Section 3.3.1 shall become 100% vested and immediately
exercisable. It is expected that management options granted hereunder will be
provided with customary tag along, drag along, piggyback and registration
rights.
3.3.4 No Fiduciary Duty. The Company and its subsidiaries and affiliates
and directors, officers, employees and stockholders thereof shall not have any
fiduciary duty to the Employee or incur any liability to the Employee (other
than as a result of the breach of the provisions of this Agreement) on account
of any action taken or omitted to be taken with respect to the business and
operations of the Company and its subsidiaries and affiliates or
Imperial/Borden, notwithstanding the fact that such action or omission may
adversely affect the amounts that the Employee may receive in respect of his
equity compensation or otherwise.
3.4 Withholding. The Employee agrees that the Company may deduct and
withhold from compensation payments the amounts the Company in good faith
believes are required to be deducted and withheld under the provisions of any
statute, law, regulation or ordinance heretofore or hereafter enacted.
3.5 Compensation for Services. The Employee's compensation under this
Agreement shall be compensation for the Employee's services to the Company and
its subsidiaries in all capacities and, except as provided in this Agreement,
the Employee shall not be entitled to any salary, bonus, severance, benefits,
equity, perquisites or other compensation of any kind as a result of his
services to the Company and its subsidiaries. Any outside directorships or
charitable, civic, religious or other activities requiring a substantiated
commitment of Employee's nonworking time shall be subject to review and approval
by the Chief Executive Officer.
4. Benefits. The Employee shall be entitled to such fringe benefits and
perquisites, and to participate in such pension and benefit plans, including
temporary and long-term disability insurance, accidental death, group term life
insurance, directors and officers liability insurance, auto allowance, and
appropriate annual holidays, sick days and annual vacation time as are generally
made available to senior executives of the Company and such other fringe
benefits as may be determined by the Company during the term hereof.
5. Expenses
5.1 Reimbursement of Expenses. The Company shall reimburse the Employee for
all reasonable travel (including airline club memberships), business
entertainment and other reasonable business expenses reasonably incurred by the
Employee in connection with the performance of his duties hereunder, provided
that the Employee furnishes to the Company adequate records or other evidence
respecting such expenditures. Company shall also reimburse Employee, upon
submission of appropriate documentation, for reasonable legal fees he incurs in
the review of this Agreement.
-4-
<PAGE>
6. Termination of Employment
6.1 Voluntary Termination. The Employee may terminate his employment with
the Company at any time upon one month's prior written notice. In the event the
Employee terminates such employment voluntarily, upon such termination the
Company shall pay the Employee his unpaid base salary under Section 3.1 accrued
to the date on which his employment terminates (the "Termination Date"). In this
event, no additional Guaranteed Bonuses shall be paid; and Employee shall, if
applicable, repay a portion of the signing bonus in accordance with Section
3.2.1(b) above.
6.2 Involuntary Termination.
(a) The Employee's employment with the Company shall automatically
terminate upon the Employee's death or, unless the Board of Directors of the
Company in its sole discretion shall otherwise elect, at the end of any
consecutive three-month period during which the Employee is physically or
mentally disabled (measured from the first date on which the Employee is absent
from work due to such disability to the same date in the third succeeding
calendar month, or, if there is no such date or such date is not a business day,
the next succeeding business day) or at the end of such shorter periods
aggregating four months in any twelve month period during which the Employee is
physically or mentally disabled. In the event the Employee's employment with the
Company is terminated due to the Employee's death or physical or mental
disability, the Company shall pay to the Employee or, if applicable, his estate
or legal representative his unpaid base salary under Section 3.1 accrued to the
Termination Date.
(b) The Company may at any time without advance notice terminate the
Employee's employment with the Company without Cause (as hereinafter defined).
In the event the Company terminates the Employee's employment hereunder without
Cause prior to the expiration of the term of employment then in effect under
Section 1, upon such termination the Company shall be obligated to pay the
Employee the greater of (i) any unpaid balance of the Guaranteed Bonuses and an
amount equal to the base salary under Section 3.1 that would have been paid to
him for the remaining portion of the term of employment then in effect under
Section 1, but for such termination, or (ii) Five Hundred Thousand Dollars
($500,000.00). The parties shall, at the request of either party, negotiate in
good faith for an extension of this Agreement or for a new Agreement within
ninety days of the end of the initial term. In addition, if the Company does not
to extend this Agreement or offer Employee an employment agreement providing at
least one additional year of employment without reduction to his base salary at
the end of the term hereof, such termination shall be deemed an involuntary
termination pursuant to this paragraph (b) and shall entitle the Employee to an
amount equal to the greater of (i) his annual base salary then in effect, or
(ii) Five Hundred Thousand Dollars ($500,000). The amount due to the Employee
pursuant to this paragraph (b) shall be paid, at the sole discretion of the
Compensation Board at the Termination Date, either in a lump sum or on a
periodic basis in accordance with normal pay practice.
(c) The Company may, acting by a majority of its Board of Directors, at any
time following thirty days advance written notice terminate the Employee's
employment with the Company for Cause. During such thirty day notice period,
Employee shall be given an opportunity to present his case to the Board, whether
in writing or orally, and Company may require that
-5-
<PAGE>
Employee vacate Employer's premises during such thirty day period. In the event
the Employee's employment with the Company is terminated for Cause, upon such
termination the Company shall pay the Employee his unpaid base salary under
Section 3.1 accrued to the Termination Date. In this event, no additional
Guaranteed Bonuses shall be paid; all the Employee's rights under Section 3.3
shall be forfeited; and Employee shall, if applicable, repay a portion of the
signing bonus in accordance with Section 3.2.1(b) above.
(d) As used herein, the term "Cause" means (i) fraud or misappropriation
with respect to the business of the Company or intentional damage to the
business of the Company, (ii) malfeasance or misfeasance, or an intentional
breach of fiduciary duty or intentional, material misrepresentation to the
Company or its stockholders, (iii) willful failure to act in accordance with any
specific lawful instructions of a majority of the Board of Directors of the
Company, (iv) conviction of the Employee of a felony or any other crime
involving moral turpitude, or entry of a plea of no contest to such charge, or
(v) inaccuracy or breach of the Employee's representations and covenants set
forth in Section 7 hereof which results in material damage to Company.
(e) Employee may at any time give written notice of Good Reason for
termination of his employment with Company. If Good Reason for such termination
continues to exist thirty (30) days after such notice, Employee may terminate
employment for Good Reason and Company shall pay Employee the amounts described
in Section 6.2(b) for a termination by Company without Cause.
(f) As used herein, the term "Good Reason" means (i) a demotion in
Employee's position, provided that a change or title shall not, without a
related diminution in reporting status, constitute a demotion for this purpose,
(ii) a significant reduction of his responsibilities, (iii) a change in
Employee's duties and responsibilities requiring Employee to change his domicile
against his will outside the New York, New York metropolitan area, (iv) a breach
of a material obligation by Company under this Agreement, or (v) if Employee
does not become the CEO of the Company in the event the CEO of the Company on
the Commencement Date ceases to hold that position during the term of this
Agreement.
(g) Anything in this Agreement to the contrary notwithstanding, in the
event that it shall be determined that any payment or distribution by the
Company to or for the benefit of Employee, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (collectively, "Payments"), would constitute an "excess parachute
payment" within the meaning of Section 280G of the Internal Revenue Code of 1986
(the "Code") and that there is a Reduced Amount (as defined in subsection (i)
hereof), the amount of Payments to Employee shall be reduced to such Reduced
Amount; provided, however, that if the Reduced Amount is more than Fifty
Thousand Dollars ($50,000.00) less than the Payments, the Reduced Amount shall
not apply and the Company shall make unreduced Payments in accordance with this
Agreement. In addition, in that event, the Company shall pay the Employee an
additional amount necessary to pay the excise tax and place the Employee in the
same after-tax position he would have been in if no part of the Payments
constituted an "excess parachute payment".
(i) For purposes of this section, (A) a "Reduced Amount" shall mean the
aggregate amount of Payments that (1) is less than the sum of all
Payments (without regard to
-6-
<PAGE>
this Section 7(g)) and (2) results in the greatest Net After Tax
Receipts to Employee; and (B) "Net After Tax Receipts" means the
present value (determined pursuant to Section 280G(d)(4) of the Code)
of Payments, net of (1) federal, state and local income taxes payable
with respect to the Payments, determined by applying the highest
marginal income tax rate applicable to individuals in the year of
Employee's termination of employment and by calculating state and
local income taxes net of any federal income tax deductions for such
taxes, and (2) any excise tax payable with respect to such Payments
pursuant to Section 4999 of the Code.
(ii) All determinations made under this Section 7(g) shall be made by the
Company's independent accounts immediately prior to the Change of
Control which firm shall provide its determinations and any supporting
calculations both to the Company and Employee within 15 days after the
Termination Date. Any such determinations by the accounting firm shall
be binding upon the Company and Employee. If the accounting firm
determines that there exists a Reduced Amount, any reduction or
elimination in Payments shall be applied first to those Payments that
are determined otherwise to constitute "excess parachute payments" and
are payable to Employee at the most distant point in time after the
Termination Date.
6.3 Exercisability of Options after Termination. In the event the
Employee's employment with the Company is terminated due to the Employee's death
or physical or mental disability, all Time Share Options, and Performance
Options then exercisable shall remain exercisable for a period of nine months
from the Termination Date, or, if earlier, until the date such options would
have expired if the Employee had continued to be employed by the Company. In the
event the Employee's employment with the Company is terminated for any other
reason (other than termination for Cause), all Time Share Options and
Performance Options then exercisable shall remain exercisable for a period of
six months from the Termination Date, or, if earlier, until the date such
options would have expired if the Employee had continued to be employed by the
Company.
7. Representations and Covenants of the Employee. The following
representations and covenants shall inure to the benefit of Company and
Imperial/Borden, whether the later entity is or is not expressly named.
7.1 No Violation. Employee represents that he is a party to a
Confidentiality Agreement with his former employer, F. Schumacher & Co.
("Confidentiality Agreement"). Employee represents and warrants that he has not
and will not remove nor will he have in his possession or control as of the
Commencement Date, or such earlier date as he may perform services for the
Company, any documents, data or information in written or computer form
regarding the business of his former employer. Employee represents that he has
not and will not violate the Confidentiality Agreement with his former Employer,
that he has not and will not disclose trade secrets of his former employer, and
that he can perform his duties for the Company without violating such
Confidentiality Agreement. Employee further represents that there are no other
agreements with his former employer concerning confidentiality, nonsolicitation,
or noncompetition.
-7-
<PAGE>
7.2 No Conflicts. The Employee represents and warrants that the terms of
this Agreement do not conflict with any other agreement, written or oral, to
which the Employee is a party or by which the Employee is bound, including,
without limitation, any noncompetition agreement for the benefit of any former
employer.
7.3 Conduct. The Employee will at all times refrain from taking any action
or making any statements, written or oral, which are intended to and do
disparage the goodwill or reputation of the Company or any of its subsidiaries
or affiliates or any directors or officers thereof.
7.4 Performance of Duties. The Employee agrees that during the term of his
employment under this Agreement and the Additional Term (as defined below), the
Employee shall not compete with the Company in any way whatsoever. Without
limiting the generality of the foregoing, the Employee shall not, during the
term of his employment under this Agreement and during the Additional Term,
directly or indirectly (whether for compensation or otherwise), alone or as an
agent, principal, partner, officer, employee, trustee, director, shareholder or
in any other capacity, own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or furnish any capital to, or be
connected in any manner with or provide any services as a consultant for any
business which competes with the business of the Company or Imperial/Borden or
its subsidiaries as such business may be conducted from time to time; provided,
however, that notwithstanding the foregoing, nothing contained in this Agreement
shall be deemed to preclude the Employee from owning not more than 5% of the
publicly traded securities of any entity which is in competition with the
business of the Company or its subsidiaries. The "Additional Term" shall mean a
period of one year after the Employee's employment under this Agreement
terminates, provided, however, that if Employee terminates his employment for
Good Reason or is terminated for Cause, then there shall be no Additional Term.
7.5 Company Information. The Employee agrees that so long as he is employed
by the Company and following any termination of his employment the Employee will
keep confidential all confidential information and trade secrets of the Company
and/or Imperial/Borden and any of their subsidiaries or affiliates and will not
disclose such information to any person without the prior approval of the Board
of Directors of the Company or use such information for any purpose other than
in the course of fulfilling his duties of employment with the Company pursuant
to this Agreement. It is understood that for purposes of this Agreement the term
"confidential information" is to be construed broadly to include all material
nonpublic proprietary information of Company and/or Imperial/Borden. Upon the
termination of this Agreement, the Employee shall return any documents, records,
data, books or materials of the Company and/or Imperial/Borden and their
subsidiaries or affiliates in his possession or control and any of his work
papers containing confidential information or trade secrets of the Company
and/or Imperial/Borden and their subsidiaries or affiliates.
7.6 Cooperation. The Employee shall promptly notify the Company of any
threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), in which he may be involved, whether as an actual or potential
party or witness or otherwise, or with respect to which he may receive requests
for information, by reason of his future, present or past association with the
Company or any of its
-8-
<PAGE>
subsidiaries or affiliates. The Employee shall cooperate fully with the Company
and its subsidiaries and affiliates in connection with any Proceeding at no
expense to the Company or of its subsidiaries or affiliates other than the
reimbursement of the Employee's reasonable out-of-pocket expenses.
Notwithstanding the foregoing, if Employee is not employed by the Company at
such time, and cooperation with the Company (excluding time spent participating
in any Proceeding or participating prior to any Proceeding in any examination
under oath) requires more than 12 hours in any month or 40 hours in any 12-month
period (the "maximum commitment"), then the Company shall additionally reimburse
Employee at the rate of $250 per hour for time in excess of the maximum
commitment. This Section 7.6 shall survive any termination of this Agreement.
The Employee shall not disclose any confidential or privileged information in
connection with any Proceeding without the consent of the Company and shall give
prompt notice to the Company of any request therefor, except as required by law,
or by the order of any court of competent jurisdiction or any governmental
agency or instrumentality.
7.7 Compliance with Policies. During this employment hereunder, the
Employee shall comply with all insider trading and other policies of the Company
and all applicable laws. The Employee shall have access to all such policies and
the Company's counsel shall be available for consultation with the Employee on
compliance with all applicable laws.
8. Indemnification of Employee by Company. The Company shall indemnify and
hold harmless Employee from all costs and expenses, including reasonable and
documented legal fees and court costs, incurred by him in connection with any
disputes or litigation with the former employer of Employee arising out of the
Confidentiality Agreement between Employee and his former employer, provided
that the Employee shall have acted in good faith and in a manner which he
reasonably believed would not breach the Confidentiality Agreement. The Company
shall have the right to approve Employee's selection of defense counsel for any
such dispute or litigation, which approval shall not be unreasonably withheld.
Employee agrees to repay the Company any such amounts if it is determined by a
court of law or other legally competent finder of fact that Employee intended to
breach or had reason to know that his actions would constitute a breach of the
Confidentiality Agreement, provided that this repayment obligation shall not
apply to the defense costs, or any portion of the defense costs, that relate to
any allegation that the disclosure of the Confidentiality Agreement itself is a
breach of the Confidentiality Agreement.
9. Governing Law. The validity, interpretation and performance of this
Agreement shall be governed by the laws of Ohio, regardless of the laws that
might be applied under applicable principles of conflicts of laws. Each of the
parties hereby waives any right such party may have to a trial by jury. The
parties hereto agree that the language of this Agreement shall be construed
neutrally and not strictly for or against either of the parties.
10. Entire Agreement and Survivorship. This Agreement constitutes the
entire agreement and understanding between the parties hereto with respect to
the matters referred to herein and supersedes all prior agreements and
understandings between the parties hereto with respect to the matters referred
to herein. The representations, warranties and covenants of the Employee and
Company contained in of Sections 7 and 8 shall survive expiration or termination
of this Agreement by either party.
-9-
<PAGE>
11. Notice. Any written notice required to be given by one party to the
other party hereunder shall be deemed effective if mailed either by certified or
registered mail or by a recognized overnight delivery service:
To the Company:
Chief Executive Officer
Imperial Wallcoverings, Inc.
23645 Mercantile Road
Cleveland, Ohio 44122
With a copy to:
R. Jeffrey Pollock
McDonald, Hopkins, Burke & Haber Co., L.P.A.
2100 Bank One Center
Cleveland, Ohio 44114
To the Employee:
Michael Landau
436 Rockrimmon Road
Stamford, CT 06903
With a copy to:
Mark Oland
Bingham Dana LLP
100 Pearl Street
Hartford, CT 06103
or such other address as may be stated in notice given under this Section 11.
12. Severability. The invalidity, illegality or enforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity,
legality or enforceability of the remainder of this Agreement in such
jurisdiction or the validity, legality or enforceability of this Agreement or
such provision in any other jurisdiction, it being the intent of the parties
hereto that all rights and obligations of the parties hereto under this
Agreement shall be enforceable to the fullest extent permitted by law. Without
limiting the foregoing, the covenants of the Employee set forth in Sections 7.4
and 7.5, respectively, constitute agreements independent of any other provisions
of this Agreement and the Employee acknowledges that his failure to comply with
the provisions of Sections 7.4 and 7.5 will result in irreparable and continuing
damage for which there will be no adequate remedy at law and that, in the event
of a failure of the Employee so to comply, the Company shall be entitled,
without the necessity of proving actual damages or securing or posting
-10-
<PAGE>
any bond, to injunctive relief in addition to all other remedies which may
otherwise be available to the Company and to such other and further relief as
may be proper and necessary to ensure compliance with the provisions of Sections
7.4 and 7.5. If any covenants contained in Section 7.4 shall be deemed to be
invalid, illegal or unenforceable as written by reason of the extent, duration
or geographical scope thereof, or otherwise, the determining body or authority
making such determination shall be empowered to reduce such covenants so as to
be enforceable to the greatest extent possible and, as so reduced, such
covenants shall then be deemed to be rewritten and enforced as reduced.
13. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their personal representatives, and, in
the case of Company, its successors and assigns and Imperial/Borden and its
successors and assigns, and Section 3.3.5 shall also inure to the benefit of the
other persons and entities identified therein. Except as otherwise expressly
provided herein, the Employee shall not, without the prior written consent of
the Company, transfer, assign, convey, pledge or encumber this Agreement or any
interest under this Agreement. The Employee understands that the assignment of
this Agreement or any benefits hereof or obligations hereunder by the Company to
any significant subsidiary, or to any purchaser of all or a substantial portion
of the assets of the Company, and the employment of the Employee by such
subsidiary or by any such purchaser or by any successor of the Company in a
merger or consolidation, shall not be deemed a termination of the Employee's
employment for purposes of Section 6.2 or otherwise.
14. Amendment. This Agreement may be amended or canceled only by an
instrument in writing duly executed and delivered by each party to this
Agreement.
15. Headings. Headings contained in this Agreement are for convenience only
and shall not limit this Agreement or affect the interpretation thereof.
16. Miscellaneous. In executing this Agreement, the Employee has not relied
upon any statement, representation or promise, whether written or oral, of the
Company or any of its subsidiaries or affiliates, or of any representative or
attorney for the Company or any of its subsidiaries or affiliates, except for
statements expressly set forth in this Agreement.
17. No Duty to Mitigate. Employee shall not be required to mitigate the
amount of any payment or benefit provided for in this Agreement by seeking other
employment.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument, fully enforceable
then according to its terms and provisions. Notwithstanding the foregoing, the
parties to this document agree that for convenience purposes, they shall
re-execute the counterpart signature pages signed by the other parties so that
each party may have a copy of this document with a fully executed original
signature page.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Agreement as of the day and year written below.
"Employee"
______________________________________ Date:_________________________
MICHAEL LANDAU
IMPERIAL WALLCOVERINGS, INC.
"Company"
By: _________________________________ Date:_________________________
Its: _________________________________
-12-
<PAGE>
EXHIBIT 12.1
IMPERIAL HOME DECOR GROUP INC.
------------------------------
(FORMERLY KNOWN AS
------------------
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.)
------------------------------------------
HISTORICAL COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
------------------------------------------------------------
(IN MILLIONS)
IHDG
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1993 1994 1995 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before taxes and cumulative
effect of accounting changes.............. $ 27.2 $ 26.1 $ 28.5 $ 31.4
Plus: Fixed charges......................... 1.7 1.3 2.2 1.3
----------------------------------------------------------------
Income before taxes and cumulative
effect of accounting changes plus
fixed charges............................. $ 28.9 $ 27.4 $ 30.7 $ 32.7
================================================================
FIXED CHARGES:
Interest expense............................ 0.0 (0.1) 0.9 (0.2)
One third of rental expense, representing
interest portion.......................... 1.7 1.4 1.3 1.5
----------------------------------------------------------------
$ 1.7 $ 1.3 $ 2.2 $ 1.3
================================================================
Ratio of Earnings to Fixed Charges.......... 17.2 21.3 13.8 24.8
<CAPTION>
TWELVE TWELVE THREE
MONTHS MONTHS MONTHS
NINE MONTHS ENDED ENDED ENDED ENDED
------------------------------ -------------- -------------- ------------
SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 27, DECEMBER 31, MARCH 31,
1996 1997 1997 1997 1998
------------------------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Income before taxes and cumulative
effect of accounting changes.............. $ 22.5 $ 26.6 $ 35.5 $ 33.8 $ (13.3)
Plus: Fixed charges......................... 1.0 1.0 1.3 1.1 1.7
------------------------------ ------------ ------------ ------------
Income before taxes and cumulative
effect of accounting changes plus
fixed charges............................. $ 23.5 $ 27.6 $ 36.8 $ 34.9 $ (11.6)
============================== ============ ============ ============
FIXED CHARGES:
Interest expense............................ (0.1) (0.1) (0.2) (0.4) 1.3
One third of rental expense, representing
interest portion.......................... 1.1 1.1 1.5 1.5 0.4
------------------------------ ------------ ------------ ------------
$ 1.0 $ 1.0 $ 1.3 $ 1.1 $ 1.7
============================== ============ ============ ============
Ratio of Earnings to Fixed Charges.......... 23.6 27.9 28.4 31.9 N/A
</TABLE>
IMPERIAL
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------- ------------
JANUARY 29, JANUARY 28, JANUARY 27, DECEMBER 28, SEPTEMBER 28,
1994 1995 1996 1996 1996
----------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
Income before taxes and cumulative
effect of accounting changes.............. $ (24.2) $ 0.2 $ (36.2) $ (28.2) $ (15.1)
Plus: Fixed charges......................... 5.6 10.1 14.6 10.5 7.8
----------------------------------------------------- ------------
Income before taxes and cumulative
effect of accounting changes plus
fixed charges............................. $ (18.6) $ 10.3 $ (21.6) $ (17.7) (7.3)
===================================================== ============
Deficiency.................................. (24.2) (36.2) (28.2) (15.1)
FIXED CHARGES:
Interest expense............................ 3.1 6.5 7.9 5.7 3.4
Loss on sale of receivables................. 0.0 1.3 4.3 2.6 2.6
One third of rental expense, representing
interest portion.......................... 2.5 2.3 2.4 2.2 1.8
----------------------------------------------------- ------------
$ 5.6 $ 10.1 $ 14.6 $ 10.5 $ 7.8
===================================================== ============
Ratio of Earnings to Fixed Charges.......... N/A 1.0 N/A N/A N/A
<CAPTION>
NINE TWELVE TWELVE
MONTHS MONTHS MONTHS
ENDED ENDED ENDED (72 DAYS)
-------------------------------------------------------
SEPTEMBER 27, SEPTEMBER 27, DECEMBER 31, MARCH 13,
1997 1997 1997 1998
-------------------------------------------------------
<S> <C> <C> <C> <C>
Income before taxes and cumulative
effect of accounting changes.............. $ (20.2) $ (33.3) $ (27.6) $ (10.3)
Plus: Fixed charges......................... 4.9 7.6 6.8 1.7
-------------------------------------------------------
Income before taxes and cumulative
effect of accounting changes plus
fixed charges............................. $ (15.3) $ (25.7) $ (20.8) $ (8.6)
=======================================================
Deficiency.................................. (20.2) (33.3) (27.6) (10.3)
FIXED CHARGES:
Interest expense............................ 3.5 5.8 4.6 1.3
Loss on sale of receivables................. 0.0 0.0 0.0 0.0
One third of rental expense, representing
interest portion.......................... 1.4 1.8 2.2 0.4
-------------------------------------------------------
$ 4.9 $ 7.6 $ 6.8 $ 1.7
=======================================================
Ratio of Earnings to Fixed Charges.......... N/A N/A N/A N/A
</TABLE>
<PAGE>
IMPERIAL HOME DECOR GROUP INC.
------------------------------
(FORMERLY KNOWN AS
------------------
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.)
------------------------------------------
SCHEDULE OF RATIO OF EARNINGS TO FIXED CHARGES (PRO FORMA)
----------------------------------------------------------
(IN MILLIONS)
-------------
PRO FORMA
------------------------------
TWELVE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 27, MARCH 31,
1997 1998
------------------------------
Income before taxes and cumulative
effect of accounting changes.............. $ (15.7) $ (21.1)
Plus: Fixed charges......................... 36.9 9.3
------------------------------
Income before taxes and cumulative
effect of accounting changes plus
fixed charges............................. $ 18.9 $ (11.8)
Deficiency.................................. (15.7) (21.1)
FIXED CHARGES:
Cash interest expense....................... 31.1 7.8
Amortization of deffered financing charges.. 2.6 0.6
One third of rental expense, representing
interest portion.......................... 3.3 0.8
------------------------------
$ 36.9 9.3
==============================
Ratio of Earnings to Fixed Charges.......... 0.5 (1.3)
<PAGE>
Exhibit 21.1
List of Subsidiaries
Vernon Plastics, Inc. (a Delaware corporation)
WPD Investments, Inc. (a Delaware corporation)
Marketing Service, Inc. (a Delaware corporation)
Imperial Home Decor Groups (US) LLC (a Delaware limited liability company)
Imperial Home Decor Group Holdings I Limited (a UK company)
Imperial Home Decor Group Holdings II Limited (a UK company)
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of The Imperial Home Decor
Group Inc. on Form S-4 of our report regarding The Imperial Home Decor Group
Inc., formerly known as Borden Decorative Products Holdings, Inc., dated
March 25, 1998, appearing in the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the headings "Selected
Historical Financial Information--IHDG" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
- -------------------------------
DELOITTE & TOUCHE LLP
Columbus, Ohio
July 10, 1998
<PAGE>
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 this registration
statement.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
July 10, 1998
<PAGE>
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
THE IMPERIAL HOME DECOR GROUP INC.
(Exact name of obligor as specified in its charter)
Delaware 51-0370302
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
23645 Mercantile Road
Cleveland, Ohio 44122
(Address of principal executive offices) (Zip code)
----------------------
11% Senior Subordinated Notes due 2008, Series B
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and
Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 29th day of June, 1998.
THE BANK OF NEW YORK
By: /S/ VAN K. BROWN
------------------------------
Name: VAN K. BROWN
Title: ASSISTANT VICE PRESIDENT
<PAGE>
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31,
1997, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
- ------ ------------
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin ..................................... $ 5,742,986
Interest-bearing balances .............................. 1,342,769
Securities:
Held-to-maturity securities ............................ 1,099,736
Available-for-sale securities .......................... 3,882,686
Federal funds sold and Securities pur-
chased under agreements to resell ...................... 2,568,530
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ............................................... 35,019,608
LESS: Allowance for loan and
lease losses ......................................... 627,350
LESS: Allocated transfer risk
reserve .............................................. 0
Loans and leases, net of unearned
income, allowance, and reserve ....................... 34,392,258
Assets held in trading accounts .......................... 2,521,451
Premises and fixed assets (including
capitalized leases) .................................... 659,209
Other real estate owned .................................. 11,992
Investments in unconsolidated
subsidiaries and associated
companies .............................................. 226,263
Customers' liability to this bank on
acceptances outstanding ................................ 1,187,449
Intangible assets ........................................ 781,684
Other assets ............................................. 1,736,574
------------
Total assets ............................................. $ 56,153,587
============
LIABILITIES
Deposits:
In domestic offices .................................... $ 27,031,362
Noninterest-bearing .................................... 11,899,507
Interest-bearing ....................................... 15,131,855
In foreign offices, Edge and
<PAGE>
Agreement subsidiaries, and IBFs ....................... 13,794,449
Noninterest-bearing .................................... 590,999
Interest-bearing ....................................... 13,203,450
Federal funds purchased and Securities
sold under agreements to repurchase .................... 2,338,881
Demand notes issued to the U.S. ..........................
Treasury ............................................... 173,851
Trading liabilities ...................................... 1,695,216
Other borrowed money:
With remaining maturity of one year
or less .............................................. 1,905,330
With remaining maturity of more than
one year through three years ......................... 0
With remaining maturity of more than
three years .......................................... 25,664
Bank's liability on acceptances exe-
cuted and outstanding .................................. 1,195,923
Subordinated notes and debentures ........................ 1,012,940
Other liabilities ........................................ 2,018,960
------------
Total liabilities ........................................ 51,192,576
------------
EQUITY CAPITAL
Common stock ............................................. 1,135,284
Surplus .................................................. 731,319
Undivided profits and capital
reserves ............................................... 3,093,726
Net unrealized holding gains
(losses) on available-for-sale
securities ............................................. 36,866
Cumulative foreign currency transla-
tion adjustments ....................................... ( 36,184)
------------
Total equity capital ..................................... 4,961,011
------------
Total liabilities and equity
capital ................................................ $ 56,153,587
============
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
-
Thomas A. Renyi |
Alan R. Griffith | Directors
J. Carter Bacot |
-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 1060242
<NAME> IMPERIAL HOME DECOR GROUP INC.
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 MAR-28-1998
<CASH> 3,795 8,062
<SECURITIES> 0 0
<RECEIVABLES> 55,160 115,101
<ALLOWANCES> 1,758 3,554
<INVENTORY> 59,479 126,031
<CURRENT-ASSETS> 138,816 264,413
<PP&E> 125,469 196,981
<DEPRECIATION> 58,729 104,335
<TOTAL-ASSETS> 239,634 420,784
<CURRENT-LIABILITIES> 61,558 132,577
<BONDS> 0 125,000
163,800 0
30,389 0
<COMMON> 200 59
<OTHER-SE> (27,656) (60,335)
<TOTAL-LIABILITY-AND-EQUITY> 239,634 420,784
<SALES> 372,738 95,907
<TOTAL-REVENUES> 372,738 95,907
<CGS> 242,718 63,044
<TOTAL-COSTS> 96,551 31,574
<OTHER-EXPENSES> 0 4,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 1,344
<INCOME-PRETAX> 33,772 (13,351)
<INCOME-TAX> 11,384 171
<INCOME-CONTINUING> 22,388 (13,522)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 22,388 (13,522)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
