<PAGE>
As filed with the Securities and Exchange Commission on June 5, 1998
Registration No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-----------------
HUDSON RESPIRATORY CARE INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
California 3841 95-1867330
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
27711 Diaz Road
P.O. Box 9020
Temecula, California 92589
(909) 676-5611
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-----------------
Jay R. Ogram
Chief Financial Officer and Secretary
27711 Diaz Road
P.O. Box 9020
Temecula, California 92589
(909) 676-5611
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------
COPIES TO:
Cynthia M. Dunnett, Esq.
Riordan & McKinzie
300 South Grand Avenue
29th Floor
Los Angeles, California 90071
-----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the 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(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE AGGREGATE REGISTRATION
PER UNIT(1) OFFERING PRICE(1) FEE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 1/8% Senior Subordinated Notes $115,000,000 100.0% $115,000,000 $33,925
due 2008
===============================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of the Securities Act of 1933, as amended.
-----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE>
*******************************************************************************
INFORMATION CONTAINED HEREIN IS SUBJECT TO CHANGE, COMPLETION OR AMENDMENT
WITHOUT NOTICE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED BEFORE THIS
PROSPECTUS IS DELIVERED IN FINAL FORM.
*******************************************************************************
SUBJECT TO COMPLETION, DATED JUNE 5, 1998
PROSPECTUS
Hudson Respiratory Care Inc.
Offer to Exchange its
9 1/8% Senior Subordinated Notes due 2008,
which have been registered under the Securities Act,
for any and all of its outstanding
9 1/8% Senior Subordinated Notes due 2008
The Exchange Offer will expire at 5:00 P.M., New York City time, on
__________, 1998, unless extended.
----------------
Hudson Respiratory Care Inc. (the "Company") hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus (the "Prospectus") and
the accompanying Letter of Transmittal (the "Letter of Transmittal" and together
with this Prospectus, the "Exchange Offer"), to exchange $1,000 principal amount
of its 9 1/8% Senior Subordinated Notes due 2008 (the "Exchange Notes") which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a registration statement (the "Registration
Statement") of which this Prospectus is a part, for each $1,000 principal amount
of its outstanding 9 1/8% Senior Subordinated Notes due 2008 (the "Notes"), of
which $115,000,000 principal amount is outstanding as of the date hereof.
The Company will accept for exchange any and all validly tendered Notes prior
to 5:00 P.M., New York City time, on __________, 1998, unless extended (the
"Expiration Date"). Notes may be tendered only in integral multiples of $1,000.
Tenders of Notes may be withdrawn at any time prior to 5:00 P.M., New York City
time, on the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of Notes being tendered for exchange. However, the
Exchange Offer is subject to certain customary conditions. In the event the
Company terminates the Exchange Offer and does not accept for exchange any
Notes, the Company will promptly return the Notes to the holders thereof. The
Company will not receive any proceeds from the Exchange Offer. See "The
Exchange Offer."
The Exchange Notes will be obligations of the Company evidencing the same debt
as the Notes, and will be entitled to the benefits of the same indenture (the
"Indenture"). See "Description of Exchange Notes". The form and terms of the
Exchange Notes are the same as the form and terms of the Notes in all material
respects except that the Exchange Notes have been registered under the
Securities Act and hence do not include certain rights to registration
thereunder and do not contain transfer restrictions or terms with respect to the
special interest payments applicable to the Notes. The Notes were issued on
April 7, 1998 pursuant to an offering exempt from registration under the
Securities Act. See "The Exchange Offer".
(Continued on following page)
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO
HOLDERS OF THE NOTES ON _________, 1998.
SEE "RISK FACTORS" ON PAGE 11 FOR INFORMATION THAT SHOULD BE CONSIDERED IN
CONNECTION WITH THIS EXCHANGE OFFER.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------------
THE DATE OF THIS PROSPECTUS IS _________, 1998.
<PAGE>
(Continuation of cover page)
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Agreement, dated as of April
7, 1998 (the "Exchange Offer Registration Agreement"), by and among the Company,
the Guarantors (as defined) and the Initial Purchasers (as defined herein), a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The Exchange Offer is intended to satisfy the
Company's obligations under the Exchange Offer Registration Agreement to
register the Notes under the Securities Act. Once the Exchange Offer is
consummated, the Company will have no further obligations to register any of the
Notes not tendered by the holders of the Notes (the "Holders") for exchange.
See "Risk Factors--Consequences to Non-Tendering Holders of Notes".
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in several no-action letters to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Notes may be offered for resale, resold and
otherwise transferred by holders thereof without compliance with the
registration and prospectus delivery provisions of the Securities Act. However,
any Holder who is an "affiliate" of the Company or who intended to participate
in the Exchange Offer for the purpose of distributing the Exchange Notes (i)
cannot rely on the interpretation by the staff of the Commission set forth in
the above referenced no-action letters, (ii) cannot tender its 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 Notes, unless such sale or transfer is made pursuant to an
exemption from such requirements. See "Risk Factors--Consequences to Non-
Tendering Holders of Notes". In addition, 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. 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 Notes received in
exchange for Notes where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities and not acquired
directly from the Company. The Company has agreed that for a period of 180 days
after the Expiration Date, it will make this Prospectus available to any broker-
dealer for use in connection with any such resale. See "Plan of Distribution."
EXCEPT AS DESCRIBED IN THIS PARAGRAPH, THIS PROSPECTUS MAY NOT BE USED FOR AN
OFFER TO RESELL, RESALE OR OTHER TRANSFER OF EXCHANGE NOTES.
Notes were initially represented by one Global Note (as defined herein) in
fully registered form, registered in the name of a nominee of The Depository
Trust Company ("DTC"), as depository. The Exchange Notes exchanged for Notes
represented by the Global Note may be initially represented by one or more
global securities ("Global Exchange Note") in fully registered form, each
registered in the name of the nominee of DTC. The Global Exchange Note will be
exchangeable for Exchange Notes in registered form, in denominations of $1,000
and integral multiples thereof as described herein. The Exchange Notes in
global form will trade in The Depository Trust Company's Same-Day Funds
Settlement System, and secondary market trading activity in such Exchange Notes
will therefore settle in immediately available funds. See "Description of
Exchange Notes--Form, Denomination and Book-Entry Procedures".
The Exchange Notes will bear interest at a rate equal to 9 1/8% per annum
from their date of issuance. Interest on the Exchange Notes is payable semi-
annually on April 15 and October 15 of each year, commencing October 15, 1998.
Holders whose Notes 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. Interest on the Notes accepted for exchange will cease to accrue
interest upon cancellation of the Notes and issuance of the Exchange Notes.
(Continued on following page)
i
<PAGE>
(Continuation of cover page)
The Exchange Notes will be redeemable at the option of the Company, in
whole or in part, on or after April 15, 2003 at the redemption prices set forth
herein, plus accrued and unpaid interest thereon to the date of redemption. In
addition, prior to April 15, 2001, up to 35% of the aggregate principal amount
of the Exchange Notes originally issued may be redeemed at the option of the
Company, in whole or in part, at any time and from time to time, at 109 1/8% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of redemption, with the net proceeds of one or more Public Equity Offerings
(as defined herein), provided that at least 65% of the aggregate principal
amount of the Exchange Notes originally issued remains outstanding immediately
after such redemption. In the event of a Change of Control (as defined herein),
the Company will be required to make an offer to repurchase all or any part of
each holder's Exchange Notes at a cash purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase. See "Description of the Exchange Notes."
The Exchange Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Debt (as
defined herein) of the Company. The Exchange Notes will rank pari passu with
any future Senior Subordinated Debt (as defined herein) of the Company and
senior to any future Subordinated Obligations (as defined herein) of the
Company. The Exchange Notes will also be effectively subordinated in right of
payment to all existing and future secured indebtedness of the Company to the
extent of the value of the assets securing such indebtedness, including the
Company's obligations under the Company's New Credit Facility (as defined
herein) which are secured by substantially all of the assets of the Company and
a pledge of 65% of the stock of Industrias Hudson, S.A. de C.V., the Company's
principal subsidiary ("Industrias Hudson"). The Exchange Notes will also be
effectively subordinated in right of payment to all obligations of subsidiaries
of the Company which do not guarantee the Exchange Notes, including Industrias
Hudson. The New Credit Facility is unconditionally guaranteed by Holding (as
defined below), as well as any future domestic and, to the extent no negative
tax consequences would result, foreign, subsidiaries of the Company. The
Exchange Notes will be guaranteed on a senior subordinated basis by any of the
Company's subsidiaries which guarantees the New Credit Facility. As of March
27, 1998, after giving effect to the Recapitalization, the Company would have
had $40.0 million of Senior Debt, all of which would have represented secured
indebtedness under the New Credit Facility. The Company would also have had
$60.0 million of undrawn commitments available under the New Credit Facility,
which when drawn would constitute Senior Debt. The Company would not have had
any outstanding Pari Passu Indebtedness or Subordinated Obligations.
Prior to this offering, there has been no public market for the Notes.
Following completion of the Exchange Offer, the Company does not intend to list
the Exchange Notes on a national securities exchange or to seek approval for
quotation through the Nasdaq National Market. The Initial Purchasers have
informed the Company that they currently intend to make a market in the Exchange
Notes. However, the Initial Purchasers are not obligated to do so and any such
market making may be discontinued at any time without notice. Therefore, no
assurance can be given as to whether an active trading market will develop or be
maintained for the Exchange Notes. As the Notes were issued and the Exchange
Notes are being issued to a limited number of institutions who typically hold
similar securities for investment, the Company does not expect that an active
public market for the Exchange Notes will develop. In addition, resales by
certain holders of the Notes or the Exchange Notes of a substantial percentage
of the aggregate principal amount of such notes could constrain the ability of
any market maker to develop or maintain a market for the Exchange Notes. To the
extent that a market for the Exchange Notes should develop, the market value of
the Exchange Notes will depend on prevailing interest rates, the market for
similar securities and other factors, including the financial condition,
performance and prospects of the Company. Such factors might cause the Exchange
Notes to trade at a discount from face value. See "Risk Factors--Lack of Public
Market for the Exchange Notes". The Company has agreed to pay the expenses of
the Exchange Offer.
THIS PROSPECTUS DESCRIBES CERTAIN DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM JAY R. OGRAM, CHIEF FINANCIAL OFFICER AND SECRETARY, HUDSON
RESPIRATORY CARE INC., 27711 DIAZ ROAD, P.O. BOX 9020, TEMECULA, CALIFORNIA
92589, TELEPHONE NUMBER (909) 676-5611.
(Continued on following page)
ii
<PAGE>
(Continuation of cover page)
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4 (together with all amendments
thereto, the "Registration Statement") under the Securities Act for the
registration of the Exchange Notes offered hereby. As permitted by the rules
and regulations of the Commission, this Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Exchange Notes offered hereby, reference is made to the Registration Statement
and to the exhibits and schedules filed therewith. Statements contained in this
Prospectus concerning the contents of any contract or other document are not
necessarily complete. With respect to each such contract or other document
filed with the Commission as an exhibit to the Registration Statement, reference
is made to the exhibit for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference.
Upon consummation of the Exchange Offer, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder (the "Exchange Act") for a
period following the effectiveness of the Registration Statement. The
Registration Statement, the exhibits and schedules forming a part thereof and
the reports and other information filed by the Company with the Commission in
accordance with the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available for
inspection and copying at the regional offices of the Commission located at 7
World Trade Center, 13th Floor, New York, New York 10048 and at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may also be obtained upon written request from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a
World Wide Web site (http://www.sec.gov) that contains reports, proxy and other
information regarding registrants that file electronically with the SEC. While
any Notes remain outstanding, the Company will make available, upon request, to
any holder and any prospective purchaser of the Notes the information required
by Rule 144A(d)(4) under the Securities Act during any period in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act. Any such
request should be mailed to Hudson Respiratory Care Inc., 27711 Diaz Road, P.O.
Box 9020, Temecula, California 92589. Telephone requests may be directed to the
Corporate Secretary at (909) 676-5611.
The Indenture provides that, whether or not this Registration Statement is
effective, the Company will file with the Commission the periodic reports and
such other information, documents and other reports as are specified in Section
13 or Section 15(d) of the Exchange Act, whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act. The Company will also, upon
request, provide the Trustee and the holders of the Exchange Notes with such
information, documents and other reports. If filing such information, documents
or other reports with the Commission is not permitted by the Exchange Act, the
Company will not be so obligated to file such information, documents or other
reports.
iii
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information and financial statements, including
the notes thereto, contained elsewhere in this Prospectus. As used herein and
unless the context requires otherwise, "Hudson RCI" or the "Company" means
Hudson Respiratory Care Inc. and its consolidated subsidiaries. All references
to a fiscal year of the Company refer to a year ending on the last Friday in
December for a stated year (e.g. "fiscal 1997" or "1997" refers to the year
ended December 26, 1997). Unless otherwise indicated, all references to non-
financial data are as of March 27, 1998.
THE COMPANY
The Company is a leading manufacturer and marketer of disposable medical
products utilized in the respiratory care and anesthesia segments of the
domestic and international health care markets. The Company offers one of the
broadest respiratory care and anesthesia product lines in the industry,
including such products as oxygen masks, humidification systems, nebulizers,
cannulae and tubing. In the United States, the Company markets its products to
a variety of health care providers, including hospitals and alternate site
service providers such as outpatient surgery centers, long-term care facilities,
physician offices and home health care agencies. Internationally, the Company
sells its products to distributors that market to hospitals and other health
care providers. The Company's products are sold to over 2,500 distributors and
alternate site service providers throughout the United States and in more than
75 countries worldwide. For fiscal 1997, the Company had net sales of $99.5
million and pro forma EBITDA before provision for the Company's Equity
Participation Plan ("EBITDA before EPP") of $26.3 million. From 1993 to 1997,
the Company's net sales and EBITDA before EPP increased at compound annual rates
of approximately 5.9% and 13.3%, respectively.
The Company has supplied the disposable respiratory care market for over 50
years and enjoys strong brand name recognition and leading market positions.
The Company believes that in 1996 it held a share of approximately 25% of the
domestic hospital market for the disposable respiratory care products that the
Company markets and held number one or two market share positions in 10 product
categories representing approximately 75% of the Company's 1997 net sales. See
"Business--General" and "--Industry Overview." In recent years the Company has
pursued a number of growth initiatives, including the expansion of its
international and alternate site sales efforts and entry into the anesthesia
market. The Company established separate sales forces dedicated to the
international and alternate site markets in 1993 and 1994, respectively. In
1995, the Company entered the anesthesia market to further leverage its
manufacturing platform, distribution channels and strong brand name recognition.
In 1997, anesthesia sales represented approximately 6.5% of the Company's total
net sales and international and alternate site sales represented 19.1% and
14.7%, of the Company's total net sales, respectively.
The Company manufactures and markets over 1,000 respiratory care and
anesthesia products. The Company believes that its broad product offering
represents a competitive advantage over suppliers with more limited product
offerings, as health care providers seek to reduce medical supply costs and
concentrate purchases among fewer vendors. The Company also benefits
competitively from its extensive relationships with leading group purchasing
organizations ("GPOs"), as large purchasing organizations play an increasingly
important role in hospitals' purchasing decisions.
The Company maintains two manufacturing facilities and two distribution
facilities in the United States and an assembly operation in Mexico. The
Company has reduced its manufacturing and assembly costs through cost reduction
programs, process improvement, equipment automation and upgrades and increased
utilization of its Ensenada, Mexico facility for labor-intensive operations.
Over the past five years the Company has spent $22.4 million to upgrade its
manufacturing operations. During this period, the Company's gross margins have
improved from 41.3% to 48.0%, reflecting management's ongoing commitment to cost
reduction.
1
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BUSINESS STRATEGY
The Company's senior management team has increased net sales and EBITDA
before EPP by 5.9% and 13.3%, respectively, from 1993 to 1997 compounded
annually, despite facing significant pricing pressure as a result of cost
containment trends affecting the health care industry generally. These results
are largely attributable to management's expertise within the Company's markets
and ability to grow the Company's business and improve profitability margins
within a dynamic health care environment. On average, members of the senior
management team have over 18 years of experience in the health care industry.
The senior management team intends to continue to expand the Company's market
position, increase cash flows and capitalize on favorable demographic trends by
pursuing the following strategies:
ENHANCE MARKET POSITION IN DOMESTIC HOSPITAL MARKET. The Company employs a
proactive, consultative sales approach in which the Company works with hospitals
to increase efficiency and address their cost containment needs. The Company
believes that this approach, combined with high levels of customer service and
training, enhances its value as a supplier. The Company has entered into
preferred supplier arrangements with 12 national GPOs and seeks both to increase
sales of disposable respiratory care products to its existing GPO network and to
establish new relationships with additional GPOs.
INCREASE PENETRATION OF ANESTHESIA MARKET. The Company plans to continue
to build its anesthesia product customer base and improve product margins.
Since its entry into the anesthesia market in 1995, the Company has built a
sales base by leveraging its established distribution network and strong brand
name recognition. To minimize start-up costs, the Company initially outsourced
much of the manufacturing of its anesthesia product line. Having validated its
market and product strategy, the Company is internalizing the manufacturing of
its anesthesia products in order to enhance quality and margins. The Company is
also hiring sales personnel with experience in anesthesia and has established a
sales commission structure that emphasizes growth in this market segment.
EXPAND INTERNATIONALLY. The Company intends to further pursue the large
and growing international market for disposable respiratory care and anesthesia
products and believes that the Company, as a high-quality, low cost manufacturer
with a comprehensive product line, is well-positioned to compete in the
international market. The Company has established and is currently expanding
its international sales force to further its penetration of this market. The
Company's manufacturing facilities have received ISO 9000 certification and the
Company anticipates being in full compliance with European CE and Medical Device
Directive laws by the June 1998 deadline. The Company has entered into a
strategic alliance with a major international health care supplier to facilitate
the sales, marketing and distribution of its products in Europe.
INCREASE PRESENCE IN ALTERNATE SITE MARKET. The Company has targeted the
alternate site market as a key growth market due to cost containment and other
health care industry trends. The Company provides a broad product line to
patients across multiple care settings through its national distribution
network. In 1994, the Company established a sales force dedicated to the
alternate site market and intends to continue to increase this sales force. In
addition, the Company focuses on areas with favorable demographics, such as
Florida, Arizona and southern California, where aging populations are large
recipients of alternate site care.
DEVELOP NEW PRODUCTS. The Company seeks to improve its current market
positions and enter new markets through a continuation of its aggressive new
product development program. The Company's product development effort targets
specific markets in which the Company believes it can favorably compete. As a
result of this targeted approach, products introduced since 1992 accounted for
approximately 18% of the Company's 1997 net sales. In 1995, the Company entered
the disposable anesthesia products market, capitalizing on the Company's
manufacturing expertise, similar process technologies, complementary product
designs and distribution synergies with the existing respiratory care product
line. The Company has also developed new products aimed specifically at the
alternate site market, such as more comfortable cannulae that can be worn for
longer periods of time.
PURSUE STRATEGIC ACQUISITIONS. The Company intends to pursue strategic
acquisitions, both domestically and internationally, to expand its product line,
improve its market share positions and increase cash flows.
2
<PAGE>
Management believes that the Company business, with its efficient operations,
leading distribution network, well-recognized brand name and experienced
management team, provides an excellent platform to facilitate the Company's
expansion strategy, particularly in the anesthesia and international markets.
THE RECAPITALIZATION
On April 7, 1998, Hudson RCI consummated its recapitalization pursuant to
an Agreement and Plan of Merger (the "Recapitalization Agreement") pursuant to
which River Acquisition Corp., a wholly-owned subsidiary of Holding ("Holding")
merged with and into Hudson RCI, with Hudson RCI surviving as a majority-owned
subsidiary of Holding (the "Merger").
Pursuant to the Recapitalization, Holding contributed approximately $93.0
million in equity capital into Hudson RCI (the "Holding Equity Investment") and
a shareholder of Hudson RCI (the "Continuing Shareholder") retained common stock
of Hudson RCI with a value of approximately $15.0 million (the "Rollover
Equity"), based on the valuation of Hudson RCI used in the Recapitalization. In
the Merger, a portion of the Hudson RCI common stock was converted into the
right to receive approximately $131.1 million in cash. In addition, management
received $68.3 million pursuant to the Company's Equity Participation Plan. The
Holding Equity Investment was comprised of $63.0 million of common equity (the
"Common Stock Investment") and $30.0 million of preferred equity (the "Preferred
Stock Investment"). Following the Holding Equity Investment, Holding owned 80.8%
of the outstanding common stock of Hudson RCI and the Continuing Shareholder
owned 19.2% of the outstanding common stock of Hudson RCI. Affiliates of Freeman
Spogli & Co. Incorporated ("FS&Co.") invested $55.0 million and management of
Hudson RCI invested $8.0 million of cash in common stock of Holding, the
proceeds of which were used to fund the common equity portion of the Holding
Equity Investment. The proceeds from the sale of 11 1/2% Senior Exchangeable PIK
Preferred Stock due 2010 (the "Holding Preferred Stock") with an aggregate
liquidation preference of $30.0 million offered by Holding (the "Preferred Stock
Offering") were used to fund the preferred equity portion of the Holding Equity
Investment. Immediately following consummation of the Recapitalization, FS&Co.
beneficially owned approximately 87.3% of the outstanding common stock of
Holding and management owned the remaining 12.7%.
In connection with the Recapitalization and concurrently with the Preferred
Stock Offering, Hudson RCI offered $115.0 million aggregate principal amount of
9 1/8% Senior Subordinated Notes due 2008 (the "Subordinated Notes")(the
"Subordinated Notes Offering," and together with the Preferred Stock Offering,
the "Offerings").
On April 7, 1998, Hudson RCI entered into an agreement (the "New Credit
Facility") providing for a $40.0 million secured term loan facility (the "Term
Loan Facility"), which was funded in connection with the consummation of the
Recapitalization, and a $60.0 million revolving loan facility (the "Revolving
Loan Facility") which will be available for Hudson RCI's future capital
requirements and to finance acquisitions. See "Description of New Credit
Facility."
The Offerings and the application of the net proceeds therefrom, repayment
of existing Hudson RCI debt payments to the Continuing Shareholder under the
Recapitalization Agreement and to management, the Holding Equity Investment and
the related borrowings under the New Credit Facility are collectively referred
to herein as the "Recapitalization."
RISK FACTORS
Holders of the Exchange Notes should consider carefully the information set
forth under the caption "Risk Factors" and all other information set forth in
this Prospectus in evaluating an investment in the Exchange Notes.
3
<PAGE>
THE EXCHANGE NOTES OFFERING
Issuer................ Hudson Respiratory Care Inc.
Securities Offered.... $115,000,000 principal amount of 9 1/8% Senior
Subordinated Exchange Notes due 2008 (the "Exchange
Notes").
Maturity Date......... April 15, 2008.
Interest Rate......... The Exchange Notes will bear interest at the rate of 9
1/8% per annum.
Interest Payment
Dates................. Interest will accrue on the Exchange Notes from the
date of issuance (the "Issue Date") and will be payable
semi-annually on each April 15 and October 15,
commencing October 15, 1998.
Ranking............... The Exchange Notes will be general unsecured obligations
of the Company, subordinated in right of payment to all
existing and future Senior Debt of the Company. The
Exchange Notes will rank pari passu with any future
Senior Subordinated Debt of the Company and senior to
any future Subordinated Obligations of the Company. The
Exchange Notes will also be effectively subordinated in
right of payment to all existing and future secured
indebtedness of the Company to the extent of the value
of the assets securing such indebtedness, including the
Company's obligations under the Company's New Credit
Facility which constitute Senior Debt and which also
will be secured by substantially all of the assets of
the Company (subject to certain exceptions), including a
pledge of 65% of the stock of Industrias Hudson. The
New Credit Facility will be unconditionally guaranteed
by Holding, as well as any future domestic and, to the
extent no negative tax consequences would result,
foreign subsidiaries of the Company. The Exchange Notes
will be guaranteed on a senior subordinated basis by any
of the Company's subsidiaries which guarantees the New
Credit Facility. The Exchange Notes will also be
effectively subordinated in right of payment to all
obligations constituting Senior Debt of subsidiaries of
the Company that guaranty the Exchange Notes and to all
obligations of subsidiaries of the Company which do not
guarantee the Exchange Notes, including Industrias
Hudson. As of March 27, 1998, after giving effect to
the Recapitalization, the Company would have had
$40.0 million of Senior Debt, all of which would have
represented secured indebtedness under the New Credit
Facility. The Company would also have had $60.0 million
of undrawn commitments available under the New Credit
Facility, which if drawn would constitute Senior Debt.
The Company would not have had any outstanding Pari
Passu Indebtedness or Subordinated Obligations. As of
March 27, 1998, after giving effect to the
Recapitalization, the Company's principal subsidiary,
Industrias Hudson, S.A. de C.V. ("Industrias Hudson"),
would have had total balance sheet liabilities of $0.1
million.
Redemption............ The Exchange Notes will be redeemable at the option of
the Company, in whole or in part, on or after April 15,
2003 at the redemption prices set forth herein, plus
accrued and unpaid interest thereon to the date of
redemption. In addition, prior to April 15, 2001, up to
35% of the aggregate principal amount of the Exchange
Notes originally issued may
4
<PAGE>
be redeemed at the option of the Company at 109 1/8% of
the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption, with the
net proceeds of one or more Public Equity Offerings,
provided that at least 65% of the original aggregate
principal amount of the Exchange Notes remains
outstanding.
Change of Control..... In the event of a Change of Control, the Company will be
required to make an offer to repurchase all or any part
of each holder's Exchange Notes at a cash purchase price
equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest, if any, to the date of
purchase. The New Credit Facility prohibits the Company
from purchasing any Exchange Notes, and also provides
that the occurrence of certain of the events that would
constitute a Change of Control would constitute a
default under such existing debt.
Certain Covenants..... The Indenture for the Exchange Notes will contain
limitations on, among other things, (i) the ability of
the Company, any Subsidiary Guarantors and other
Restricted Subsidiaries to incur additional Debt, (ii)
the making of certain Restricted Payments including
Investments, (iii) the creation of certain Liens, (iv)
the issuance and sale of Capital Stock of Restricted
Subsidiaries, (v) Asset Sales, (vi) payment restrictions
affecting Restricted Subsidiaries, (vii) transactions
with Affiliates, (viii) the ability of the Company and
any Subsidiary Guarantor to incur layered Debt, (ix) the
ability of Holding to engage in any business or activity
other than those relating to ownership of Capital Stock
of the Company and (x) certain mergers, consolidations
and transfers of assets by or involving the Company (the
foregoing capitalized terms are defined in "Description
of the Exchange Notes--Certain Definitions"). All of
these limitations will be subject to a number of
important qualifications. See "Description of the
Exchange Notes--Certain Covenants."
Exchange Offer;
Registration Rights... Holders of Exchange Notes are not entitled to any
exchange rights with respect to the Exchange Notes.
Holders of Notes are entitled to certain exchange rights
pursuant to the Exchange Offer Registration Agreement.
Under the Exchange Offer Registration Agreement, the
Company is required to offer to exchange the Notes for
the Exchange Notes having substantially identical terms
which have been registered under the Securities Act.
This Exchange Offer is intended to satisfy such
obligation. The form and terms of the Exchange Notes
are the same as the form and terms of the Notes in all
material respects except that the Exchange Notes have
been registered under the Securities Act and hence do
not include certain rights to registration thereunder
and do not contain transfer restrictions or terms with
respect to the special interest payments applicable to
the Notes. Once the Exchange Offer is consummated, the
Company will have no further obligations to register any
of the Notes not tendered by the Holders for exchange.
See "Risk Factors--Consequences to Non-Tendering Holders
of Notes".
Use of Proceeds...... The Company will not receive any proceeds from the
Exchange Offer.
5
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer.... $1,000 principal amount of Exchange Notes in exchange
for each $1,000 principal amount of Notes. As of the
date hereof, $115.0 million in aggregate principal
amount of Notes were outstanding. The Company will
issue the Exchange Notes to Holders 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
Notes may be offered for resale, resold and otherwise
transferred by Holders thereof 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 holders'
business and such holders have no arrangement with any
person to participate in the distribution of such
Exchange Notes. However, the Company does not intend to
request the Commission to consider, and the Commission
has not considered, the Exchange Offer in a no-action
letter and there can be no assurance that the Commission
would make a similar determination with respect to the
Exchange Offer. However, any Holder 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) cannot rely on the interpretation
by the staff of the Commission set forth in the above
referenced no-action letters, (ii) cannot tender its
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 Notes, unless such sale or transfer is
made pursuant to an exemption from such requirements.
See "Risk Factors--Consequences to Non-Tendering Holders
of Notes".
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. 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 Notes received in exchange for Notes where such
Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities and
not acquired directly from the Company. The Company has
agreed that for a period of 180 days after the
Expiration Date, it will make this Prospectus available
to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
Expiration Date...... 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.
6
<PAGE>
Interest on the
Exchange Notes;
Accrued Interest
on the Notes....... The Exchange Notes will bear interest from their
issuance date. Holders whose Notes are accepted for
exchange will receive, in cash, accrued interest thereon
to, but excluding, the issuance date of the Exchange
Notes. Such interest will be paid with the first
interest payment on the Exchange Notes. Interest on the
Notes accepted for exchange will cease to accrue upon
cancellation of the Notes and issuance of the Exchange
Notes. Holders of Notes whose Notes are not exchanged
will receive the accrued interest payable on October 15,
1998 on such date in accordance with the terms of the
Indenture.
Condition to
the Exchange Notes.... The Exchange Offer is subject to certain customary
conditions. The conditions are limited and relate in
general to proceedings which have been instituted or
laws which have been adopted that might impair the
ability of the Company to proceed with the Exchange
Offer. As of ______, 1998, none of these events had
occurred, and the Company believes their occurrence to
be unlikely. If any such conditions do exist prior to
the Expiration Date, the Company may (i) refuse to
accept any Notes and return all previously tendered
Notes, (ii) extend the Exchange Offer or (iii) waive
such conditions. See "The Exchange Offer--Conditions."
Procedures for
Tendering Notes...... Each Holder of Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with
the instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal, or such
facsimile, together with such Notes to be exchanged and
any other required documentation to United States Trust
Company of New York, as Exchange Agent, at the address
set forth herein and therein or effect a tender of such
Notes pursuant to the procedures for book-entry transfer
as provided for herein. By executing the Letter of
Transmittal, 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 has an arrangement or understanding with any
person to participate in the distribution of such
Exchange Notes and that neither the Holder nor any such
person is an "affiliate," as defined in Rule 405 under
the Securities Act, of the Company. Each broker-dealer
that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities and not acquired
directly from the Company, must acknowledge that it will
deliver a prospectus in connection with any resale of
such Exchange Notes. See "The Exchange Offer--Procedures
for Tendering" and "Plan of Distribution."
Special Procedures for
Beneficial Owners.... Any beneficial owner whose Notes are registered in the
name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender such Notes in
the Exchange Offer should contact such registered Holder
promptly and instruct such registered Holder to tender
on such beneficial owner's behalf. If such beneficial
owner wishes to tender on such owner's own behalf, such
owner must, prior to completing and
7
<PAGE>
executing the Letter of Transmittal and delivering its
Notes, either make appropriate arrangements to register
ownership of the Notes in such owner's name or obtain a
properly completed bond power from the registered
Holder. The transfer of registered ownership may take
considerable time and may not be able to be completed
prior to the Expiration Date. See "The Exchange Offer--
Procedures for Tendering."
Guaranteed Delivery
Procedures.......... Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who cannot
deliver their Notes, the Letter of Transmittal or any
other documents required by the Letter of Transmittal to
United States Trust Company of New York, as Exchange
Agent, or cannot complete the procedure for book-entry
transfer, prior to the Expiration Date must tender their
Notes according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights.... Tenders may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
Acceptance of Notes and
Delivery of
Exchange Notes..... The Company will accept for exchange any and all 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. Any Notes not accepted for exchange
will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration
or termination of the Exchange Offer. See "The Exchange
Offer--Terms of the Exchange Offer."
Certain Tax
Considerations....... The exchange pursuant to the Exchange Offer will not be
a taxable event for Federal income tax purposes. See
"Certain U.S. Federal Income Tax Considerations."
Exchange Agent....... United States Trust Company of New York is serving as
Exchange Agent in connection with the Exchange Offer.
GENERAL
The Company's principal executive offices are located at 27711 Diaz Road,
Temecula, California 92589 and its telephone number is (909) 676-5611.
ADDITIONAL INFORMATION
For additional information regarding the Exchange Notes, see "Description
of Exchange Notes" and "Certain U.S. Federal Income Tax Consequences."
8
<PAGE>
________________________________________________________________________________
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION OF
HUDSON RESPIRATORY CARE INC.
The following summary fiscal year end historical financial data has been
derived from the audited financial statements of the Company. The summary pro
forma financial data has been derived from the pro forma financial information
included elsewhere in this Prospectus and gives effect to the Recapitalization
as if it had occurred at the beginning of the period presented with respect to
the operating and other financial data, and as of March 27, 1998 with respect to
balance sheet data. The financial data for the quarters ended March 28, 1997
and March 27, 1998 and as of March 27, 1998 has been derived from unaudited
financial statements included elsewhere in this Prospectus. The summary pro
forma financial data does not necessarily represent what the Company's financial
position and results of operations would have been if these transactions had
actually been completed as of the dates indicated, and is not intended to
project the Company's financial position or results of operations for any future
period. Fiscal 1993 was a 53 week year and fiscal years 1994, 1995, 1996 and
1997 were 52 week years. The information contained in this table should be read
in conjunction with the Company's audited consolidated financial statements and
notes thereto at December 27, 1996 and December 26, 1997 and for each of the
three years in the period ended December 26, 1997, unaudited financial
statements and notes thereto for the quarters ended March 28, 1997 and March 27,
1998 and as of March 27, 1998, and the pro forma consolidated financial
statements and notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------------------------
PRO
FORMA
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- -------- --------
OPERATING DATA: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................. $ 79,111 $ 82,772 $ 86,825 $ 93,842 $ 99,509 $ 99,509
Cost of sales.......................... 46,476 47,631 47,582 49,405 51,732 51,732
-------- -------- -------- -------- -------- --------
Gross profit........................... 32,635 35,141 39,243 44,437 47,777 47,777
Operating expenses:
Selling expenses...................... 7,070 7,499 8,283 8,961 9,643 9,643
Distribution expenses................. 4,743 4,543 4,595 4,829 5,240 5,240
General and administrative
expenses............................. 9,732 10,426 9,769 11,277 11,456 10,617(b)
Research and development expenses....... 2,880 1,983 2,064 2,253 1,845 1,845
-------- -------- -------- -------- -------- --------
Total operating expenses excluding
provision for equity
participation plan................... 24,425 24,451 24,711 27,320 28,184 27,345
-------- -------- -------- -------- -------- --------
Operating Income before EPP(d).......... $ 8,210 $ 10,690 $ 14,532 $ 17,117 $ 19,593 $ 20,432
======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA before EPP(e)................... $ 15,422 $ 17,354 $ 21,205 $ 23,194 $ 25,440 $ 26,279
EBITDA before EPP margin(f)............ 19.5% 21.0% 24.4% 24.7% 25.6% 26.4%
Operating margin before EPP(g)......... 10.4% 12.9% 16.7% 18.2% 19.7% 20.5%
Depreciation & amortization(h)......... $ 7,630 $ 7,033 $ 6,820 $ 6,133 $ 5,847 $ 7,190(i)
Capital expenditures................... $ 9,112 $ 4,898 $ 5,850 $ 6,395 $ 4,659 $ 4,659
Ratio of EBITDA before EPP to
cash interest expense(j)............ 6.8x 7.5x 8.7x 10.7x 13.9x 1.9x
Ratio of total debt to EBITDA
before EPP.......................... 2.3x 1.8x 1.2x 1.2x 0.8x 5.9x
Ratio of earnings to fixed charges(k).. 2.7x 3.6x 1.0x 3.7x 6.0x 1.3x
BALANCE SHEET DATA:
Working capital(l)..................... $20,423 $ 20,588 $ 22,461 $ 26,768 $ 29,960
Total assets........................... 66,870 66,576 64,387 76,910 77,554
Total debt............................. 35,167 31,607 25,364 28,146 20,250
Shareholders' equity (deficit)......... 23,693 25,269 19,112 19,872 22,515
<CAPTION>
QUARTER ENDED (UNAUDITED)
----------------------------------
PRO FORMA
MARCH MARCH MARCH
28, 27, 27,
1997 1998 1998
-------- -------- ---------
OPERATING DATA:
<S> <C> <C> <C>
Net sales.............................. $ 23,987 $ 24,265 $ 24,265
Cost of sales.......................... 11,970 13,026(a) 13,026
-------- -------- ---------
Gross profit........................... 12,017 11,239 11,239
Operating expenses:
Selling expenses.................... 2,331 2,317 2,317
Distribution expenses............... 1,261 1,449 1,449
General and administrative
expenses............................ 2,946 3,077(c) 2,905(b)
Research and development expenses...... 418 474 474
-------- -------- ---------
Total operating expenses excluding
provision for equity
participation plan.................. 6,956 7,317 7,145
-------- -------- ---------
Operating Income before EPP(d)......... $ 5,061 $ 3,922 $ 4,094
======== ======== =========
OTHER FINANCIAL DATA:
EBITDA before EPP(e)................... $ 6,489 $ 5,419 $ 5,591
EBITDA before EPP margin(f)............ 27.1% 22.3% 23.0%
Operating margin before EPP(g)......... 21.1% 16.2% 16.9%
Depreciation & amortization(h)......... $ 1,444 $ 1,497 2,878(i)
Capital expenditures................... $ 112 $ 701 $ 701
Ratio of EBITDA before EPP to
cash interest expense(j)............
Ratio of total debt to EBITDA
before EPP..........................
Ratio of earnings to fixed charges(k).. 6.3x 3.8x 1.1x
BALANCE SHEET DATA:
Working capital(l)..................... $ 28,123 $ 25,363
Total assets........................... 73,602 165,178
Total debt............................. 35,000 155,000
Shareholders' equity (deficit)......... 23,824 (30,216)
</TABLE>
footnotes on following page
________________________________________________________________________________
9
<PAGE>
(a) For a discussion of the change in cost of goods sold, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations--Three Months Ended March 27, 1998 Compared to Three
Months Ended March 28, 1997."
(b) Adjustments reflect the elimination of results for OxyAir LLC ("OxyAir"),
the entity that held the Company's corporate aircraft and elimination of
Continuing Shareholder's compensation expense due to the Recapitalization.
See Pro Forma Consolidated Financial Statements.
(c) Includes $0.3 million of legal fees related to patent litigation in which
the Company was granted favorable summary judgment during the quarter ended
March 27, 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--Three Months
Ended March 27, 1998 Compared to Three Months Ended March 28, 1997."
(d) Excludes provisions for amounts payable under the Equity Participation Plan
("EPP") for 1995, 1996 and 1997 of $11.4 million, $8.2 million and $7.0
million, respectively, and $2.0 million for each of the quarters ended March
28, 1997 and March 27, 1998. See "Management--Equity Participation Plan"
and Note 7(c) to Consolidated Financial Statements. For purposes of
compliance with the Indenture, the Company's Consolidated Net Income and
EBITDA will not be reduced by the amount of any contingent payments made by
the Company to former participants in the Equity Participation Plan. See
"Summary--The Recapitalization" and "Certain Transactions."
(e) EBITDA before EPP represents income before depreciation and amortization,
interest expense, income tax expense and charges related to the Company's
Equity Participation Plan, which will be terminated upon consummation of the
Recapitalization. EBITDA before EPP is not a measure of performance under
generally accepted accounting principles, and should not be considered as a
substitute for net income, cash flows from operating activities and other
income or cash flow statement data prepared in accordance with generally
accepted accounting principles, or as a measure of profitability or
liquidity. The Company has included information concerning EBITDA before
EPP as one measure of an issuer's historical ability to service debt.
EBITDA before EPP should not be considered as an alternative to, or more
meaningful than, income from operations or cash flow as an indication of the
Company's operating performance. For purposes of compliance with the
Indenture, the Company's Consolidated Net Income and EBITDA will not be
reduced by the amount of any contingent payments made by the Company to
former participants in the Equity Participation Plan. See "Summary--The
Recapitalization" and "Certain Transactions."
(f) Represents ratio of EBITDA before EPP to net sales.
(g) Represents ratio of operating income before EPP to net sales.
(h) Includes amortization of deferred financing fees of $0.4 million in 1993,
$0.4 million in 1994, $0.1 million in 1995 and $0.1 million in 1996, which
should be excluded from depreciation and amortization in calculating EBITDA
before EPP since such fees are reflected below the operating income line.
(i) Actual 1997 amortization of deferred financing fees has been replaced with
pro forma non-cash amortization of deferred financing fees of approximately
$1.4 million associated with the Recapitalization. Actual amortization for
the quarter ended March 27, 1998 has been replaced by pro forma amortization
of $0.4 million associated with the Recapitalization.
(j) Excludes approximately $1.4 million of non-cash amortization expense for
1997, relating to deferred debt financing costs relating to the
Recapitalization. This amount is also excluded from the calculation of the
Company's Consolidated Interest Coverage Ratio under the Indenture.
(k) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes and fixed charges. Fixed
charges consist of interest on indebtedness, the amortization of debt issue
costs and that portion of operating rental expense representative of the
interest factor.
(l) Represents current assets, excluding cash, less current liabilities,
excluding the current portion of long-term debt. Actual 1997 current
liabilities excludes the management bonus liability of $20.0 million. See
Note 7(c) to Consolidated Financial Statements.
10
<PAGE>
RISK FACTORS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this
Prospectus, including without limitation, certain statements under the sections
"Summary", "Selected Historical and Pro Forma Consolidated Financial
Information", "Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Business" and Pro Forma Consolidated Financial
Statements and the notes thereto located elsewhere herein regarding the
Company's financial position, business strategy, prospects and other related
matters, may constitute such forward-looking statements. Although the Company
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. Actual results could differ materially from the Company's expectations
as a result of a number of factors, including without limitation those set forth
below and those located elsewhere in this Prospectus.
In evaluating the Exchange Offer, Holders of the Notes should carefully
consider the following factors in addition to the other information contained in
this Prospectus.
SUBSTANTIAL LEVERAGE; SHAREHOLDERS' DEFICIT
As of March 27, 1998, after giving effect to the Recapitalization, the
Company would have had $155.0 million of outstanding indebtedness and a
shareholders' deficit of approximately $30.2 million. See "Capitalization."
This level of indebtedness is substantially higher than the Company's historical
debt levels and may reduce the flexibility of the Company to respond to changing
business and economic conditions. In addition, subject to the restrictions in
the New Credit Facility and the Indenture, the Company may incur additional
senior or other indebtedness from time to time to finance acquisitions or
capital expenditures or for other general corporate purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." The New Credit Facility and the Indenture
restrict, but do not prohibit, the payment of dividends by the Company to
Holding to finance the payment of dividends on the Exchange Preferred Stock.
See "Description of Other Securities--Exchange Preferred Stock."
The Company's high degree of leverage may have important consequences for
the Company, including: (i) the ability of the Company to obtain additional
financing for working capital, capital expenditures, acquisitions or other
purposes, if necessary, may be impaired; (ii) a substantial portion of the
Company's cash flow will be dedicated to the payment of interest and principal
on its indebtedness and will not be available to the Company for its operations
and future business opportunities; (iii) the covenants contained in the
indenture governing the Exchange Notes (the "Indenture") and the New Credit
Facility will limit the Company's ability to, among other things, borrow
additional funds, dispose of assets or make investments and may affect the
Company's flexibility in planning for, and reacting to, changes in business
conditions; (iv) indebtedness under the New Credit Facility will be at variable
rates of interest, which will cause the Company to be vulnerable to increases in
interest rates; and (v) the Company's high degree of leverage may make it more
vulnerable to a downturn in its business or the economy generally or limit its
ability to withstand competitive pressures. If the Company is unable to
generate sufficient cash flow from operations in the future to service its
indebtedness, it may be required to refinance all or a portion of its existing
debt or to obtain additional financing. There can be no assurance that any such
actions could be effected on a timely basis or on satisfactory terms or that
these actions would enable the Company to continue to satisfy its capital
requirements. The Company's ability to meet its debt service obligations and to
reduce its total indebtedness will be dependent upon the Company's future
performance, which will be subject to general economic conditions and to
financial, business and other factors effecting the operations of the Company,
many of which are beyond its control. The terms of the Company's indebtedness,
including the New Credit Facility and the Indenture, also may prohibit the
Company from taking such actions.
SUBORDINATION OF NOTES, EXCHANGE NOTES AND SUBSIDIARY GUARANTIES
The Notes are, and the Exchange Notes will be, general unsecured
obligations of the Company, subordinated in right of payment to all existing and
future Senior Debt of the Company, including the New Credit Facility. The Notes
rank, and the Exchange Notes will rank, pari passu with any future Senior
Subordinated Debt
11
<PAGE>
of the Company and senior to any future Subordinated Obligations of the Company.
The Notes are, and the Exchange Notes will also be, effectively subordinated in
right of payment to all existing and future secured indebtedness of the Company
to the extent of the value of the assets securing such indebtedness, including
the Company's obligations under the New Credit Facility which are secured by a
first priority lien on substantially all of the assets of the Company and its
domestic subsidiaries now owned or hereafter acquired, as well as a pledge of
65% of the stock of Industrias Hudson. The Notes are, and the Exchange Notes
will also be, effectively subordinated in right of payment to all obligations of
subsidiaries of the Company which do not guarantee the Notes, including
Industrias Hudson. Any Subsidiary Guaranties (as defined herein) of any future
domestic subsidiaries of the Company could also be effectively subordinated to
all the obligations of such subsidiaries under certain circumstances. The New
Credit Facility is unconditionally guaranteed by Holding and any future domestic
and, to the extent no negative tax consequences would result, foreign,
subsidiaries of the Company. As of March 27, 1998, after giving effect to the
Recapitalization, the Company would have had $40.0 million of Senior Debt, all
of which would have represented secured indebtedness under the New Credit
Facility. The Company would also have had $60.0 million of undrawn commitments
available under the New Credit Facility, which when drawn will constitute Senior
Debt. As of March 27, 1998, after giving effect to the Recapitalization,
Industrias Hudson, the Company's principal subsidiary, would have had total
balance sheet liabilities of $0.1 million. The Company would not have had any
outstanding Pari Passu Indebtedness or Subordinated Indebtedness. The Indenture
permits the Company and the Subsidiary Guarantors to incur significant
additional indebtedness, all of which may be Senior Debt, under certain
circumstances. In the event of a bankruptcy, liquidation or reorganization of
the Company, the assets of the Company will be available to pay obligations on
the Notes or Exchange Notes only after all Senior Debt has been paid in full,
and there may not be sufficient assets remaining to pay all or any amounts due
on the Notes or Exchange Notes then outstanding. The Company may not pay
principal or premium, if any, or interest on the Notes or Exchange Notes if
Senior Debt is not paid when due or any other default on such Senior Debt occurs
and the maturity of such Senior Debt is accelerated in accordance with its terms
unless, in either case, such amount has been paid in full or the default has
been cured or waived and such acceleration has been rescinded. In addition, if
any default occurs with respect to certain Senior Debt, including indebtedness
under the New Credit Facility, and certain other conditions are satisfied, the
Company may not make any payments on the Notes or Exchange Notes for a
designated period of time. See "--Fraudulent Conveyance and Distribution
Limitation Considerations" and "Description of the Exchange Notes--
Subordination."
FRAUDULENT CONVEYANCE AND DISTRIBUTION LIMITATION CONSIDERATIONS
The payments made in connection with the Recapitalization to shareholders
of the Company, the repayment of the Company's existing indebtedness and the
related incurrence by the Company of indebtedness (including indebtedness under
the Notes and the New Credit Facility) may be subject to review under relevant
state and federal fraudulent conveyance laws, as well as other similar laws
regarding creditors rights generally. Under these laws, if a court were to find
that, after giving effect to the Recapitalization, either (a) the Company
incurred such indebtedness with the intent of hindering, delaying or defrauding
creditors or (b) the Company received less than reasonably equivalent value or
consideration for incurring such indebtedness and (i) was insolvent or rendered
insolvent by reason of such transaction, (ii) was engaged in a business or
transaction for which the assets remaining with the Company constituted
unreasonably small capital or (iii) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured, such court
may subordinate the Exchange Notes to presently existing and future creditors of
the Company, avoid the issuance of the Exchange Notes and direct the repayment
of any amounts paid thereunder to the Company's creditors or take other action
detrimental to the holders of the Exchange Notes. To the extent that proceeds
from the sale of the Notes are used to repay indebtedness, or to make a
distribution to a stockholder on account of the ownership of capital stock, a
court may find that the Company did not receive fair consideration or reasonably
equivalent value for the incurrence of the indebtedness represented by the
Exchange Notes. The issuance of a Subsidiary Guaranty by any future subsidiary
of the Company would be subject to similar analysis. See "Description of the
Exchange Notes--Certain Covenants--Limitation on Non-Guarantor Subsidiary Debt."
The payments made in connection with the Recapitalization to the current
shareholders of the Company may be subject to review under provisions of the
California corporations code limiting dividends and distributions to
shareholders. See "Summary--The Recapitalization" and "Certain Transactions."
If a court were to find that payments made to such shareholders in connection
with the Recapitalization were subject to these provisions, such payments would
exceed the applicable statutory limitations
12
<PAGE>
and, to the extent that the Company's obligations to its creditors at the time
of such payments were not satisfied, such court could take actions with respect
to the Exchange Notes of the type described above.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the value of all its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and matured.
Based upon financial and other information currently available to it,
management of the Company believes that the indebtedness retired with the
proceeds of the Notes Offering was, and the Notes were and the Exchange Notes
will be, incurred for proper purposes and in good faith and that at the time it
incurred the indebtedness to be retired with the proceeds of the Notes Offering
the Company was, at the time the Notes were issued the Company was, and at the
time the Exchange Notes are issued the Company will be (i) neither insolvent nor
rendered insolvent thereby, (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. See "Management's Discussions and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
In reaching these conclusions, the Company relied upon various valuations and
estimates of future cash flow that necessarily involve a number of assumptions
and choices of methodology. No assurance can be given, however, that the
assumptions and methodologies chosen by the Company would be adopted by a court
or that a court would concur with the Company's conclusions. There can be no
assurance that a court would not determine, regardless of whether the Company
was solvent on the date the Notes were issued, that the payments constituted
fraudulent transfers.
MEDICAL COST CONTAINMENT
In recent years, widespread efforts have been made in both the public and
private sectors to control health care costs, including the prices of products
such as those sold by the Company, in the United States and abroad. Cost
containment measures have resulted in increased customer purchasing power,
particularly through the increased presence of GPOs in the marketplace and
increased consolidation of distributors. Health care organizations are
evaluating ways in which costs can be reduced by decreasing the frequency with
which a treatment, device or product is used. Cost containment has also caused
a shift in the decision making function with respect to supply acquisition from
the clinician to the administrator, resulting in a greater emphasis being placed
on price, as opposed to features and clinical benefits. The Company has
encountered significant pricing pressure from customers and believes that it is
likely that efforts by governmental and private payors to contain costs through
managed care and other efforts and to reform health systems will continue and
that such efforts may have an adverse effect on the pricing and demand for the
Company's products. There can be no assurance that current or future reform
initiatives will not have a material adverse effect on the Company's business,
financial conditions or results of operations. See "Business--Industry
Overview."
The Company's products are sold principally to a variety of health care
providers, including hospitals and alternate site providers, that receive
reimbursement for the products and services they provide from various public and
private third party payers, including Medicare, Medicaid and private insurance
programs. As a result, the demand for the Company's products in any specific
care setting is dependent in part on the reimbursement policies of the various
payers in that setting. In order to be reimbursed, the products generally must
be found to be reasonable and necessary for the treatment of medical conditions
and must otherwise fall within the payor's list of covered services. In light
of increased controls on Medicare spending, there can be no assurance on the
outcome of future coverage or payment decisions for any of the Company's
products by governmental or private payers. If providers, suppliers and other
users of the Company's products are unable to obtain sufficient reimbursement, a
material adverse impact on the Company's business, financial condition or
operations may result.
The Company expects that the trend toward cost containment that has
impacted the domestic market will also be experienced in international health
care markets, impacting the Company's growth in foreign countries, particularly
where health care is socialized.
13
<PAGE>
INDUSTRY CONSOLIDATION; CUSTOMER CONCENTRATION
Cost containment has resulted in significant consolidation within the
health care industry. A substantial number of the Company's customers,
including group purchasing organizations, hospitals, national nursing home
companies and national home health care agencies, have been affected by this
consolidation. The acquisition of any of the Company's significant customers
could result in the loss of such customers by the Company, thereby negatively
impacting its business, financial condition and results of operations. For
example, in 1996, three GPOs that accounted for aggregate sales of approximately
$11.0 million combined and, as a result of a decision of the combined entity to
enter into a sole distributorship arrangement in 1997 with one of the Company's
competitors, the Company has experienced some decrease in sales and may
experience additional sales decreases in the future. In addition, the
consolidation of health care providers often results in the renegotiation of
terms and in the granting of price concessions. The Company's customer
relationships, including exclusive or preferential provider relationships, are
terminable at will by either party without advance notice or penalty. Because
larger purchasers or groups of purchasers tend to have more leverage in
negotiating prices, this trend has caused the Company to reduce prices and could
have a material adverse effect on the Company's business, financial condition or
results of operations. As GPOs and integrated health care systems increase in
size, each relationship represents a greater concentration of market share and
the adverse consequences of losing a particular relationship increases
considerably. For fiscal 1997, the Company's ten largest group purchasing
arrangements accounted for approximately 34% of the Company's total net sales,
and management believes that such arrangements accounted for a similar
percentage of net sales for fiscal 1997. Distributors have also consolidated in
response to cost containment. For fiscal 1997, approximately 30% of the
Company's net sales were to a single distributor, Owens & Minor Inc. ("Owens &
Minor"). The loss of the Company's relationship with this distributor would
have a material adverse effect on the Company's business, financial condition
and results of operations.
GOVERNMENT REGULATION
The Company and its customers and suppliers are subject to extensive
Federal and state regulation in the United States, as well as regulation by
foreign governments. Most of the Company's products are subject to government
regulation in the United States and other countries. In the United States, the
Federal Food, Drug, and Cosmetic Act, as amended (the "FDC Act"), and other
statutes and regulations govern or influence the testing, manufacture, safety,
labeling, storage, record keeping, marketing, advertising and promotion of such
products. Failure to comply with applicable requirements can result in fines,
recall or seizure of products, total or partial suspension of production,
withdrawal of existing product approvals or clearances, refusal to approve or
clear new applications or notices and criminal prosecution. Under the FDC Act
and similar foreign laws, the Company, as a marketer, distributor and
manufacturer of health care products, is required to obtain the approval of
Federal and foreign governmental agencies, including the Food and Drug
Administration ("FDA"), prior to marketing, distributing and manufacturing
certain of those products, which can be time consuming and expensive. The
Company may also need to obtain FDA clearance before modifying marketed products
or making new promotional claims. Delays in receipt of or failure to receive
required approvals or clearances, the loss of previously received approvals or
clearances, or failures to comply with existing or future regulatory
requirements in the United States or in foreign countries could have a material
adverse effect on the Company's business. Foreign sales are subject to similar
requirements.
The Company is required to comply with the FDA's "Quality System
Regulations for Medical Devices" implementing "Good Manufacturing Practices"
("GMP/QSR Regulations"), which set forth requirements for, among other things,
the Company's manufacturing process, design control and associated record
keeping, including testing and sterility. Further, the Company's plants and
operations are subject to review and inspection by local, state, Federal and
foreign governmental entities. The distribution of the Company's products may
also be subject to state regulation. The impact of FDA regulation on the
Company has increased in recent years as the Company has increased its
manufacturing operations. The Company's suppliers, including sterilizer
facilities, are also subject to similar governmental requirements. There can be
no assurance that changes to current regulations or additional regulations
imposed by the FDA will not have an adverse impact on the Company's business and
financial condition in the future. If the FDA believes that a company is not in
compliance with applicable regulations, it can institute proceedings to detain
or seize products, issue a recall, impose operating restrictions, enjoin future
violations and assess civil and criminal penalties against the company, its
officers or its employees and can recommend criminal
14
<PAGE>
prosecution to the Department of Justice. Other regulatory agencies may have
similar powers. In addition, product approvals could be withdrawn due to the
failure to comply with regulatory standards or the occurrence of unforeseen
problems following initial marketing. The FDA also has the authority to issue
special controls for devices manufactured by the Company, which it has not done
to date. In the event that such special controls were issued, the Company's
products would be required to conform, which could result in significant
additional expenditures for the Company.
The Company is subject to numerous federal, state and local laws and
regulations relating to such matters as safe working conditions, manufacturing
practices, fire hazard control and the handling and disposal of hazardous or
infectious materials or substances and emissions of air pollutants. The Company
owns and leases properties which are subject to environmental laws and
regulations. There can be no assurance that the Company will not be required to
incur significant costs to comply with such laws and regulations in the future
or that such laws or regulations will not have a material adverse effect upon
the Company's business, financial condition or results of operations. In
addition, the Company cannot predict the extent to which future legislative and
regulatory developments concerning its practices and products for the health
care industry may affect the Company. See "Business--Government Regulation and
Environmental Matters."
RISKS RELATED TO INTERNATIONAL SALES; FOREIGN OPERATIONS
Sales made outside the United States represented approximately 19.1% of the
Company's 1997 net sales and the Company intends to increase international sales
as a percentage of total net sales. Foreign operations are subject to special
risks that can materially affect the sales, profits, cash flows and financial
position of the Company, including increased regulation, extended payment
periods, competition from firms with more local experience, currency exchange
rate fluctuations and import and export controls. Sales of the Company's
products are denominated in U.S. dollars. The destabilization of the economies
of several Asian countries in 1997 caused a decrease in demand for the Company's
products throughout Southeast Asia, and future sales in that region are
uncertain. In addition, adverse economic conditions in Asia could result in
"dumping" of products similar to those produced by the Company by other
manufacturers, both in Asian and other markets.
The Company also maintains a manufacturing and assembly facility in
Ensenada, Mexico and, as a result, is subject to operational risks such as
changing labor trends and civil unrest in that country. In the event the
Company were required to transfer its Ensenada operations to the United States
or were otherwise unable to benefit from its lower cost Mexican operation, its
business, financial condition and results of operations would be adversely
affected.
PRODUCT LIABILITY
The manufacturing and marketing of medical products entails an inherent
risk of product liability claims. Although the Company has not experienced any
significant losses due to product liability claims and currently maintains
umbrella liability insurance coverage, there can be no assurance that the amount
or scope of the coverage maintained by the Company will be adequate to protect
it in the event a significant product liability claim is successfully asserted
against the Company. In addition, the Company cannot predict the extent to
which future legislative and regulatory developments concerning its practices
and products for the health care industry may affect the Company.
DEPENDENCE ON KEY PERSONNEL; MANAGEMENT OF EXPANDING OPERATIONS
The Company's success will, to a large extent, depend upon the continued
services of its executive officers. The loss of services of any of these
executive officers could materially and adversely affect the Company. While the
Company has employment agreements with it senior management team, these
agreements may be terminated by either party, with or without cause.
The Company's plans to expand its business may place a significant strain
on the Company's operational and financial resources and systems. To manage its
expanding operations, the Company may be required to, among other things,
improve its operational, financial and management information systems. The
Company may also be
15
<PAGE>
required to attract, train and retain additional highly qualified management,
technical, sales and marketing and customer support personnel. The process of
locating such personnel with the combination of skills and attributes required
to implement the Company's strategy is often lengthy. The inability to attract
and retain additional qualified personnel could materially and adversely affect
the Company.
COMPETITION
The medical supply industry is characterized by intense competition.
Certain of the Company's competitors have greater financial and other resources
than the Company and may succeed in utilizing these resources to obtain an
advantage over the Company. The general trend toward cost containment in the
health care industry has had the effect of increasing competition among
manufacturers, as health care providers and distributors consolidate and as GPOs
increase in size and importance. The Company competes on the basis of brand
name, product quality, breadth of product line, service and price. See
"Business--Competition."
RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS
An element of the Company's business strategy is to pursue strategic
acquisitions that either expand or complement the Company's business.
Acquisitions involve a number of special risks, including the diversion of
management's attention to the assimilation of the operations and the
assimilation and retention of the personnel of the acquired companies, and
potential adverse effects on the Company's operating results. The Company may
require additional debt or equity financing for future acquisitions, which may
not be available on terms favorable to the Company, if at all. In addition, the
New Credit Facility and the Indenture contain certain restrictions regarding
acquisitions. The inability of the Company to successfully finance, complete
and integrate strategic acquisitions in a timely manner could have an adverse
impact on the Company's ability to effect a portion of its growth strategy. See
"Business--Business Strategy," "Description of New Credit Facility" and
"Description of the Exchange Notes."
PATENTS AND TRADEMARKS
The Company has historically relied primarily on its technological and
engineering abilities and on its design and production capabilities to gain
competitive business advantages, rather than on patents or other intellectual
property rights. However, the Company does file patent applications on concepts
and processes developed by the Company's personnel. The Company has 18 patents
in the U.S. and two patents pending. Many of the U.S. patents have
corresponding patents issued in Canada, Europe and various Asian countries. The
Company is currently preparing several patent applications covering intellectual
property associated with the closed suction catheter product and advanced
humidification devices. The Company's success will depend in part on its
ability to maintain its patents, add to them where appropriate, and to develop
new products and applications without infringing the patent and other
proprietary rights of third parties and without breaching or otherwise losing
rights in technology licenses obtained by the Company for other products. There
can be no assurance that any patent owned by the Company will not be
circumvented or challenged, that the rights granted thereunder will provide
competitive advantages to the Company or that any of the Company's pending or
future patent applications will be issued with claims of the scope sought by the
Company, if at all. If challenged, there can be no assurance that the Company's
patents (or patents under which it licenses technology) will be held valid or
enforceable. In addition, there can be no assurance that the Company's products
or proprietary rights do not infringe the rights of third parties. If such
infringement were established, the Company could be required to pay damages,
enter into royalty or licensing agreements on onerous terms and/or be enjoined
from making, using or selling the infringing product. Any of the foregoing
could have a material adverse effect upon the Company's business, financial
condition or results of operations.
CONTROL OF COMPANY; AFFILIATE TRANSACTIONS
FS&Co. indirectly controls approximately 80.8% of the voting common stock
of the Company and 100.0% of the preferred stock of the Company, which is
entitled to 1/2 vote per share. As a result, FS&Co. has the ability to control
the Company's management, policies and financing decisions and to elect a
majority of the Company's Board of Directors. There can be no assurance that
any decisions taken by FS&Co. will be in the interests of
16
<PAGE>
holders of the Exchange Notes. See "Security Ownership of Certain Beneficial
Owners." There are currently no independent members of the Company's Board of
Directors. Under the Indenture, the Board of Directors of the Company has
discretion to approve certain transactions involving the Company and the
Restricted Subsidiaries, including transactions with affiliates and certain
asset sales. In particular, the Indenture permits the Board of Directors to
approve transactions of up to $2.5 million between the Company or any Restricted
Subsidiary, on the one hand, and any affiliate thereof (including members of the
Board of Directors), on the other hand ("Affiliate Transactions"). This limit
will apply to individual transactions only, and there will be no limit on the
aggregate value of such affiliate transactions that may be approved by the Board
of Directors. The Indenture requires the Company to obtain a fairness opinion
with respect to Affiliate Transactions in excess of $5.0 million.
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Exchange
Notes may require the Company to purchase all or a portion of such holder's
Exchange Notes at 101% of the principal amount of the Exchange Notes, together
with accrued and unpaid interest, if any, to the date of purchase. Prior to any
such repurchase of the Exchange Notes, the Company may be required to (i) repay
all or a portion of indebtedness under the New Credit Facility or other
indebtedness of the Company or (ii) obtain certain consents to permit the
repurchase, including consents under the New Credit Facility. If the Company is
unable to repay all of such indebtedness or is unable to obtain the necessary
consents, the Company would be unable to offer to repurchase the Exchange Notes,
which would constitute an Event of Default under the Indenture. There can be no
assurance that the Company will have sufficient funds available at the time of
any Change of Control to make any debt payment (including repurchases of Notes)
as described above. See "Description of the Exchange Notes--Repurchase at the
Option of Holders Upon a Change of Control."
The events that constitute a Change of Control under the Indenture may also
be events of default under the New Credit Facility or other indebtedness of the
Company. Such events may permit the lenders under such debt instruments to
accelerate the debt and, if the debt is not paid, to enforce security interests
in, or to commence litigation that could ultimately result in a sale of,
substantially all the assets of the Company, thereby limiting the Company's
ability to raise cash to repurchase the Exchange Notes. In such circumstances,
the subordination provisions in the Indenture would likely prohibit payments to
holders of the Exchange Notes.
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the Holders of the Notes. Prior to
this Exchange Offer, there has been no public market for the Notes. The Company
does not intend to apply for listing of the Exchange Notes on any securities
exchange or for quotation through the Nasdaq National Market. The Initial
Purchasers have informed the Company that they currently intend to make a market
in the Exchange Notes. However, the Initial Purchasers are not obligated to do
so and any such market making may be discontinued at any time without notice.
Therefore, no assurance can be given as to whether an active trading market will
develop or be maintained for the Exchange Notes. As the Notes were issued and
the Exchange Notes are being issued to a limited number of institutions who
typically hold similar securities for investment, the Company does not expect
that an active public market for the Exchange Notes will develop. In addition,
resales by certain holders of the Notes or the Exchange Notes of a substantial
percentage of the aggregate principal amount of such notes could constrain the
ability of any market maker to develop or maintain a market for the Exchange
Notes. To the extent that a market for the Exchange Notes should develop, the
market value of the Exchange Notes will depend on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition, performance and prospects of the Company. Such factors might cause
the Exchange Notes to trade at a discount from face value.
S CORPORATION STATUS
The Company elected to be treated as an S corporation for federal and state
income tax purposes for its taxable years beginning on or after January 1, 1987.
Unlike a C corporation, an S corporation is generally not subject to income tax
at the corporate level; instead, the S corporation's income is taxed on the
personal income tax returns of its shareholders. The Company's status as an S
corporation terminated upon consummation of the Recapitalization. If S
corporation status were denied for any periods prior to such termination by
reason of a failure
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<PAGE>
to satisfy the S corporation election or eligibility requirements of the
Internal Revenue Code of 1986, as amended, the Company would be subject to tax
on its income as if it were a C corporation for these periods. Such an
occurrence would have a material adverse effect on the Company's results.
YEAR 2000 COMPLIANCE
The Company has upgraded its information system capabilities such that it
does not believe that its systems will encounter any material "year 2000"
problems. The issue surrounding the year 2000 is whether computer systems will
properly recognize date sensitive information when the year changes to 2000, or
"00." Systems that misinterpret the two-digit date "00" as the year 1900
instead of the year 2000 could generate erroneous data or fail. The Company's
products are not subject to year 2000 problems. The Company also relies,
directly and indirectly on the external systems of various independent business
enterprises, such as its customers, suppliers, creditors, financial
organizations, and of governments, both domestically and internationally, for
the accurate exchange of data and related information. The Company could be
affected as a result of any disruption in the operation of the various third-
party enterprises with which the Company interacts. The Company has not
assessed the status of such third-party enterprises' information systems.
CONSEQUENCES TO NON-TENDERING HOLDERS OF NOTES AND REQUIREMENTS FOR TRANSFER OF
EXCHANGE NOTES
Upon consummation of the Exchange Offer, the Company will have no
further obligation to register the Notes. Thereafter, any Holder of Notes who
does not tender its Notes in the Exchange Offer, including any Holder which is
an "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company which cannot tender its Notes in the Exchange Offer, will continue
to hold restricted securities which may not be offered, sold or otherwise
transferred, pledged or hypothecated except pursuant to Rule 144 and Rule 144A
under the Securities Act or pursuant to any other exemption from registration
under the Securities Act relating to the disposition of securities, provided
that an opinion of counsel is furnished to the Company that such an exemption is
available.
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<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Exchange Offer Registration Agreement. The Company will
not receive any cash proceeds from the issuance of the Exchange Notes offered in
the Exchange Offer. In consideration for issuing the Exchange Notes as
contemplated in this Prospectus, the Company will receive in exchange Notes in
like principal amount, the form and terms of which are the same in all material
respects as the form and terms of the Exchange Notes except that the Exchange
Notes have been registered under the Securities Act and do not contain transfer
restrictions or terms with respect to the special interest payments applicable
to the Notes. The Notes surrendered in exchange for Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase in the indebtedness of the
Company.
Net proceeds from the Notes Offering were $115.0 million. Such
proceeds, together with the proceeds of the Holding Equity Investment and
borrowings under the New Credit Facility, were used (i) to finance the
Recapitalization, (ii) to pay outstanding debt under the Company's existing
credit agreement and (iii) to pay related fees and expenses. Indebtedness that
was repaid from the net proceeds of the sale of Notes consisted of $34.2 million
of borrowings and accrued interest outstanding under the Company's credit
agreement with a maturity of March 31, 2000 that includes term loans that bore
interest at a base rate plus 0.5% or a eurodollar rate plus 2% and a revolving
line of credit that bore interest at a base rate plus 0.25% or a eurodollar rate
plus 1.75%. This amount includes $20.0 million of indebtedness incurred on March
11, 1998 in connection with payments made to certain employees pursuant to the
Company's Equity Participation Plan. See "Summary--The Recapitalization."
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company on an
actual basis and on an as adjusted basis to give effect to the Recapitalization
as if it had occurred on March 27, 1998. This table should be read in
conjunction with "Pro Forma Financial Statements" and the notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
MARCH 27, 1998 ADJUSTMENTS(A) MARCH 27, 1998
---------------- ------------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current maturities of long-term debt................................ $ 4,000 $ (4,000)(b) $ --
------- --------- --------
Long-term debt:
Notes payable to Bank............................................... 31,000 (31,000)(b) --
New Credit Facility................................................. -- 40,000 (c) 40,000
Notes............................................................... -- 115,000 (d) 115,000
------- --------- --------
Total long-term debt............................................... 31,000 124,000 155,000
------- --------- --------
Mandatorily redeemable PIK preferred stock, $.01 par
value, no shares authorized, issued and outstanding,
actual; 2,000,000 shares authorized, 300,000 shares
issued and outstanding, as adjusted(e)............................. -- 30,000 (f) 30,000
------- --------- --------
Shareholders' equity (deficit):
Common stock, $.01 par value, 15,000,000 shares
authorized, 14,468,720 shares issued and outstanding,
actual; 15,000,000 shares authorized, 7,800,000 shares
issued and outstanding, as adjusted (h)........................... 3,789 59,621 (g) 63,410
Cumulative translation adjustment................................... (464) -- (464)
Retained earnings (deficit)......................................... 20,499 (113,661)(g) (93,162)
------- --------- --------
Total shareholders' equity (deficit)............................... 23,824 (54,040) (30,216)
------- --------- --------
Total capitalization........................................... $58,824 $ 95,960 $154,784
======= ========= ========
</TABLE>
_______________
(a) Does not give effect to the obligation of the Company to pay the Continuing
Shareholder and former participants in the Equity Participation Plan an
aggregate of $5.7 million upon achievement by the Company of certain
operating performance targets in fiscal 1998. See "Certain Transactions."
(b) Reflects the repayment of Hudson RCI debt in connection with the
Recapitalization.
(c) Reflects the proceeds from the New Credit Facility.
(d) Reflects the proceeds from the issuance of the Notes.
(e) The mandatorily redeemable preferred stock provides that, until April 15,
2003, dividends on such preferred stock may be paid, at the election of the
Company, in additional shares of such preferred stock, and thereafter must
be paid in cash.
(f) Reflects the proceeds from the issuance of Preferred Stock Investment.
(g) Reflects the following:
<TABLE>
<CAPTION>
RETAINED EARNINGS
COMMON STOCK (DEFICIT)
---------------- -----------------
<S> <C> <C>
Proceeds related to the Common Stock Investment....................... $63,000 $ --
Reclassification of par value of the redeemed portion of Continuing
Shareholder's common stock........................................... (3,379) 3,379
Consideration paid for a portion of Continuing Shareholder's
common stock......................................................... -- (131,685)
Deferred tax asset.................................................... -- 80,350
Provision for Equity Participation Plan cost in 1998.................. -- (61,013)
Elimination of OxyAir................................................. -- (354)
Other................................................................. -- (4,338)
------- ---------
Total adjustments to shareholders' equity............................. $59,621 $(113,661)
======= =========
</TABLE>
(h) Reflects an increase in the authorized number of common shares and a stock
split of 245:1 effected prior to the Recapitalization.
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THE EXCHANGE OFFER
PURPOSES OF THE EXCHANGE OFFER
The Notes were issued and sold by the Company on April 7, 1998 to Salomon
Brothers Inc and BT Alex. Brown Incorporated (collectively, the "Initial
Purchasers"), who subsequently resold the Notes to (a) "qualified institutional
buyers" (in reliance on Rule 144A under the Securities Act). In connection with
the issuance and sale of the Notes, the Company and the Initial Purchasers
entered into the Exchange Offer Registration Agreement pursuant to which the
Company agreed to use its best efforts to cause a registration statement with
respect to the Exchange Offer to become effective within 150 days of April 7,
1998, the date of issuance of the Notes. However, in the event that (a) any
changes in the law or the applicable interpretations of the staff of the
Commission do not permit the Company to effect the Exchange Offer, (b) for any
other reason the Exchange Offer Registration Statement is not declared effective
within 150 days after the date of the original issuance of the Notes or the
Exchange Offer is not consummated within 180 days after the date of the original
issuance of the Notes, (c) under certain circumstances the Initial Purchasers so
request or (d) under certain circumstances if certain holders of the Notes are
not permitted to participate in the Exchange Offer or are not able to receive
freely tradeable Exchange Notes pursuant to the Exchange Offer, the Company will
file a shelf registration statement with respect to the resale of the Notes (the
"Shelf Registration Statement") and keep such Shelf Registration Statement
effective until two years after the Issue Date (or until one year after such
date if such Shelf Registration Statement is filed at the request of an Initial
Purchaser).
The Exchange Offer is being made by Hudson RCI to satisfy its obligations
pursuant to the Exchange Offer Registration Agreement. The form and terms of
the Exchange Notes are the same as the form and terms of the Notes in all
material respects except that the Exchange Notes have been registered under the
Securities Act and hence do not include certain rights to registration
thereunder and do not contain transfer restrictions or terms with respect to the
special interest payments applicable to the Notes. Once the Exchange Offer is
consummated, Hudson RCI will have no further obligations to register any of the
Notes not tendered by the Holders for exchange. See "Risk Factors--Consequences
to Non-Tendering Holders of Notes". A copy of the Exchange Offer Registration
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
Based on interpretations by the staff of the Commission set forth in
several no-action letters issued to third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Notes may
be offered for resale, resold and otherwise transferred by holders thereof
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 holders' business and such holders have no such
arrangement with any person to participate in the distribution of such Exchange
Notes. However, the Company does not intend to request the Commission to
consider, and the Commission has not considered, the Exchange Offer in a no-
action letter and there can be no assurance that the Commission would make a
similar determination with respect to the Exchange Offer. However, any Holder
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) cannot
rely on the interpretation by the staff of the Commission set forth in the above
referenced no-action letters, (ii) cannot tender its 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 Notes, unless such sale or transfer is made pursuant to an exemption from
such requirements. See "Risk Factors--Consequences to Non-Tendering Holders of
Notes".
In addition, each broker-dealer that receives Exchange Notes for its own
account in exchange for Notes, where such Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities and
not acquired directly from the Company, must acknowledge that it will deliver a
copy of this Prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution".
Except as aforesaid, this Prospectus may not be used for an offer to
resell, resale or other transfer of Exchange Notes.
21
<PAGE>
TERMS OF THE EXCHANGE OFFER
General
Upon the terms and subject to the conditions of the Exchange Offer set
forth in this Prospectus and in the Letter of Transmittal, the Company will
accept any and all 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
outstanding Notes accepted in the Exchange Offer. Holders may tender some or
all of their Notes pursuant to the Exchange Offer. However, Exchange Notes may
be tendered only in integral multiples of $1,000.
As of April 7, 1998, there was $115.0 million aggregate principal amount of
the Notes outstanding and one registered Holder of Notes. This Prospectus,
together with the Letter of Transmittal, is being sent to such registered Holder
as of _________, 1998.
In connection with the issuance of the Notes, the Company arranged for the
Notes to be issued and transferable in book-entry form through the facilities of
DTC, acting as depository. The Exchange Notes also will be issued and
transferable in book-entry form through DTC. See "Description of Exchange
Notes--Form, Denomination and Book-Entry Procedures."
The Company shall be deemed to have accepted validly tendered 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 of Notes
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
certificates for any such unaccepted Notes will be returned, without expense, to
the tendering Holder thereof as promptly as practicable after the Expiration
Date.
Holders of Notes who tender 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 Notes pursuant to
the Exchange Offer. The Company will pay the expenses, other than certain
applicable taxes, of the Exchange Offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean ___________, 1998, unless the Company
in its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent and the record Holders of Notes of any extension by oral or
written notice, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date. Such notice may
state that the Company is extending the Exchange Offer for a specified period of
time or on a daily basis until 5:00 p.m., New York City time, on the date on
which a specified percentage of Notes are tendered.
The Company reserves the right to delay accepting any Notes, to extend the
Exchange Offer, to amend the Exchange Offer or to terminate the Exchange Offer
and not accept Notes not previously accepted if any of the conditions set forth
herein under "--Conditions" shall have occurred and shall not have been waived
by the Company by giving oral or written notice of such delay, extension,
amendment or termination to the Exchange Agent. Any such delay in acceptance,
extension, amendment or termination will be followed as promptly as practicable
by oral or written notice thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform the
Holders of such amendment and the Company will extend the Exchange Offer for a
period of five to 10 business days, depending upon the significance of the
amendment and the manner of
22
<PAGE>
disclosure to Holders of the Notes, if the Exchange Offer would otherwise expire
during such five to 10 business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
ACCRUED INTEREST ON THE EXCHANGE NOTES AND THE NOTES
The Exchange Notes will bear interest at a rate equal to 9 1/8% per annum
from their date of issuance. Interest on the Exchange Notes is payable semi-
annually on April 15 and October 15 of each year, commencing on October 15,
1998. Holders whose Notes are accepted for exchange will receive, in cash,
accrued interest thereon to, but excluding, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes. Interest on the Notes accepted for exchange will cease to accrue
upon cancellation of the Notes and issuance of the Exchange Notes. Holders of
Notes whose Notes are not exchanged will receive the accrued interest payable on
October 15, 1998.
PROCEDURES FOR TENDERING
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 Instruction 4 of the Letter of Transmittal, and mail
or otherwise deliver such Letter of Transmittal or such facsimile, together with
the Notes and any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Notes by causing
DTC to transfer such Notes into the Exchange Agent's account in accordance with
DTC's procedure for such transfer. Although delivery of Notes may be effected
through book-entry transfer into the Exchange Agent's account at DTC, the Letter
of Transmittal (or facsimile thereof), with any required signature guarantees
and any other required documents, must, in any case, be transmitted to and
received or confirmed by the Exchange Agent at its address set forth in "--
Exchange Agent" below prior to 5:00 p.m., New York City time, on the Expiration
Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a Holder will constitute an 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.
Delivery of all documents must be made to the Exchange Agent at its address
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the above transactions
for such Holders.
The method of delivery of Notes and the Letter of Transmittal and all other
required documents to the Exchange Agent is at the election and risk of the
Holders. Instead of delivery by mail, it is recommended that Holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Notes should be
sent to the Company.
Only a Holder of Notes may tender such Notes in the Exchange Offer. The
term "Holder" with respect to the Exchange Offer means any person in whose name
Notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered Holder.
ANY BENEFICIAL HOLDER WHOSE NOTES ARE REGISTERED IN THE NAME OF ITS BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE AND WHO WISHES TO TENDER
SHOULD CONTACT SUCH REGISTERED HOLDER PROMPTLY AND INSTRUCT SUCH REGISTERED
HOLDER TO CONSENT AND/OR TENDER ON ITS BEHALF. IF SUCH BENEFICIAL HOLDER WISHES
TO TENDER ON ITS OWN BEHALF, SUCH BENEFICIAL HOLDER MUST, PRIOR TO COMPLETING
AND EXECUTING THE LETTER OF TRANSMITTAL AND DELIVERING ITS NOTES, EITHER MAKE
APPROPRIATE ARRANGEMENTS TO REGISTER OWNERSHIP OF THE NOTES
23
<PAGE>
IN SUCH HOLDER'S NAME OR OBTAIN A PROPERLY COMPLETED BOND POWER FROM THE
REGISTERED HOLDER. THE TRANSFER OF RECORD OWNERSHIP MAY TAKE CONSIDERABLE TIME.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Payment 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 an "Eligible Guarantor Institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, which is a member of one of the following recognized signature
guarantee programs: (i) the Securities Transfer Agents Medallion Program
(STAMP), (ii) the New York Stock Exchange Medallion Signature Program (MSP) or
(iii) the Stock Exchange Medallion Program (SEMP) (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Notes listed therein, such Notes must be endorsed or
accompanied by appropriate bond powers signed as the name of the registered
Holder or Holders appears on the Notes.
If the Letter of Transmittal or any Notes or powers of attorney are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Notes and withdrawal of tendered 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 Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular 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 Notes must be cured
within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Notes, nor shall any of
them incur any liability for failure to give such notification. Tenders of
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any 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 of Notes,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Notes that remain outstanding subsequent to the
Expiration Date or, as set forth under "--Conditions," to terminate the Exchange
Offer and, to the extent permitted by applicable law, purchase Notes in the open
market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers could differ from the terms of the Exchange Offer.
By tendering, 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 such Holder's business, that such Holder has
no arrangement with any person to participate in the distribution of such
Exchange Notes, and that such Holder is not an "affiliate", as defined under
Rule 405 of the Securities Act, of the Company. If the Holder is a broker-
dealer that will receive Exchange Notes for its own account in exchange for
Notes that were acquired as a result of market-making activities or other
trading activities and not acquired directly from the Company, such Holder by
tendering will acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes. See "Plan of Distribution."
24
<PAGE>
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, or (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder of the Notes, the certificate number or numbers
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the Notes to be
tendered in proper form for transfer (or a confirmation of a book-entry transfer
into the Exchange Agent's account at DTC of Notes delivered electronically) and
any other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or confirmation of a book-entry transfer into
the Exchange Agent's account at DTC of Notes delivered electronically) 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 of the Exchange Agent, a Notice of Guaranteed Delivery will be sent
to Holders who wish to tender their Notes according to the guaranteed delivery
procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of 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 Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number or numbers
and principal amount of such Notes), (iii) be signed by the Holder in the same
manner as the original signature on the Letter of Transmittal by which such
Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Notes register the transfer of such Notes into the name of the person
withdrawing the tender, and (iv) specify the name in which any such 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 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 Notes so withdrawn are validly retendered. Any
Notes which have been tendered but which are not accepted for payment 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 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 will not
be required to accept for exchange, or exchange Exchange Notes for, any Notes
not theretofore accepted for exchange, and may terminate
25
<PAGE>
or amend the Exchange Offer as provided herein before the acceptance of such
Notes, if any of the following conditions exist:
(a) the Exchange Offer, or the making of any exchange by a Holder, violates
applicable law or any applicable interpretation of the Commission; or
(b) 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 impair the ability of the Company to
proceed with the Exchange Offer; or
(c) there shall have been adopted or enacted any law, statute, rule or
regulation which, in the sole judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer.
If any such conditions exist, the Company may (i) refuse to accept any
Notes and return all tendered Notes to exchanging Holders, (ii) extend the
Exchange Offer and retain all Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of Holders to withdraw such
Notes (see "--Withdrawal of Tenders") or (iii) waive certain of such conditions
with respect to the Exchange Offer and accept all properly tendered Notes which
have not been withdrawn or revoked. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver in
a manner reasonably calculated to inform Holders of Notes of such waiver.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition to the foregoing conditions, if, because of any change in
applicable law or applicable interpretations thereof by the Commission, the
Company is not permitted to complete the Exchange Offer, then the Company shall
file a Shelf Registration Statement. Thereafter, the Company's obligation to
consummate the Exchange Offer shall be terminated.
EXCHANGE AGENT
United States Trust Company 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 Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier and By Hand
after 4:30 p.m.:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 844 Cooper Station 770 Broadway, 13th Floor
New York, New York 10276 New York, New York 10003
Attention: Corporate Trust Services
By Hand before 4:30 p.m.: By Facsimile:
United States Trust Company of New York (212) 780-0592
111 Broadway Attention: Customer Service
New York, New York 10006
Attention: Lower Level Confirm by telephone:
Corporate Trust Window (800) 548-6565
</TABLE>
26
<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, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company 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 Company may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of the Prospectus and related documents to the beneficial owners of the
Notes, and in handling or forwarding tenders for exchange.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company, are estimated in the aggregate to be approximately
$200,000, and include fees and expenses of the Exchange Agent and Trustee under
the Indenture and accounting and legal fees.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, certificates representing
Exchange Notes or Notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered Holder of the Notes tendered, or if
tendered Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered holder or
any other persons) will be payable by the tendering Holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is face value as reflected in the Company's accounting records on
the date of the exchange. Accordingly, no gain or loss for accounting purposes
will be recognized upon consummation of the Exchange Offer. The issuance costs
incurred in connection with the Exchange Offer will be expensed.
27
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The selected fiscal year end historical financial data has been derived
from the audited financial statements of the Company. The selected pro forma
financial data has been derived from the pro forma financial statements included
elsewhere in this Prospectus and gives effect to the Recapitalization as if it
had occurred at the beginning of the period presented with respect to the
operating and other financial data, and as of March 27, 1998 with respect to
balance sheet data. The financial data for the quarters ended March 28, 1997
and March 27, 1998 and as of March 27, 1998 has been derived from unaudited
financial statements included elsewhere in this Prospectus. The selected pro
forma financial data does not necessarily represent what the Company's financial
position and results of operations would have been if these transactions had
actually been completed as of the dates indicated, and is not intended to
project the Company's financial position or results of operations for any future
period. Fiscal year 1993 was a 53 week year and fiscal years 1994, 1995, 1996
and 1997 were 52 week years. The information contained in this table should be
read in conjunction with the Company's audited consolidated financial statements
and notes thereto at December 27, 1996 and December 26, 1997 and for each of the
three years in the period ended December 26, 1997, unaudited financial
statements and notes thereto for the quarters ended March 28, 1997 and March 27,
1998 and as of March 27, 1998 and the pro forma consolidated financial
statements and notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------------------------------------
PRO
FORMA
1993 1994 1995 1996 1997 1997
---------- ---------- ---------- ---------- --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales................. $79,111 $82,772 $86,825 $93,842 $99,509 $99,509
Cost of sales............. 46,476 47,631 47,582 49,405 51,732 51,732
------- ------- ------- ------- ------- -------
Gross profit.............. 32,635 35,141 39,243 44,437 47,777 47,777
Operating expenses:
Selling expenses.......... 7,070 7,499 8,283 8,961 9,643 9,643
Distribution expenses..... 4,743 4,543 4,595 4,829 5,240 5,240
General and administrative
expenses................. 9,732 10,426 9,769 11,277 11,456 10,617(b)
Research and development
expenses................. 2,880 1,983 2,064 2,253 1,845 1,845
------- ------- ------- ------- ------- -------
Total operating expenses
before provision for
equity participation plan 24,425 24,451 24,711 27,320 28,184 27,345
------- ------- ------- ------- ------- -------
Operating income before
EPP...................... 8,210 10,690 14,532 17,117 19,593 20,432
Provision for equity
participation plan....... -- -- 11,415 8,249 6,954 --(d)
------- ------- ------- ------- ------- -------
Operating income... 8,210 10,690 3,117 8,868 12,639 20,432
OTHER (INCOME) AND EXPENSES:
Interest expense... 2,253 2,299 2,424 2,177 1,834 15,099(e)
Other (income)/expense.... 600 546 811 (463) (638) --(f)
------- ------- ------- ------- ------- -------
Total other (income) and
expenses................. 2,853 2,845 3,235 1,714 1,196 15,099
------- ------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes.................... 5,357 7,845 (118) 7,154 11,443 5,333
Provision for income taxes 181 175 280 73 150 2,133(g)
------- ------- ------- ------- ------- -------
Net income (loss)......... $ 5,176 $ 7,670 $ (398) $ 7,081 $11,293 $ 3,200(h)
======= ======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
EBITDA before EPP(i)...... $15,422 $17,354 $21,205 $23,194 $25,440 $26,279
EBITDA before EPP margin(j) 19.5% 21.0% 24.4% 24.7% 25.6% 26.4%
Operating margin before
EPP(k)................... 10.4% 12.9% 16.7% 18.2% 19.7% 20.5%
Depreciation &
amortization(l).......... $ 7,630 $ 7,033 $ 6,820 $ 6,133 $ 5,847 $ 7,190(m)
Capital expenditures...... $ 9,112 $ 4,898 $ 5,850 $ 6,395 $ 4,659 $ 4,659
Ratio of EBITDA before
EPP to cash interest
expense(n)............... 6.8x 7.5x 8.7x 10.7x 13.9x 1.9x
Ratio of total debt to
EBITDA before EPP........ 2.3x 1.8x 1.2x 1.2x 0.8x 5.9x
Ratio of earnings to
fixed charges(o)......... 2.7x 3.6x 1.0x 3.7x 6.0x 1.3x
BALANCE SHEET DATA:
Working capital(p)........ $20,423 $20,588 $22,461 $26,768 $29,960
Total assets.............. 66,870 66,576 64,387 76,910 77,754
Total debt................ 35,167 31,607 25,364 28,146 20,250
Shareholders' equity
(deficit)................ 23,693 25,269 19,112 19,872 22,515
<CAPTION>
QUARTER ENDED (UNAUDITED)
--------------------------------------
PRO
FORMA
MARCH MARCH MARCH
28, 27, 27,
1997 1998 1998
------ ------ ------
<S> <C> <C> <C>
OPERATING DATA:
Net sales................. $23,987 $24,265 $ 24,265
Cost of sales............. 11,970 13,026(a) 13,026
------- ------- --------
Gross profit.............. 12,017 11,239 11,239
Operating expenses:
Selling expenses.......... 2,331 2,317 2,317
Distribution expenses..... 1,261 1,449 1,449
General and administrative
expenses................. 2,946 3,077(c) 2,905(b)
Research and development
expenses................. 418 474 474
------- ------- --------
Total operating expenses
before provision for
equity participation plan 6,956 7,317 7,145
------- ------- --------
Operating income before
EPP...................... 5,061 3,922 4,094
Provision for equity
participation plan....... 1,966 1,974 --(d)
------- ------- --------
Operating income... 3,095 1,948 4,094
OTHER (INCOME) AND EXPENSES:
Interest expense... (505) (419) (3,774)(e)
Other (income)/expense.... 650 (8) (8)
------- ------- --------
Total other (income) and
expenses................. 145 (427) (3,782)
------- ------- --------
Income (loss) before
provision for income
taxes.................... 3,240 1,521 312
Provision for income taxes 45 23 125(g)
------- ------- --------
Net income (loss)......... $ 3,195 $ 1,498 $ 187(h)
======= ======= ========
OTHER FINANCIAL DATA:
EBITDA before EPP(i)...... $ 6,489 $ 5,419 $ 5,591
EBITDA before EPP margin(j) 27.1% 22.3% 23.0%
Operating margin before
EPP(k)................... 21.1% 16.2% 16.9%
Depreciation &
amortization(l).......... $ 1,444 $ 1,497 $ 2,878(m)
Capital expenditures...... $ 112 $ 701 $ 701
Ratio of EBITDA before
EPP to cash interest
expense(n)...............
Ratio of total debt to
EBITDA before EPP........
Ratio of earnings to
fixed charges(o)......... 6.3x 3.8x 1.1x
BALANCE SHEET DATA:
Working capital(p)........ $28,123 $ 25,363
Total assets.............. 73,602 165,178
Total debt................ 35,000 155,000
Shareholders' equity
(deficit)................ 23,824 (30,216)
</TABLE>
footnotes on following page
28
<PAGE>
______________________
(a) For a discussion of the change in cost of goods sold, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations--Three Months Ended March 27, 1998 Compared to Three
Months Ended March 28, 1997."
(b) The pro forma general and administrative expense reflects the following
(amounts in thousands):
<TABLE>
<CAPTION>
December 26, March 27,
1997 1998
----------------------------
<S> <C> <C>
Actual general and administrative expense.................................... $11,456 $3,077
Elimination of Continuing Shareholder salary, bonus and fringe benefits(1)... (455) (87)
Elimination of expenses related to OxyAir(2)................................. (384) (85)
------- ------
Total........................................................................ $10,617 $2,905
======= ======
</TABLE>
______________
(1) The Company will not continue to pay Continuing Shareholder salary,
bonus and related fringe benefits. The adjustment is to eliminate such
expenses.
(2) Reflects the elimination of expense related to OxyAir since OxyAir was
transferred to the Continuing Shareholder.
(c) Includes $0.3 million of legal fees related to patent litigation in which
the Company was granted favorable summary judgment during the quarter ended
March 27, 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--Three Months
Ended March 27, 1998 Compared to Three Months Ended March 28, 1997."
(d) Reflects the elimination of the Equity Participation Plan. See "Management-
-Equity Participation Plan." For purposes of compliance with the Indenture,
the Company's Consolidated Net Income and EBITDA will not be reduced by the
amount of any contingent payments made by the Company to former participants
in the Equity Participation Plan. See "Summary--The Recapitalization" and
"Certain Transactions."
(e) Pro forma interest expense, including amortization of deferred financing
fees related to the Recapitalization, consists of the following (amounts in
thousands):
<TABLE>
<CAPTION>
December 26, March 27,
1997 1998
-----------------------------
<S> <C> <C>
Interest expense on bank facility at an assumed composite interest rate of 8.00%... $ 3,200 $ 800
Interest expense on Senior Subordinated Notes at an interest rate of 9.125%........ 10,494 2,623
Amortization of deferred finance fees(1)........................................... 1,405 351
------- ------
Total.............................................................................. $15,099 $3,774
======= ======
</TABLE>
______________
(1) Amortization of deferred debt financing costs relating to the
Recapitalization are excluded from the calculation of the Company's
Consolidated Interest Coverage Ratio under the Indenture.
(f) The pro forma adjustments to Other (income)/expense reflect the elimination
of the non-recurring gain on sale of the Company's Orange Park, Florida
facility.
(g) Reflects the income tax effect of the net changes described above, using an
effective tax rate of 40%.
(h) For purposes of compliance with the Indenture, the Company's Consolidated
Net Income will not be reduced by the amount of any contingent payments made
by the Company to former participants in the Equity Participation Plan. See
"Summary--The Recapitalization" and "Certain Transactions."
(i) EBITDA before EPP represents income before depreciation and amortization,
interest expense, income tax expense and charges related to the Company's
Equity Participation Plan, which will be terminated upon consummation of the
Recapitalization. EBITDA before EPP is not a measure of performance under
generally accepted accounting principles, and should not be considered as a
substitute for net income, cash flows from operating activities and other
income or cash flow statement data prepared in accordance with generally
accepted accounting principles, or as a measure of profitability or
liquidity. The Company has included information concerning EBITDA before
EPP as one measure of an issuer's historical ability to service debt.
EBITDA before EPP should not be considered as an alternative to, or more
meaningful than, income from operations or cash flow as an indication of the
Company's operating performance. For purposes of compliance with the
Indenture, the Company's Consolidated Net Income and EBITDA will not be
reduced by the amount
29
<PAGE>
of any contingent payments made by the Company to former participants in the
Equity Participation Plan. See "Summary--The Recapitalization" and "Certain
Transactions."
(j) Represents ratio of EBITDA before EPP to net sales.
(k) Represents ratio of Operating income before EPP to net sales.
(l) Includes amortization of deferred financing fees of $0.4 million in 1993,
$0.4 million in 1994, $0.1 million in 1995 and $0.1 million in 1996, which
should be excluded from depreciation and amortization in calculating EBITDA
before EPP since such fees are reflected below the operating income line.
(m) Actual 1997 amortization of deferred financing fees has been replaced with
pro forma non-cash amortization of deferred financing fees of approximately
$1.4 million associated with the Recapitalization. Actual amortization for
the quarter ended March 27, 1998 has been replaced by pro forma amortization
of $0.4 million associated with the Recapitalization.
(n) Excludes approximately $1.4 million of non-cash amortization expense for
1997 relating to deferred debt financing costs relating to the
Recapitalization. This amount is also excluded from the calculation of the
Company's Consolidated Interest Coverage Ratio under the Indenture.
(o) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes and fixed charges. Fixed
charges consist of interest on indebtedness, the amortization of debt issue
costs and that portion of operating rental expense representative of the
interest factor.
(p) Working capital represents current assets, excluding cash, less current
liabilities, excluding the current portion of long-term debt. Actual 1997
current liabilities excludes the management bonus liability of $20.0
million. See Note 7(c) to Consolidated Financial Statements.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's consolidated historical results
of operations and financial condition should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto included
elsewhere in this Prospectus. The following discussion and analysis covers
periods before completion of the Recapitalization. See "Risk Factors" and Pro
Forma Consolidated Financial Statements for a further discussion relating to the
effect that the transactions described herein may have on the Company.
RECENT DEVELOPMENTS AND OUTLOOK
The Company is a leading manufacturer and marketer of disposable medical
products utilized in the respiratory care and anesthesia segments of the
domestic and international health care markets. The Company's principal
products include oxygen masks, humidification systems, nebulizers, cannulae and
tubing. In the United States, the Company markets its products to a variety of
health care providers, including hospitals and alternate site service providers
such as outpatient surgery centers, long-term care facilities, physician offices
and home health care agencies. Internationally, the Company sells its products
to distributors who market to hospitals and other health care providers. In
1997, 63.6% of the Company's net sales were generated from the domestic hospital
market, 19.1% from the export market, 14.7% from alternate site provider market
and 2.7% from OEM and other markets. The Company's products are sold to over
2,500 distributors and alternate site service providers throughout the United
States and in more than 75 countries worldwide.
The Company has reported increased annual net sales and EBITDA before EPP
in each year since 1990. Net sales increased from $79.1 million in fiscal 1993
to $99.5 million in fiscal 1997, representing a compound annual growth rate of
5.9%. From fiscal 1993 to fiscal 1997, the Company's EBITDA before EPP
increased from $15.4 million to $25.4 million, representing a compound annual
growth rate of 13.3%. The more rapid increase in EBITDA before EPP relative to
net sales is the result of improvements in EBITDA before EPP as a percentage of
sales from 19.5% in fiscal 1993 to 25.6% in fiscal 1997. These margin
improvements were achieved during a period of heightened cost containment
affecting the health care market generally. See "Business--Industry Overview."
The Company attributes its ability to increase profit margins to its commitment
to cost reduction and operating efficiency.
Consistent with the Company's business strategy, the Company has increased
its net sales and improved its position within the disposable health care
products market in recent years by increasing its respiratory care product
offering, introducing disposable products for the anesthesia health care market,
expanding its presence in international markets and establishing a position in
the growing alternate site market.
Through consistent product development efforts, the Company continuously
evolves and improves its product offering to fully serve the respiratory care
market. In addition to the respiratory care market, the Company developed and
introduced disposable products for the anesthesia market starting in 1995.
Since that time, sales of anesthesia products have increased and in 1997
contributed $6.5 million in net sales. Net sales from new respiratory and
anesthesia products introduced since 1992 represented approximately 18% of the
Company's total net sales in fiscal 1997. In 1994, the Company established a
sales force dedicated to sales of the Company's products to international
markets. The international sales effort has focused largely on major and
growing markets for the Company's products. In fiscal 1997, the Company's
products were sold to health care providers and distributors in more than 75
international markets representing $19.0 million in net sales. See Note 8 to
Consolidated Financial Statements. With the increasing trend toward providing
health care outside of traditional hospital settings and the rapid growth of
alternate site health care providers, the Company established in 1995 an
independent sales force dedicated to this market. Sales of products to
alternate site distributors and/or health care providers represented
approximately $14.6 million in net sales in fiscal 1997. The Company has
targeted the international, alternate site and anesthesia markets as key
components for future growth.
The Company's results of operations may fluctuate significantly from
quarter to quarter as a result of a number of factors, including, among others,
the buying patterns of the Company's distributors, GPOs and other purchasers of
the Company's products, forecasts regarding the severity of the annual cold and
flu season,
31
<PAGE>
announcements of new product introductions by the Company or its competitors,
changes in the Company's pricing of its products and the prices offered by the
Company's competitors, rate of overhead absorption due to variability in
production levels and variability in the number of shipping days in a given
quarter.
On April 7, 1998, the Company consummated the Recapitalization. See
"Summary--Recapitalization." Immediately following consummation of the
Recapitalization, FS&Co. owned approximately 87.3% of the outstanding common
stock of Holding. The Company and the shareholders that received distributions
in the Recapitalization made an election under Section 338(h)(10) of the
Internal Revenue Code of 1986, as amended, to treat the Recapitalization as an
asset purchase for tax purposes, which will have the effect of significantly
increasing the basis of the Company's assets, thus increasing depreciation and
amortization expenses and other deductions for tax purposes and reducing the
Company's taxable income in 1998 and subsequent years.
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, certain income
and expense items expressed in dollars and as a percentage of the Company's net
sales.
<TABLE>
<CAPTION>
QUARTER ENDED
FISCAL YEAR (unaudited)
----------------------------- ---------------------------
MARCH 28, MARCH 27,
1995 1996 1997 1997 1998
-------- -------- ---------- ------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales........................................... $86,825 $93,842 $99,509 $23,987 $24,265
Cost of sales....................................... 47,582 49,405 51,732 11,970 13,026
-------- -------- -------- -------- --------
Gross profit...................................... 39,243 44,437 47,777 12,017 11,239
Selling expenses.................................... 8,283 8,961 9,643 2,331 2,317
Distribution expenses............................... 4,595 4,829 5,240 1,261 1,449
General and administrative expenses................. 9,769 11,277 11,456 2,946 3,077
Research and development expenses................... 2,064 2,253 1,845 418 474
Provision for equity participation plan............. 11,415 8,249 6,954 1,966 1,974
-------- -------- -------- -------- --------
Total operating expenses............................ 36,126 35,569 35,138 8,922 9,291
-------- -------- -------- -------- --------
Operating income.................................... 3,117 8,868 12,639 3,095 1,948
Add back: Provision for equity participation plan... 11,415 8,249 6,954 1,966 1,974
-------- -------- -------- -------- --------
Operating income before provision for equity
participation plan................................. $14,532 $17,117 $19,593 $ 5,061 $ 3,922
======== ======== ======== ======== ========
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR QUARTER ENDED
----------------------------- ---------------------------
MARCH 28, MARCH 27,
1995 1996 1997 1997 1998
-------- -------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................................... 54.8 52.6 52.0 49.9 53.7
-------- -------- ---------- ------------- ------------
Gross profit...................................... 45.2 47.4 48.0 50.1 46.3
Selling expenses.................................... 9.5 9.5 9.7 9.7 9.5
Distribution expenses............................... 5.3 5.1 5.3 5.3 5.9
General and administrative expenses................. 11.3 12.0 11.5 12.2 12.7
Research and development expenses................... 2.4 2.4 1.9 1.7 1.9
Provision for equity participation plan............. 13.1 8.8 7.0 8.2 8.1
-------- -------- ---------- ------------- ------------
Total operating expenses............................ 41.6 37.9 35.3 37.2 38.3
-------- -------- ---------- ------------- ------------
Operating income.................................... 3.6 9.4 12.7 12.9 8.0
Add back: Provision for equity participation plan... 13.1 8.8 7.0 8.2 8.1
-------- -------- ---------- ------------- ------------
Operating income before provision for equity
participation plan................................. 16.7% 18.2% 19.7% 21.1% 16.2%
======== ======== ========== ============= ============
</TABLE>
Three Months Ended March 27, 1998 Compared to Three Months Ended March 28, 1997
Net sales, reported net of accrued rebates, were $24.3 million in the first
quarter of 1998, an increase of $0.3 million over the same quarter in 1997.
This was due primarily to growth of $1.7 million or 36.0% in international
sales, primarily due to the Company's focused efforts in this market. Alternate
Site sales also increased by $0.3 million or 9.2% as the Company continues to
focus sales efforts in this growing market. Partially offsetting these gains
was a decrease in domestic sales of $1.7 million or 11.0% due primarily to a
relatively light flu season in the first quarter of 1998 compared to 1997.
The Company's gross profit margin for the first quarter of 1998 was $11.2
million, a decline of $0.8 million or 6.4% from the first quarter of 1997. As a
percentage of net sales, the Company's gross profit margin was 46.3% in the
first quarter of 1998 compared to 50.1% in the first quarter of 1997. This
decline is largely due to the under absorption of overhead resulting from the
Company's efforts to reduce inventory levels in combination with a relatively
consistent level of sales volume. On an interim basis, the Company allocates
actual manufacturing costs between cost of sales and inventory based on actual
production levels. This methodology causes volatility in margins as production
levels fluctuate. The Company decreased production and reduced inventories by
$0.6 million in the first quarter of 1998 compared to an increase of $1.6
million in inventories in the first quarter of 1997. The decline in inventories
caused approximately $1.0 million of additional overhead to be charged to cost
of sales in the first quarter of 1998.
Selling expense, consisting primarily of sales force salaries, was $2.3
million for the first quarter of 1998, a decrease of $14,000 over the first
quarter of 1997. As a percentage of net sales, selling expense decreased to
9.5% for the first quarter of 1998 from 9.7% for the first quarter of 1997.
Distribution expenses, consisting primarily of freight charges from the
Company's warehouses to its domestic customers, was $1.4 million for the first
quarter of 1998, an increase of $0.2 million or 14.9% over the first quarter of
1997. This was primarily due to increased freight rates.
General and administrative expenses consist primarily of salaries and other
expenses for corporate management, finance, accounting, regulatory and human
resources. General and administrative expenses for the first quarter of 1998
were $3.0 million, an increase of $0.1 million or 4.5% over the first quarter of
1997. As a percentage of net sales, general and administrative expenses
increased to 12.7% for the first quarter of 1998 from 12.2% for the first
quarter of 1997. General and administrative expenses increased in absolute terms
as a result of approximately $320,000 in Company legal fees relating to patent
litigation in which the Company was granted favorable summary judgment during
the first quarter of 1998. The increase was partially offset by cost reductions
resultant from the Company's cost containment efforts.
33
<PAGE>
Research and development expenses for the first quarter of 1998 were
$474,000, a decrease of $56,000 or 13.4% from the first quarter of 1997.
The provision for the Equity Participation Plan ("EPP") consists of accrued
expenses for payments to be made to certain executives under the EPP. In the
first quarter of 1998, the accrued expense was $2.0 million and includes
approximately $0.4 million in employer payroll taxes relating to the $20.0
million distribution made on March 13, 1998. The EPP was terminated upon
consummation of the Recapitalization and replaced with an executive stock
purchase plan and stock option plan. At the time of the Recapitalization, an
additional $68.3 million was paid out under the EPP.
Interest expense was $0.4 million for the first quarter of 1998, a decrease
of $0.1 million or 17%. This decrease was due to lower average debt levels
during the first quarter of 1998.
Year Ended December 26, 1997 Compared to Year Ended December 27, 1996
Net sales for 1997 were $99.5 million, an increase of $5.7 million or 6.0%
over 1996. The increase in net sales was primarily due to increased
international and alternate site sales due to increases in unit volume, which
was partially offset by a slight decrease in average selling price. For the
year, international sales were $19.0 million, an increase of $2.9 million or
18.2% over 1996, and alternate site sales were $14.6 million, an increase of
$1.7 million or 13.1% over 1996. Sales to Southeast Asia were adversely affected
in 1997 due to economic conditions in the region and the outlook for sales in
the region is uncertain in the near term. Approximately 30% of the Company's
1997 total net sales were to a single distributor.
The Company's gross profit for 1997 was $47.8 million, an increase of $3.3
million or 7.5% over 1996. As a percentage of net sales, the Company's gross
profit increased to 48.0% in 1997 from 47.4% in 1996. The Company has been able
to improve its gross profit margin primarily by transferring additional assembly
operations to its lower cost operation in Ensenada, Mexico, automating and
upgrading the manufacturing process for the Company's products, particularly
oxygen masks, and continued cost containment efforts relating to the Company's
overhead structure.
Selling expense was $9.6 million for 1997, an increase of $0.7 million or
7.6% over 1996. As a percentage of net sales, selling expense increased to 9.7%
in 1997 from 9.5% in 1996. Selling expense increased primarily as a result of
increased employee compensation related to increased sales commissions and
performance compensation in connection with the increase in net sales. In
particular, sales commissions increased in connection with sales of selected
products targeted by the Company's commission incentive program. Selling expense
also increased as a result of fees paid to certain distributors in connection
with special promotional programs.
Distribution expense was $5.2 million for 1997, an increase of $0.4 million
or 8.5% over 1996. This increase was due to increased sales volume. As a
percentage of net sales, distribution expense increased to 5.3% in 1997 from
5.1% in 1996. Freight charges relating to international sales are generally paid
by the distributor.
General and administrative expenses for 1997 were $11.5 million, an
increase of $0.2 million or 1.6% over 1996. As a percentage of net sales,
general and administrative expenses decreased to 11.5% in 1997 from 12.0% in
1996 as a result of the Company's continued cost containment efforts. General
and administrative expenses increased in absolute terms as a result of salary
and facility maintenance expense increases and upgrade of the Company's
management information systems.
Research and development expenses for 1997 were $1.8 million, a decrease of
$0.4 million or 18.1% from 1996. This decrease was the result of reduced head
count and outside consulting fees. The Company's research and development
efforts include expenditures intended to provide improved products to its
customers and to upgrade its manufacturing processes. Management expects 1998
research and development expenses to continue at 1997 levels.
34
<PAGE>
The provision for the EPP consisted of accrued expense of $7.0 million in
1997, as compared with $8.2 million in 1996, reflecting the total termination
liability under the EPP at the end of 1997 and 1996, respectively. The EPP was
terminated upon consummation of the Recapitalization and replaced with an
executive stock purchase plan. See "Management--Stock Purchase Plan."
Interest expense for 1997 was $1.8 million, a decrease of $0.3 million or
15.8% from 1996, primarily as a result of lower average outstanding debt
balances during 1997 as compared to 1996. Following the Recapitalization, the
Company will have substantially higher interest expenses. See "--Liquidity and
Capital Resources" and Pro Forma Consolidated Financial Statements.
Prior to the Recapitalization, the Company was a Subchapter S corporation
and was not subject to federal income tax. Effective with the Recapitalization
the Company terminated S corporation status and is taxed as a Subchapter C
corporation.
Year Ended December 27, 1996 Compared to Year Ended December 29, 1995
Net sales for 1996 were $93.8 million, an increase of $7.0 million or 8.1%
over 1995. The increase in net sales was primarily due to growth in
international sales volume. Net sales were also positively impacted due to the
Company completing its first full year of sales of its anesthesia product line
and increased sales of that product line, which was introduced during 1995.
Unit increases were partially offset by price decreases, largely due to changes
in GPO affiliations among health care providers.
The Company's gross profit for 1996 was $44.4 million, an increase of $5.2
million or 13.2% over 1995. As a percentage of net sales, gross profit
increased to 47.4% in 1996 from 45.2% in 1995. The increase in the Company's
gross profit margin is primarily attributable to increased utilization of the
Company's lower cost manufacturing operations in Ensenada, Mexico, automating
and upgrading the manufacturing processes for the Company's products and cost
containment efforts relating to the Company's overhead structure.
Selling expense for 1996 was $9.0 million, an increase of $0.7 million or
8.2% over 1995, and was unchanged as a percentage of net sales from 1995 to
1996. Selling expense increased primarily as a result of increased employee
compensation related to increased sales commissions and performance compensation
in connection with the increase in net sales.
Distribution expense for 1996 was $4.8 million, an increase of $0.2 million
or 5.1% over 1995 due to increased sales volume. As a percentage of net sales,
distribution expense decreased to 5.1% in 1996 from 5.3% in 1995.
General and administrative expenses for 1996 were $11.3 million, an
increase of $1.5 million or 15.4% over 1995. As a percentage of net sales,
general and administrative expenses increased to 12.0% in 1996 from 11.3% in
1995. General and administrative expenses increased as a result of the
amortization of intangible assets acquired in connection with the acquisition of
a passive humidification product line in 1996. In 1995 the Company's general
and administrative expenses were lowered by a one-time credit of $0.3 million
relating to a workers' compensation program dividend.
Research and development expenses for 1996 were $2.3 million, an increase
of $0.2 million or 9.2% over 1995.
The Company's provision for the EPP consisted of an accrued expense of $8.2
million in 1996 compared to $11.4 million in 1995, reflecting the total
termination liability under the EPP at the end of 1996 and 1995, respectively.
The EPP was amended and restated in 1995 and the expense for 1995 reflected the
full value of the termination liability. In 1996 the expense was due to the
Company's increased net income.
Interest expense for 1996 was $2.2 million, a decrease of $0.2 million or
10.2% from 1995, primarily as a result of lower average outstanding debt
balances during 1996 as compared to 1995.
35
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents the unaudited quarterly net sales and EBITDA
before EPP for each of the Company's fiscal quarters in its fiscal years 1996
and 1997. In the opinion of the Company's management, this quarterly
information has been prepared on the same basis as the audited consolidated
financial statements appearing elsewhere in this Prospectus and includes all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the unaudited quarterly results set forth herein. The Company's
quarterly results have in the past been subject to seasonal and other
fluctuations, and thus the operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
1996 1997
------------------------------------------------- ---------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------------- ----------- ----------- ----------- ----------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....... $ 24,143 $ 21,271 $ 21,566 $ 26,862 $ 23,987 $ 25,106 $ 21,813 $ 28,603
EBITDA before
EPP............ 6,278 4,449 5,539 6,928 6,526 6,397 5,103 7,414
<CAPTION>
1996 1997
------------------------------------------------- ---------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------------- ----------- ----------- ----------- ----------- ----------- ---------- -----------
(PERCENT OF ANNUAL TOTAL)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....... 25.7% 22.7% 23.0% 28.6% 24.1% 25.2% 21.9% 28.8%
EBITDA before
EPP............ 27.1 19.2 23.9 29.8 25.7 25.1 20.1 29.1
</TABLE>
The Company's results of operations exhibit some measure of seasonality.
Generally, the Company's sales and EBITDA before EPP are higher in the first and
fourth quarters and lower in the second and third quarters. This is due
primarily to the higher incidence of breathing ailments, such as colds and flu,
during the winter months, which results in increased hospitalization and
respiratory care, especially among higher-risk individuals, such as infants and
the elderly. Fourth quarter sales are generally the Company's highest, as
distributors increase inventory in anticipation of the cold and flu seasons.
First quarter results are generally affected by the length and severity of flu
seasons. Management believes that the fourth quarter of 1996 and the first half
of 1997 benefitted from an unusually strong flu season.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flow from operations
and borrowing under its working capital facility. Cash provided by operations
totaled $15.9 million, $16.1 million and $19.3 million in 1995, 1996 and 1997,
respectively, and increased in each year during this period due to the Company's
increased sales volume and improved operating margins. Cash provided by
operations before EPP payments totalled $7.4 million in the quarter ended March
28, 1997 and $6.8 million in the quarter ended March 27, 1998. The Company made
cash payments under the EPP of $20.4 million in the quarter ended March 27,
1998. The Company had operating working capital, excluding cash and short-term
debt, of $22.5 million, $26.8 million and $10.0 million as of the end of fiscal
1995, 1996 and 1997, respectively, and $24.6 million and $28.1 million at March
28, 1997 and March 27, 1998, respectively. Inventories were $12.8 million,
$14.0 million and $16.6 million as of the end of fiscal 1995, 1996 and 1997,
respectively, and $15.1 million and $15.9 million at March 28, 1997 and March
27, 1998, respectively. In order to meet the needs of its customers, the
Company must maintain inventories sufficient to permit same-day or next-day
filling of most orders. Over time, the Company expects its level of inventories
to increase as the Company's sales in the international market increase.
Accounts receivable, net of allowances, were $17.2 million, $20.7 million and
$21.3 million at the end of fiscal 1995, 1996 and 1997, respectively, and $16.6
million and $18.7 million at March 28, 1997 and March 27, 1998, respectively.
The average number of days sales in accounts receivable outstanding was
approximately 77 days for 1997, compared to 74 days for 1996. The Company offers
30 day credit terms to its U.S. hospital distributors. Alternate site and
international customers typically
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receive 60 to 90 day terms and, as a result, as the Company's alternate site and
international sales have increased, the amount and aging of its accounts
receivable have increased. As a result, the Company anticipates that the amount
and aging of its accounts receivable will continue to increase. The Company is
exploring the utilization in 1998 or 1999 of a distribution warehouse outside of
the United States. While this will have the effect of increasing the Company's
investment in inventories, it may also result in lower international accounts
receivable than would otherwise be the case because customers will receive
products, and consequently pay for them, more quickly.
Net cash used in investing activities was $6.1 million, $11.4 million and
$3.7 million in 1995, 1996 and 1997, respectively. Primary uses of these funds
were to finance the acquisition of the passive humidification product line in
1996 and capital expenditures. Capital expenditures, consisting primarily of
new manufacturing equipment purchases and expansion of the Ensenada facility,
totaled $5.9 million, $6.4 million and $4.7 million in 1995, 1996 and 1997,
respectively. The decrease in 1997 resulted from temporary delays in projects
that the Company anticipates will be completed in 1998. During the quarter
ended March 28, 1997 net cash provided by investing activities was $951,000,
reflecting proceeds from the sale of property. During the quarter ended March
27, 1998, net cash used in investing activities was $771,000, primarily for
capital expenditures. The Company currently estimates that capital expenditures
will be approximately $6.0 million in each of 1998 and 1999, consisting
primarily of additional and replacement manufacturing equipment and new heater
placements.
Net cash used in financing activities was $11.9 million, $3.7 million and
$16.4 million in 1995, 1996 and 1997, respectively, which consisted primarily of
repayment of debt and shareholder distributions principally to pay taxes on
income passed through by the Company. During the quarter ended March 28, 1997,
net cash used in financing activities was $6.6 million, consisting primarily of
repayment of debt and shareholder distributions. During the quarter ended March
27, 1998, net cash provided by financing was $14.7 million reflecting net
borrowing by the Company. The Company's long term debt at March 27, 1998
consisted of $31.0 million of bank indebtedness, which was refinanced in
connection with the Recapitalization.
The Company has outstanding $155.0 million of indebtedness, consisting of
$115.0 million of Notes and borrowings of $40.0 million under the New Credit
Facility. The New Credit Facility consists of a $40.0 million Term Loan Facility
(all of which was funded in connection with the Recapitalization) and a $60.0
million Revolving Loan Facility. The Notes bear, and the Exchange Notes will
bear, interest at the rate set forth on the cover hereof, payable semiannually,
and will require no principal repayments until maturity. See "Description of the
Exchange Notes." The Term Loan Facility matures on the sixth anniversary of the
initial borrowing and requires principal repayments of between $3.0 million and
$11.5 million each year until maturity, commencing on June 30, 1999. The
Revolving Loan Facility matures on the sixth anniversary of the initial
borrowing and bears interest based on a spread over either a eurodollar or base
rate. See "Description of New Credit Facility."
In connection with the Recapitalization, the Company issued 300,000 shares
of its 11 1/2% Senior PIK Preferred Stock due 2010 with an aggregate liquidation
preference of $30.0 million (the "Mirror Preferred Stock") which has terms and
provisions materially similar to those of the 11 1/2% Senior Exchangeable PIK
Preferred Stock due 2010 of Holding (the "Holding Preferred Stock") and the 11
1/2% Senior Exchangeable PIK Preferred Stock of the Company (the "Exchange
Preferred Stock"). At the election of the Company, dividends may be paid in
kind until April 15, 2003 and thereafter must be paid in cash. See "Description
of Other Securities--Holding Preferred Stock" and "--Mirror Preferred Stock."
The Company believes that after giving effect to the Recapitalization and
the incurrence of indebtedness related thereto (including pursuant to the Notes
Offering and the Exchange Offer), based on current levels of operations and
anticipated growth, its cash from operations, together with other available
sources of liquidity, including borrowings available under the Revolving Loan
Facility, will be sufficient over the next several years to fund anticipated
capital expenditures and acquisitions and to make required payments of principal
and interest on its debt, including payments due on the Notes and obligations
under the New Credit Facility. Significant acquisition activity by the Company
would require additional financing.
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<PAGE>
YEAR 2000 COMPLIANCE
The Company has upgraded its information system capabilities such that it
does not believe that its systems will encounter any material "year 2000"
problems. The issue surrounding the year 2000 is whether computer systems will
properly recognize date sensitive information when the year changes to 2000, or
"00." Systems that misinterpret the two-digit date "00" as the year 1900
instead of the year 2000 could generate erroneous data or fail. The Company's
products are not subject to year 2000 problems. The Company also relies,
directly and indirectly on the external systems of various independent business
enterprises, such as its customers, suppliers, creditors, financial
organizations, and of governments, both domestically and internationally, for
the accurate exchange of data and related information. The Company could be
affected as a result of any disruption in the operation of the various third-
party enterprises with which the Company interacts. The Company has not
assessed the status of such third-party enterprises' information systems.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 129
Disclosure of Information about Capital Structure was issued in February 1997
and was adopted as of December 26, 1997. SFAS No. 130 Reporting Comprehensive
Income and SFAS No. 131 Disclosures about Segments of an Enterprise and Related
Information were issued in June 1997. SFAS No. 130 was adopted in the first
quarter of fiscal 1998. SFAS No. 131 will initially be adopted in the Company's
1998 financial statements.
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BUSINESS
GENERAL
The Company is a leading manufacturer and marketer of disposable medical
products utilized in the respiratory care and anesthesia segments of the
domestic and international health care markets. The Company offers one of the
broadest respiratory care and anesthesia product lines in the industry,
including such products as oxygen masks, humidification systems, nebulizers,
cannulae and tubing. In the United States, the Company markets its products to
a variety of health care providers, including hospitals and alternate site
service providers such as outpatient surgery centers, long-term care facilities,
physician offices and home health care agencies. Internationally, the Company
sells its products to distributors that market to hospitals and other health
care providers. The Company's products are sold to over 2,500 distributors and
alternate site service providers throughout the United States and in more than
75 countries worldwide. For fiscal 1997, the Company had net sales of $99.5
million and pro forma EBITDA before EPP of $26.3 million. From 1993 to 1997,
the Company's net sales and EBITDA before EPP increased at compound annual rates
of approximately 5.9% and 13.3%, respectively.
The Company has supplied the disposable respiratory care market for over 50
years and enjoys strong brand name recognition and leading market positions.
Based on IMS America data regarding the size of the domestic hospital market for
respiratory therapy products, and the Company's estimate of the portion thereof
represented by respiratory products, the Company believes that in 1996 it held a
share of approximately 25% of the domestic hospital market for the disposable
respiratory care products that the Company markets and held number one or two
market share positions in 10 product categories representing approximately 75%
of the Company's 1997 net sales. IMS America does not distinguish between
anesthesia and respiratory products in its market analysis. See "--Industry
Overview." In recent years the Company has pursued a number of growth
initiatives, including the expansion of its international and alternate site
sales efforts and entry into the anesthesia market. The Company established
separate sales forces dedicated to the international and alternate site markets
in 1993 and 1994, respectively. In 1995, the Company entered the anesthesia
market to further leverage its manufacturing platform, distribution channels and
strong brand name recognition. In 1997, anesthesia sales represented
approximately 6.5% of the Company's total net sales and international and
alternate site sales represented 19.1% and 14.7%, of the Company's total net
sales, respectively.
The Company manufactures and markets over 1,000 respiratory care and
anesthesia products. The Company believes that its broad product offering
represents a competitive advantage over suppliers with more limited product
offerings, as health care providers seek to reduce medical supply costs and
concentrate purchases among fewer vendors. The Company also benefits
competitively from its extensive relationships with leading GPOs, as large
purchasing organizations play an increasingly important role in hospitals'
purchasing decisions.
The Company maintains two manufacturing facilities and two distribution
facilities in the United States and an assembly operation in Mexico. The
Company has reduced its manufacturing and assembly costs through cost reduction
programs, process improvement, equipment automation and upgrades and increased
utilization of its Ensenada, Mexico facility for labor-intensive operations.
Over the past five years the Company has spent $22.4 million to upgrade its
manufacturing operations. During this period, the Company's gross margins have
improved from 41.3% to 48.0%, reflecting management's ongoing commitment to cost
reduction.
Hudson Oxygen Therapy Sales Company ("Hudson Oxygen"), Hudson RCI's
predecessor, was founded in 1945. In 1989, Hudson Oxygen merged with
Respiratory Care Inc. to form Hudson RCI. Hudson RCI's principal executive
offices are located at 27711 Diaz Road, P.O. Box 9020, Temecula, California
92589, and its telephone number is (909) 676-5611. Holding was incorporated in
Delaware in January 1998. Holding's principal executive offices are located at
599 Lexington Avenue, 18th Floor, New York, New York 10022, and its telephone
number is (212) 758-2555.
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INDUSTRY OVERVIEW
The worldwide market for disposable respiratory care and anesthesia
products consists of the domestic hospital market, the alternate site market and
the international market. While no data is available for the size of the
alternate site and international markets, IMS America data indicates that in
1996 domestic hospitals purchased approximately $371 million of the disposable
respiratory care and anesthesia products that the Company markets. The Company
categorizes approximately $208 million (56%) of this amount as respiratory care
and $163 million (44%) as anesthesia. In addition, there is a growing alternate
site service provider market in the United States, as care is increasingly
provided outside of traditional hospital settings. Further, the Company
believes there is a large and growing international market for disposable
respiratory care and anesthesia products. The Company believes that in
countries with higher health care standards, heightened concern regarding cross-
contamination and sterilization costs have resulted in disposable medical
products replacing traditional reusable products. The Company believes that the
trend towards utilizing disposable products is accelerating in developing
countries as health care standards improve.
Respiratory care and anesthesia principally involve the delivery of oxygen
and anesthesia from a gas source, such as a mechanical ventilator or respirator,
to the patient's pulmonary system. The gas is typically delivered to the
patient through specialized tubing connecting to a cannula, mask or endotracheal
tube. In addition, it is often necessary to humidify or medicate the gas. The
market for respiratory care and anesthesia products, including disposable
products, is expected to be positively impacted by demographic trends, both
domestically and internationally. In the United States, changes in
demographics, including an aging population, increased incidence and awareness
of respiratory illnesses and heightened focus on cost-efficient treatment, have
had a positive impact on the domestic respiratory care and anesthesia markets.
There has been an increasing incidence of respiratory illnesses (such as asthma
and emphysema), due in part to an increasingly susceptible aging population,
environmental pollution, smoking-related illnesses and communicable diseases
with significant respiratory impact, such as tuberculosis, HIV and influenza.
The Company believes that the international respiratory care and anesthesia
markets will experience many of the trends currently affecting domestic markets.
In addition, many international markets have high incidences of communicable
respiratory diseases and are becoming increasingly aware of the value of single
use, disposable products.
The market for respiratory care and anesthesia products is also affected by
trends affecting the health care market generally. In particular, the overall
trend towards cost containment has increased the desirability of disposable
products relative to reusable products, and has influenced pricing, distribution
channels, purchasing decisions and health care delivery methods.
Efforts to contain rising health care costs have increased the preference
for disposable medical products that improve the productivity of health care
professionals and reduce overall provider costs. Health care organizations are
evaluating modes of treatment that are less labor and/or technology intensive as
a means of decreasing the cost of care, which can often result in increased
disposable usage. In particular, increased utilization of disposable products
can decrease labor and other costs associated with sterilizing reusable
products. In addition, the risks of transmission of infectious diseases such as
HIV, hepatitis and tuberculosis, and related concerns about the occupational
safety of health care professionals, have also contributed to an increased
preference for disposable single-use medical products.
Cost containment has caused consolidation throughout the health care
product supply channel, which has favored manufacturers with large product
offerings and competitive pricing. In an effort to contain costs, service
providers have consolidated to form GPOs, which take advantage of group buying
power to obtain lower supply prices. This, in turn, has led to consolidation
among distributors, who seek to provide "one-stop shopping" for these large
buying groups. Distributors have also sought to concentrate purchases among
fewer vendors in an effort to reduce supply costs. Since selection as a GPO
provider and strong relationships with distributors are critical to many health
care manufacturers, manufacturers have responded to these trends by providing a
broad range of integrated products, combined with reliable delivery and strong
after-sales support.
Cost containment has also caused a migration of the decision making
function with respect to supply acquisition from the clinician to the
administrator. As clinicians lose influence and purchasing agents, materials
40
<PAGE>
managers and upper level management become more involved in the purchasing
decision, a greater emphasis is placed on price relative to product features and
clinical benefits.
As a result of cost containment, health care is increasingly provided
outside of traditional hospital settings through alternate health care sites,
such as outpatient surgery centers, long-term care facilities, physician offices
and patients' homes. Growth of the alternate site market is also attributable
to advances in technology that have facilitated the delivery of care outside of
the hospital, an increased number of illnesses and diseases considered to be
treatable outside of the hospital and increased acceptance by the medical
community of, and patient preference for, non-hospital treatment.
The Company believes that these industry trends create significant market
opportunities for an efficient, high volume manufacturer of disposable
respiratory care and anesthesia products with an extensive product offering and
strong relationships with leading distributors and GPOs.
BUSINESS STRATEGY
The Company's senior management team has increased net sales and EBITDA
before EPP by 5.9% and 13.3%, respectively, from 1993 to 1997 compounded
annually, despite facing significant pricing pressure as a result of cost
containment trends affecting the health care industry generally. These results
are largely attributable to management's expertise within the Company's markets
and ability to grow the Company's business and improve profitability margins
within a dynamic health care environment. On average, members of the senior
management team have over 18 years of experience in the health care industry.
The senior management team intends to continue to expand the Company's market
position, increase cash flows and capitalize on favorable demographic trends by
pursuing the following strategies:
ENHANCE MARKET POSITION IN DOMESTIC HOSPITAL MARKET. The Company employs a
proactive, consultative sales approach in which the Company works with hospitals
to increase efficiency and address their cost containment needs. The Company
believes that this approach, combined with high levels of customer service and
training, enhances its value as a supplier. The Company has entered into
preferred supplier arrangements with 12 national GPOs and seeks both to increase
sales of disposable respiratory care products to its existing GPO network and to
establish new relationships with additional GPOs.
INCREASE PENETRATION OF ANESTHESIA MARKET. The Company plans to continue
to build its anesthesia product customer base and improve product margins.
Since its entry into the anesthesia market in 1995, the Company has built a
sales base by leveraging its established distribution network and strong brand
name recognition. To minimize start-up costs, the Company initially outsourced
much of the manufacturing of its anesthesia product line. Having validated its
market and product strategy, the Company is internalizing the manufacturing of
its anesthesia products in order to enhance quality and margins. The Company is
also hiring sales personnel with experience in anesthesia and has established a
sales commission structure that emphasizes growth in this market segment.
EXPAND INTERNATIONALLY. The Company intends to further pursue the large
and growing international market for disposable respiratory care and anesthesia
products and believes that the Company, as a high-quality, low cost manufacturer
with a comprehensive product line, is well-positioned to compete in the
international market. The Company has established and is currently expanding
its international sales force to further its penetration of this market. The
Company's manufacturing facilities have received ISO 9000 certification and the
Company anticipates being in full compliance with European CE and Medical Device
Directive laws by the June 1998 deadline. The Company has entered into a
strategic alliance with a major international health care supplier to facilitate
the sales, marketing and distribution of its products in Europe.
INCREASE PRESENCE IN ALTERNATE SITE MARKET. The Company has targeted the
alternate site market as a key growth market due to cost containment and other
health care industry trends. The Company provides a broad product line to
patients across multiple care settings through its national distribution
network. In 1994, the Company established a sales force dedicated to the
alternate site market and intends to continue to increase this sales force. In
addition, the Company continually focuses on areas with favorable demographics,
such as Florida, Arizona and southern California, where aging populations are
large recipients of alternate site care.
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DEVELOP NEW PRODUCTS. The Company seeks to improve its current market
positions and enter new markets through a continuation of its aggressive new
product development program. The Company's product development effort targets
specific markets in which the Company believes it can favorably compete. As a
result of this targeted approach, products introduced since 1992 accounted for
approximately 18% of the Company's 1997 net sales. In 1995, the Company entered
the disposable anesthesia products market, capitalizing on the Company's
manufacturing expertise, similar process technologies, complementary product
designs and distribution synergies with the existing respiratory care product
line. The Company has also developed new products aimed specifically at the
alternate site market, such as more comfortable cannulae that can be worn for
longer periods of time.
PURSUE STRATEGIC ACQUISITIONS. The Company intends to pursue strategic
acquisitions, both domestically and internationally, to expand its product line,
improve its market share positions and increase cash flows. Management believes
that the Company's business, with its efficient operations, leading distribution
network, well-recognized brand name and experienced management team, provides an
excellent platform to facilitate the Company's expansion strategy, particularly
in the anesthesia and international markets.
PRODUCTS
The Company manufactures and markets products for use in respiratory care
and anesthesia. The products for each market are similar and often overlap, as
do the distribution channels.
The Company groups its products into nine categories: (i) oxygen delivery;
(ii) aerosol therapy; (iii) active and passive humidification; (iv) ventilatory
support; (v) adaptors, connectors and filters; (vi) resuscitation; (vii) airway
management; (viii) electronic monitoring; and (ix) durable equipment.
<TABLE>
<CAPTION>
CATEGORY/PRODUCTS DESCRIPTION
- -------------------------------------------------- ----------------------------------------------------------
<S> <C>
OXYGEN DELIVERY: Oxygen Masks, Oxygen Used to deliver therapeutic, supplemental oxygen to a
Cannulae, Oxygen Tubing patient. Oxygen masks cover the nose and mouth.
Nasal cannulae fit inside the nostrils. Both masks and
cannulae are connected to an oxygen source via small
diameter tubing through which oxygen flows.
AEROSOL THERAPY: AQUAPAK(R) Large Volume, Used to create and deliver aerosolized particles of
Prefilled Nebulizers; Non-Prefilled Large liquid water, sodium chloride or medication to the patient's
Volume Nebulizer; UPDRAFT(R), UPDRAFT airways to dilute and mobilize secretions and/or dilate
II(R), AVA-NEB(R) and MICRO MIST(R) Small constricted breathing passages. The peak flow meter is
Volume, Medication Nebulizers; Aerosol used to monitor the patient's respiratory status before
Tubing; AQUATHERM(R) and THERMAGARD(R) and after an aerosolized medication treatment.
Nebulizer Heaters; AQUAPAK Prefilled
Ultrasonic Cups; ADDIPAK(R) Prefilled Unit
Dose Solutions; POCKETPEAK(R) Peak Flow
Meter
ACTIVE AND PASSIVE HUMIDIFICATION: Heated humidification systems actively heat and
CONCHATHERM(R) Heated Humidifiers, humidify oxygen/air mixtures or anesthetic gases
AQUA+(R) Hygroscopic Condenser Humidifiers, provided by a mechanical ventilator or anesthesia gas
AQUAPAK Prefilled Humidifiers, Non- machine. Hygroscopic condenser humidifiers passively
Prefilled, Reusable Humidifier, Non-Prefilled conserve the heat and humidity in the patient's exhaled
Disposable Humidifier breath for use during inspiration. Prefilled and non-
prefilled humidifiers are used to add water vapor to
oxygen being provided to a patient via a mask or
cannula.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CATEGORY/PRODUCTS DESCRIPTION
- -------------------------------------------------- ----------------------------------------------------------
<S> <C>
VENTILATORY SUPPORT: Conventional Ventilator Used to convey an oxygen/air mixture and/or anesthetic
Circuits, Heated-Wire Ventilator Circuits, gas from a mechanical ventilator or anesthesia gas
Anesthesia Breathing Circuits, Air Cushion machine to a patient during the temporary or long-term
Anesthesia Masks, Infant CPAP Systems support of ventilation. The infant CPAP system
provides non-invasive respiratory support to premature
infants with under-developed, immature lungs.
ADAPTORS, CONNECTORS AND FILTERS: A wide The adaptors and connectors are frequently used in
variety of adaptors and connectors; Main Flow respiratory care and anesthesia to add accessories,
Bacterial/Viral Filters; Pulmonary Function modify configurations, and/or customize other related
Filter products to meet specific needs. Filters are used to
protect patients, caregivers, and medical equipment
from cross-contamination with bacteria and viruses.
RESUSCITATION: LIFESAVER(R) Reusable and Used during cardiopulmonary resuscitation ("CPR") to
Disposable Resuscitation Bags, Isolation Valves adequately support and/or maintain the patient's
and Kits, LIFESAVER Tubes and Kits ventilatory function.
AIRWAY MANAGEMENT: SOFTECH(R) Cuffed and Assist in securing and maintaining an open airway and
Uncuffed Endotracheal Tubes; CATH-GUIDE(R), unobstructed breathing passage. They also can assure
Color-Coded and DUAL-CHANNEL Oral that the patient's ventilation can be maintained and that
Pharyngeal Airways; BITEGARD (TM) Oral Bite respiratory secretions can be adequately removed from
Block; CATH-GUIDE Closed Suction Catheters the lungs.
ELECTRONIC MONITORING: Replacement oxygen The oxygen sensors, monitors and analyzers are used to
sensors, Oxygen Monitors and Analyzers, analyze and monitor the amount of oxygen being
VENTILARM II(R) Low-Pressure Alarms administered to a patient. The low-pressure alarm is
used to detect a patient disconnect or a leak in the
breathing circuit during mechanical ventilation.
DURABLE EQUIPMENT: Oxygen Regulators; Used to regulate oxygen flow from cylinders, stabilize
Cylinder Carts, Trucks and Stands; Portable or transport oxygen or other gas cylinders, and provide
Oxygen Units a portable oxygen supply for emergency use.
</TABLE>
SALES, MARKETING AND DISTRIBUTION
While substantially all of the Company's domestic hospital sales are made
to distributors, the Company's marketing efforts are focused on the health care
service provider. In the alternate site market, the Company both sells and
markets directly to the service provider. The Company's five largest alternate
site accounts are Apria Healthcare Group Inc., Gulf South Medical Supply, Inc.,
Moore Medical Corp., Redline Healthcare Corp. and VGM & Associates.
Internationally, the Company sells its products to distributors that market to
hospitals and other health care providers. The Company's sales personnel
currently call on approximately 2,800 health care providers, 50 hospital
distributors and 700 alternate site customers. Due to consolidation and cost
pressures among the Company's customer base, the Company's target call point at
the health care provider has been moving away from the clinician to include a
purchasing manager or corporate executive.
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<PAGE>
In the current market environment, GPO relationships are an essential part
of access to the Company's target markets and the Company has entered into
preferred supplier arrangements with 12 national GPOs. The Company is typically
positioned as either a sole supplier of respiratory care disposables to the GPO,
or as one of two suppliers. These arrangements set forth pricing and terms for
various levels of purchasing, although they do not obligate either party to
purchase or sell a specific amount of product. In addition, GPO affiliated
hospitals often purchase products from other suppliers notwithstanding the
existence of sole or dual source GPO arrangements. Further, these arrangements
are terminable at any time, but in practice usually run for two to three years.
The Company enjoys longer terms with two of its major GPOs, VHA, Inc. and
Columbia/HCA Healthcare Corporation. The Company's most significant GPO
relationships are with AmeriNet Inc., Columbia/HCA Healthcare Corporation,
Health Services Corporation of America, MedEcon Medical Services, Purchase
Connection Limited, University HealthSystem Consortium and VHA, Inc.
Health care providers have responded to pressures to reduce their costs by
merging with other members of their industry. The acquisition of a customer of
the Company often results in the renegotiation of contracts, the granting of
price concessions or in the loss of the customer. Alternatively, to the extent
a customer of the Company grows through acquisition activity, the Company may
benefit from increased sales to the larger entity.
The Company markets its products primarily through consultative dialogue
with health care providers, targeted print advertising, trade shows, selective
promotional arrangements with distributors and the Company's heater lease
program. To support sales of the entire line of humidification and ventilation
products, the Company offers heaters to domestic customers on a "no-charge"
lease basis. The Company has heaters with a net book value of approximately
$1.4 million placed at service provider locations under this program.
The Company utilizes a network of over 1,800 hospital distributors, as well
as additional alternate site distributors, to reach its markets. A number of
these distributors carry competing product lines, but many are moving to select
single supply sources for particular product groups. The Company has been
selected as the FOCUS preferred vendor of respiratory disposables for Owens &
Minor, and is seeking similar status with other national vendors. Owens & Minor
is the Company's largest distributor, accounting for approximately $30.0 million
or approximately 30% of total 1997 net sales, and approximately $7.0 million or
approximately 29% of sales in the first quarter of 1998. The Company provides a
price list to its distributors which details base acquisition prices.
Distributors receive orders from the service providers and charge the contract
pricing (which is determined by their GPO affiliation or individual contract
price) plus their service margin. As is customary within the industry, the
Company rebates the difference between base acquisition price and the specific
contract price to the distributor. The Company offers select large health care
providers a reward for purchasing a broader selection of the Company's product
lines. The program allows a rebate in the form of merchandise credit for
purchasing minimum volumes from a selected group of products. The Company's
international distributors place their orders directly with dedicated
international customer service representatives based in Temecula. Customer
orders are shipped from one of two warehouse locations. Sales strategies and
marketing plans are tailored to each market with involvement of the distributor.
Region and territory sales managers are responsible for supporting, training and
launching of products into their regions. The Company utilizes a network of 100
international distributors, typically on an exclusive basis within each market.
MANUFACTURING AND ASSEMBLY
The Company operates two manufacturing facilities and two distribution
facilities in the United States and an assembly facility in Ensenada, Mexico.
While the Company believes that it is operating at a high utilization rate for
optimal efficiency, existing facilities could support increased capacity with
additional machinery and workers.
The Company's manufacturing facility in Temecula, California houses 59
injection molding machines, 55 of which are automated. During the past four
years, 28 out of the 59 machines have been replaced, which has increased
capacity, as the new machines are more efficient. Tubing is produced on 8
extrusion lines: 4 corrugated, 3 oxygen or "spaghetti", and 1
repellitizer/regrinder. The Temecula facility uses 10-12 million pounds of over
30 different kinds of resin annually; the most prominent are PVC, polyethylene
and polypropylene. Sterile prefilled
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<PAGE>
humidification and nebulization products and electronics are manufactured using
7 blow/fill/seal machines in the Company's facility in Arlington Heights,
Illinois.
The Company's facility located in Ensenada, Mexico is primarily used for
the assembly of certain products molded at the Temecula facility. The facility
is a Maquiladora, and therefore there are minimal tariffs associated with the
transport of products and components across the United States-Mexico border.
The Company occasionally outsources production of certain products while it
establishes its ability to penetrate a target market. Having achieved an
acceptable level of penetration, the Company internalizes the manufacturing
function in order to increase margins and improve quality control.
The Company monitors the quality of its products at the Temecula, Arlington
Heights and Ensenada facilities by statistical sampling and visual and
dimensional inspection. The Company also inspects incoming raw materials for
inconsistencies, rating its vendors on quality and delivery time. The Company
is routinely audited by the FDA and has received no significant regulatory
actions. The Company is in substantial compliance with the GMP/QSR regulations
of the FDA and has qualified for an "advanced notification" program allowing the
Company to be informed of FDA inspections in advance. The Company utilizes
outside facilities for sterilization of products produced in Temecula and
Ensenada. The Arlington Heights products are manufactured in a sterile
environment and are certified sterile as a result of the production process.
The Ensenada and Arlington Heights facilities are certified as ISO 9002
compliant and the Temecula facility is certified as ISO 9001 compliant.
SUPPLIERS AND RAW MATERIALS
The Company's primary raw materials are various resins, which are formed
into the Company's products. The top 10 purchased products in 1997 were Tubing
Grade PVC, Clear PVC, LDPE-EVA, Polypropylene, Aluminum Cylinder, Pre-Cut
Elastic, Non-Tubing Grade PVC, Cannula Blanks, Acrylic Resin and Hose-End Grade
PVC. The Company believes that it is able to purchase materials at a cost no
higher than its competitors. The Company does not have long-term supply
contracts for any of its purchased raw materials. The Company believes that
sufficient availability exists for its raw materials, as they consist of mainly
readily available plastic resins.
RESEARCH AND DEVELOPMENT
The Company's research and development department consists of 15 people,
including nine engineers. The Company's research and development efforts are
split between developing new products and process improvements to its
manufacturing operations. The Company develops new products to expand its
product line in anticipation of changes in demand. The Company has invested
heavily in the anesthesia product line, as the Company continues to penetrate
this market. The Company makes several new product introductions every year.
Significant products introduced in the last five years have been the line of
heat-moisture exchangers, POCKETPEAK peak flow meter, SOFTECH endotracheal
tubes, MICRO MIST small volume nebulizer and CONCHA IV heated humidification
system. The Company constantly works to reduce costs through improved continued
process improvements. Over the past several years, approximately 50% of total
R&D expenses have been to improve operational efficiency.
COMPETITION
The medical supply industry is characterized by intense competition. The
Company's primary competitor in the respiratory care sector is Allegiance
Corporation and its primary competitors in the anesthesia sector include
Allegiance Corporation, The Kendall Company, Smiths Industries Medical Systems,
Inc. and Vital Signs, Inc. Many of the products manufactured by the Company are
available from several sources, and many of the Company's customers tend to have
relationships with several manufacturers. The Company competes on the basis of
brand name, product quality, breadth of product line, service and price.
PATENTS AND TRADEMARKS
The Company has historically relied primarily on its technological and
engineering abilities and on its design and production capabilities to gain
competitive business advantages, rather than on patents or other
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intellectual property rights. However, the Company does file patent
applications on concepts and processes developed by the Company's personnel.
The Company has 18 patents in the U.S. and two patents pending. Many of the
U.S. patents have corresponding patents issued in Canada, Europe and various
Asian countries. The Company is currently preparing several patent applications
covering intellectual property associated with the closed suction catheter
product and advanced humidification devices. The Company's success will depend
in part on its ability to maintain its patents, add to them where appropriate,
and to develop new products and applications without infringing the patent and
other proprietary rights of third parties and without breaching or otherwise
losing rights in technology licenses obtained by the Company for other products.
There can be no assurance that any patent owned by the Company will not be
circumvented or challenged, that the rights granted thereunder will provide
competitive advantages to the Company or that any of the Company's pending or
future patent applications will be issued with claims of the scope sought by the
Company, if at all. If challenged, there can be no assurance that the Company's
patents (or patents under which it licenses technology) will be held valid or
enforceable. In addition, there can be no assurance that the Company's products
or proprietary rights do not infringe the rights of third parties. If such
infringement were established, the Company could be required to pay damages,
enter into royalty or licensing agreements on onerous terms and/or be enjoined
from making, using or selling the infringing product. Any of the foregoing
could have a material adverse effect upon the Company's business, financial
condition or results of operations.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company and its customers and suppliers are subject to extensive
Federal and state regulation in the United States, as well as regulation by
foreign governments, and the Company cannot predict the extent to which future
legislative and regulatory developments concerning its practices and products
for the health care industry may affect the Company. Most of the Company's
products are subject to government regulation in the United States and other
countries. In the United States, the FDC Act and other statutes and regulations
govern or influence the testing, manufacture, safety, labeling, storage, record
keeping, marketing, advertising and promotion of such products. Failure to
comply with applicable requirements can result in fines, recall or seizure of
products, total or partial suspension of production, withdrawal of existing
product approvals or clearances, refusal to approve or clear new applications or
notices and criminal prosecution. Under the FDC Act and similar foreign laws,
the Company, as a marketer, distributor and manufacturer of health care
products, is required to obtain the clearance or approval of Federal and foreign
governmental agencies, including the FDA, prior to marketing, distributing and
manufacturing certain of those products. The Company may also need to obtain
FDA clearance before modifying marketed products or making new promotional
claims. Delays in receipt of or failure to receive required approvals or
clearances, the loss of previously received approvals or clearances, or failures
to comply with existing or future regulatory requirements in the United States
or in foreign countries could have a material adverse effect on the Company's
business. Foreign sales are subject to similar requirements.
The Company is required to comply with the FDA's GMP/QSR Regulations, which
set forth requirements for, among other things, the Company's manufacturing
process, design control and associated record keeping, including testing and
sterility. Further, the Company's plants and operations are subject to review
and inspection by local, state, Federal and foreign governmental entities. The
distribution of the Company's products may also be subject to state regulation.
The impact of FDA regulation on the Company has increased in recent years as the
Company has increased its manufacturing operations. The Company's suppliers,
including the sterilizer facilities, are also subject to similar governmental
requirements. There can be no assurance that changes to current regulations or
additional regulations imposed by the FDA will not have an adverse impact on the
Company's business and financial condition in the future. The FDA also has the
authority to issue special controls for devices manufactured by the Company,
which it has not done to date. In the event that such special controls were
issued, the Company's products would be required to conform, which could result
in significant additional expenditures for the Company.
The Company is also subject to numerous federal, state and local laws and
regulations relating to such matters as safe working conditions, manufacturing
practices, fire hazard control and the handling and disposal of hazardous or
infectious materials or substances and emissions of air pollutants. The Company
owns and leases properties which are subject to environmental laws and
regulations. There can be no assurance that the Company will not be required to
incur significant costs to comply with such laws and regulations in the future
or that such
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<PAGE>
laws or regulations will not have a material adverse effect upon the Company's
business, financial condition or results of operations. In addition, the
Company cannot predict the extent to which future legislative and regulatory
developments concerning its practices and products for the health care industry
may affect the Company. See "Risk Factors--Government Regulation."
LEGAL PROCEEDINGS
The Company is party to lawsuits and other proceedings, including suits
relating to product liability and patent infringement. While the results of
such lawsuits and other proceedings cannot be predicted with certainty,
management does not expect that the ultimate liabilities, if any, will have a
material adverse effect on the financial position or results of operations of
the Company.
PROPERTIES
The Company owns approximately 30 acres of land in Temecula, California on
which its headquarters, one of two principal manufacturing centers and three
other buildings totalling approximately 245,000 square feet are located.
Plastic and vinyl components and corrugated tubing are manufactured in Temecula
and assembled into finished goods at a 77,000 square foot facility in Ensenada,
Mexico. The Company owns the Ensenada facility and the underlying land is held
in a 30-year trust that expires in 2019. The Company leases an 86,000 square
foot manufacturing facility in Arlington Heights, Illinois under a lease that
expires in 2000. Prefilled sterile solutions and electronics are manufactured
in Arlington Heights. The Company also leases a 73,000 square foot distribution
warehouse in Elk Grove, Illinois under a lease that expires in 2000. The
Company believes that its current facilities are adequate for its present level
of operations. Management expects that the Arlington Heights and Elk Grove
leases will be renewed on favorable terms.
EMPLOYEES
As of March 27, 1998, the Company employed 1,180 employees, substantially
all of whom were full-time employees. None of the Company's employees are
represented by unions and the Company considers its employee relations to be
good.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following individuals are the executive officers and directors of
Holding and Hudson RCI:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- --- ------------------------------------------------
<S> <C> <C>
Richard W. Johansen... 46 President, Chief Executive Officer and Director
Lougene Williams...... 53 Senior Vice President
Jay R. Ogram.......... 42 Chief Financial Officer
Brian W. Morgan....... 58 Vice President, Human Resources
Helen Hudson Lovaas... 59 Director
Jon D. Ralph.......... 33 Director
Charles P. Rullman.... 49 Director
Ronald P. Spogli...... 50 Director
</TABLE>
Richard W. Johansen is President, Chief Executive Officer and Director of
the Company and assumed the same positions with Holding after consummation of
the Recapitalization. Mr. Johansen became President of the Company in 1993 and
assumed the additional responsibilities of Chief Executive Officer in May 1997.
From 1989 to 1993, he served as Vice President, Marketing and Sales for the
Company following the 1989 acquisition of Respiratory Care Inc. by Hudson RCI.
He held the same position with Respiratory Care Inc. as well as prior executive
positions in the area of business development with its parent company, The
Kendall Company.
Lougene Williams is a Senior Vice President of the Company responsible for
its product development, quality assurance and manufacturing operations, having
served in this capacity since 1996, and assumed the same position with Holding
after consummation of the Recapitalization. Prior to 1996, he was the Company's
Vice President, Manufacturing, having held a similar position with Respiratory
Care Inc. From 1976 to 1987, he held manufacturing management positions of
increasing responsibility at various manufacturing plants of The Kendall
Company.
Jay R. Ogram is the Company's Chief Financial Officer, having served in
this capacity since 1996, and assumed the same position with Holding after
consummation of the Recapitalization. From 1984 until his assumption of Chief
Financial Officer responsibilities, Mr. Ogram held prior positions as Accounting
Manager and Vice President and Controller of the Company. Prior to joining the
Company, he had held executive positions in financial management with a major
health care company.
Brian W. Morgan is Vice President, Human Resources, having held this
position since 1989, and assumed the same position with Holding after
consummation of the Recapitalization. Mr. Morgan held similar positions in
human resources at Respiratory Care Inc. since 1978.
Helen Hudson Lovaas is a director of the Company and became a director of
Holding after consummation of the Recapitalization. Mrs. Lovaas began her
career at the Company in 1961. She has been Chairman since 1987, when she
inherited ownership of the Company and served as Chief Executive Officer from
1987 until May 1997. Mrs. Lovaas had served previously as the Vice President of
Administration of Hudson Oxygen for 15 years.
Jon D. Ralph became a director of Hudson RCI and of Holding in connection
with the Recapitalization. Mr. Ralph joined FS&Co. in 1989 and became a
Principal in January 1998. Prior to joining FS&Co., Mr. Ralph spent three years
at Morgan Stanley & Co. Incorporated where he served as an Analyst in the
Investment Banking Division. Mr. Ralph is also a director of EnviroSource, Inc.
and The Pantry, Inc.
Charles P. Rullman became a director of Hudson RCI and of Holding in
connection with the Recapitalization. Mr. Rullman joined FS&Co. as a Principal
in 1995. From 1992 to 1995, Mr. Rullman was a General Partner of Westar
Capital, a private equity investment firm specializing in middle market
transactions.
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Prior to joining Westar, Mr. Rullman spent twenty years at Bankers Trust Company
and its affiliate BT Securities Corporation where he was a Managing Director and
Partner. Mr. Rullman is also a director of The Pantry, Inc.
Ronald P. Spogli became a director of Hudson RCI and of Holding in
connection with the Recapitalization. He is a founding Principal of FS&Co.,
which was founded in 1983. Mr. Spogli is the Chairman of the Board and a
director of EnviroSource, Inc. Mr. Spogli also serves on the Boards of
Directors of Calmar Inc., Buttrey Food and Drug Stores Company, AFC Enterprises,
Inc. and Brylane Inc.
Directors of Hudson RCI and of Holding are elected annually and hold office
until the next annual meeting of stockholders and until their successors are
duly elected and qualified.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chairman and Chief Executive Officer and the four most highly compensated
executive officers who earned salary and bonus in excess of $100,000 for
services rendered in all capacities to the Company and its subsidiaries for the
fiscal year ended December 26, 1997 (collectively, with the exception of Helen
Hudson Lovaas, who resigned in connection with the Recapitalization, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------
FISCAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION(2)
- ------------------------------------------- -------- --------- --------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Helen Hudson Lovaas........................ 1997 $286,353 $ 88,601 -- $9,000
Chairman and Chief Executive Officer(3)
Richard W. Johansen........................ 1997 $256,535 $141,101 -- $9,000
President and Chief Executive Officer
Lougene Williams........................... 1997 $180,005 $ 70,475 -- $9,000
Senior Vice President
Jay R. Ogram............................... 1997 $140,520 $ 48,357 -- $8,394
Chief Financial Officer
Brian W. Morgan............................ 1997 $127,368 $ 42,984 -- $7,477
Vice President, Human Resources
</TABLE>
_____________________
(1) Does not reflect an aggregate amount of approximately $2.7 million earned by
the Named Executive Officers, during 1997 under the Equity Participation
Plan. Participants in the Equity Participation Plan, including the Named
Executive Officers, received an aggregate of $88.3 million (including the
$2.7 million earned in 1997) under the Equity Participation Plan. See
"Certain Transactions." During 1997, no executive officer named above
received perquisites and other personal benefits, securities or property in
an aggregate amount in excess of the lesser of $50,000 or 10% of the total
of such officer's salary and bonus nor did any such officer receive any
restricted stock award or stock appreciation right.
(2) Represents payments by the Company under its defined contribution plan.
(3) Resigned as Chief Executive Officer in May 1997.
EXECUTIVE EMPLOYMENT AGREEMENTS
On April 7, 1998, the Company entered into employment agreements with each
of the Named Executive Officers. Each Named Executive Officer receives a base
salary in an amount and on substantially the same terms and conditions as was
being paid by the Company on that date and an annual cash bonus in accordance
with the Company's existing incentive programs. Pursuant to the employment
agreements, in the event that employment is terminated by the Company other than
for cause (as such term is defined in the employment agreements), or if the
Named Executive Officer resigns pursuant to a "qualifying resignation" (as such
term is defined in the employment
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<PAGE>
agreements), the Company will be required to pay such Named Executive Officer's
base salary for a period of between 12 and 24 months. The employment agreements
also provide for nondisclosure of confidential information, that the Named
Executive Officer shall not engage in any prohibited activity (as such term is
defined in the employment agreement) during the term of employment and that the
Named Executive Officer will refrain from interfering with the Company's
contractual relationships or soliciting the Company's employees for 12 months
following the Named Executive Officer's termination.
COMPENSATION OF DIRECTORS
Directors of the Company receive no compensation as directors. Directors
are reimbursed for their reasonable expenses in attending meetings.
MANAGEMENT BONUS PLANS
The Company offers two management bonus plans for its executives, one for
senior management and one for executive management. The plan for senior
management is based on a combination of the financial goals of the Company and
goals set for individual employees. The plan has minimum goals of 70%
attainment for operating income before EPP and 75% attainment of the individual
plan. The payout is based 70% on attainment of Company financial performance
and 30% attainment of individual performance goals. The plan for executive
management is based on the financial goals of the Company. The payout to an
individual is based on his or her bonus level and the percentage attainment of
the operating income before EPP goal for the Company. In order to participate,
70% of operating income before EPP must be achieved.
RETIREMENT PLANS
The Company sponsors two programs that assist its employees in planning for
retirement. The Company offers a defined contribution pension plan that is
funded by the Company. Employees must be at least 21 years of age and have
completed two years of service to be eligible to participate in the pension
plan. The Company annually contributes an amount equal to 6% of a participating
employee's base earnings to a participant's account, prorated for any part of a
year that a participant was ineligible for a contribution. The funding also
includes a proportionate share of any increase or decrease in the fair market
value of the assets in the trust fund as of the immediately preceding last day
of the plan year. In addition, employees may contribute to a 401(k) plan that
has no matching contributions by the Company. Employees must have six months of
service to be eligible to participate in the 401(k) plan and may contribute up
to 10% of their annual compensation, or 6% if the employee is a highly
compensated participant.
EQUITY PARTICIPATION PLAN
The Company's Equity Participation Plan, which was terminated upon
consummation of the Recapitalization, provided for an aggregate of $88.3 million
to be paid to participants under the Equity Participation Plan at the
consummation of the Recapitalization. See "Certain Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company determines the compensation of the
executive officers. During fiscal 1997, Mrs. Lovaas determined the compensation
of the Company's Chief Executive Officer and Mrs. Lovaas and Mr. Johansen
participated in deliberations regarding the compensation of the Company's other
executive officers.
STOCK OPTION PLAN
The Board of Directors of the Company plans to adopt a stock option plan
(the "Option Plan") permitting grants of up to 15% of Hudson RCI's common stock.
The Option Plan and each outstanding option thereunder will be subject to
termination in the event of a change in control of Hudson RCI or Holding, as
more particularly described in the Option Plan. In addition, all options
granted pursuant to the Option Plan will terminate 45 days
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<PAGE>
after termination of employment (unless termination was for cause, in which
event an option will terminate immediately) or 180 days in the event of
termination due to death or disability. Shares received upon exercise of
options will be subject to both a right of first refusal and a repurchase right
at stated prices in favor of Hudson RCI and will also be subject to obligations
to sell at the request of FS&Co. and co-sale rights in favor of the optionee.
A portion of the options granted pursuant to the Option Plan ("Time Vesting
Options") will vest over a five-year period in equal annual installments or,
alternatively, will vest in full upon a sale of Hudson RCI or Holding. Time
Vesting Options will terminate on the eight-year anniversary of the closing of
the Recapitalization.
A portion of the options granted pursuant to the Option Plan ("Company
Performance Options") will be earned in installments based upon satisfaction of
annual performance targets over a five-year period. In the event Hudson RCI or
Holding is sold prior to the fifth year following the grant of Company
Performance Options, such options will accelerate proportionately based on
achievement of annual performance targets through the year ended prior to the
sale. In addition, upon a sale of Hudson RCI or Holding, if 90% of the annual
performance targets for all years ended prior to the sale have been achieved,
50% of the options subject to installments for years ended prior to the sale
will be deemed earned (inclusive of installments previously earned). Finally,
to the extent FS&Co. achieves a specific internal rate of return on its
investment in Holding for a sale, Company Performance Options will also be
earned under certain circumstances.
In addition, a portion of the options granted pursuant to the Option Plan
will be earned upon the realization by FS&Co. of a specific internal rate of
return on its investment in Holding.
STOCK SUBSCRIPTION PLANS
In connection with the Recapitalization, Holding adopted an Employee Stock
Subscription Plan and an Executive Stock Subscription Plan (collectively, the
"Stock Subscription Plans") pursuant to which executives of the Company
purchased 800,000 shares of common stock of Holding valued at $10.00 per share.
The Stock Purchase Plans provide for a repurchase option in favor of Holding
upon termination of employment at stated repurchase prices. In addition, the
Stock Purchase Plans provide for restrictions on the transferability of shares
prior to the fifth anniversary of the Recapitalization or Hudson RCI's initial
public offering. The shares are also subject to a right of first refusal in
favor of Holding as well as obligations to sell at the request of FS&Co. and co-
sale rights if FS&Co. sells its shares to a third party.
The following table sets forth, for the Named Executive Officers, the
number of shares purchased pursuant to the Stock Purchase Plans:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ----------------------------------- ------------------
<S> <C>
Richard W. Johansen................ 300,000(1)
Lougene Williams................... 100,000
Jay R. Ogram....................... 100,000
Brian W. Morgan.................... 15,000
</TABLE>
___________________
(1) Represents shares held of record by the Johansen Family Trust U/D/T dated
8/16/91, of which Mr. Johansen and his wife, Barbara L. Johansen, are the
trustees.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, as of May 31, 1998,
with respect to the beneficial ownership of capital stock of the Company by (i)
each person who beneficially owns more than 5% of such shares, (ii) each of the
Named Executive Officers, (iii) each director of Hudson RCI and (iv) all Named
Executive Officers and directors of Hudson RCI as a group. The following table
should be read in conjunction with the security ownership table for Hudson RCI.
<TABLE>
<CAPTION> SHARES OF SHARES OF
COMMON PERCENT PREFERRED PERCENT
NAME OF BENEFICIAL OWNER STOCK OF CLASS STOCK OF CLASS
- ------------------------------------------------------------------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
River Holding Corp.(1)............................................. 6,300,000 80.8% 300,000 100%
Helen Hudson Lovaas(2)............................................. 1,500,000 19.2% --
Richard W. Johansen(3)............................................. -- --
Lougene Williams(3)................................................ -- --
Jay R. Ogram(3).................................................... -- --
Brian W. Morgan(3)................................................. -- --
Jon D. Ralph(4).................................................... -- --
Charles P. Rullman(4).............................................. -- --
Ronald P. Spogli(4)................................................ -- --
All Named Executive Officers and directors of the Company as
a group.......................................................... -- --
</TABLE>
- -------------------
(1) As holder of 87.3% of the common stock of Holding, FS&Co. will have the
power to vote and dispose of the shares held by Holding. See "--River
Holding Corp."
(2) Represents shares held of record by the Helen Lovaas Separate Property Trust
U/D/T dated 7/17/97 (the "Trust"). As sole trustee of the Trust, Mrs.
Lovaas has the sole power to vote and dispose of the shares owned by the
Trust. The address of the Trust is c/o Hudson Respiratory Care Inc., 27711
Diaz Road, P.O. Box 9020, Temecula, California 92589.
(3) The business address of these individuals is Hudson Respiratory Care Inc.,
27711 Diaz Road, P.O. Box 9020, Temecula, California 92589.
(4) The business address of these individuals is Freeman Spogli & Co.
Incorporated, 11100 Santa Monica Boulevard, Suite 1900, Los Angeles,
California 90025.
CERTAIN TRANSACTIONS
SHAREHOLDERS' AGREEMENT
Upon the closing of the Recapitalization Agreement, the Continuing
Shareholder and Holding entered into a Shareholders' Agreement (the
"Shareholders' Agreement"). Under the Shareholders' Agreement, Holding and the
Continuing Shareholder have the right to purchase their pro rata share of
certain new issuances of capital stock by Hudson RCI. In addition, the
Shareholders' Agreement provides that upon certain issuances of common stock of
Holding to employees of the Company, and contribution of the consideration
received for such issuance to Hudson RCI, an equivalent number of shares of
Hudson RCI's common stock will be issued to Holding. The Shareholders'
Agreement provides for restrictions on the transferability of the shares held by
the Continuing Shareholder for a period of two years following the consummation
of the Recapitalization, and provides for a right of first offer on the
Continuing Shareholder's common stock. In addition, the agreement provides that
upon sales by Holding of common stock of Hudson RCI or by FS&Co. of common stock
of Holding, the Continuing Shareholder is obligated to sell all its shares of
common stock at the request of Holding and the Continuing Shareholder has the
right to participate in such sale on a pro rata basis. If Hudson RCI engages in
an initial public offering with respect to its common stock, the Shareholders'
Agreement provides that Holding will exchange all of the common stock of Hudson
RCI it holds for newly issued common stock of Hudson RCI and the Mirror
Preferred
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<PAGE>
Stock (as defined below) will be exchanged, at Holding's option, into Company
Preferred Stock or Company Exchange Debentures, which in turn will be exchanged
for Exchange Preferred Stock. Holding will then liquidate and distribute Hudson
RCI's common stock to its common holders. Hudson RCI will grant unlimited
piggyback registration rights (after an initial public offering) to FS&Co. and
the Continuing Shareholder and, commencing six (6) months after the initial
public offering, three (3) demand registrations to FS&Co., and one demand
registration to the Continuing Shareholder. The Shareholders' Agreement
provides that the parties thereto will vote their shares to elect Helen Hudson
Lovaas to the Board of Directors.
PAYMENTS RELATING TO THE RECAPITALIZATION
In connection with the Recapitalization, two trusts of which Mrs.
Lovaas is the sole trustee received payments of an aggregate of $131.1 million.
Such trusts will also receive payments in an aggregate of approximately $3.3
million if the Company achieves certain operating performance targets for fiscal
1998. In addition, FS&Co. received a transaction fee of $4.0 million. Under
the Equity Participation Plan, upon consummation of the Recapitalization,
certain employees of the Company received an aggregate of $88.3 million, a
substantial portion of which was received by the Named Executive Officers.
Senior management, including the Named Executive Officers, will receive an
additional $2.4 million if the Company achieves certain operating performance
targets for fiscal 1998. For purposes of compliance with the Indenture, the
payment of such $2.4 million by the Company will not reduce Hudson RCI's
Consolidated Net Income or EBITDA.
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<PAGE>
DESCRIPTION OF NEW CREDIT FACILITY
On April 7, 1998, Hudson RCI entered into the New Credit Facility, for
which Salomon Brothers Inc is arranger and syndication agent and Bankers Trust
Company is administrative agent. Pursuant to the New Credit Facility, a
syndicate of lenders ("Lenders") lent to Hudson RCI up to $100.0 million in the
form of senior secured credit facilities, consisting of a $40.0 million term
loan facility (the "Term Loan Facility") and a $60.0 million revolving credit
facility (the "Revolving Credit Facility"). The Revolving Credit Facility has a
letter of credit sublimit of $7.5 million.
Use of Proceeds; Maturity. The entire Term Loan Facility was drawn in
connection with the Recapitalization. The balance of the New Credit Facility
will be made available to Hudson RCI and its subsidiaries (i) for working
capital and general corporate purposes of Hudson RCI, (ii) for acquisitions, and
(iii) for issuing commercial and standby letters of credit. The New Credit
Facility will mature on the sixth anniversary of closing of the
Recapitalization.
Prepayment; Reduction of Commitments. The Term Loan Facility amortizes in
quarterly installments through final maturity. In addition, borrowings under
the New Credit Facility are required to be prepaid, subject to certain
exceptions, with (i) 75% (or 50% for years when Hudson RCI's ratio of Debt to
EBITDA (as defined) is less than 5:1) of Excess Cash Flow (as defined), (ii)
100% of the net cash proceeds of the sale or other disposition of any properties
or assets of Holding and its subsidiaries (subject to certain exceptions), (iii)
100% of the net proceeds of certain issuances of debt obligations of Hudson RCI
and its subsidiaries and (iv) 100% of the net proceeds from insurance recoveries
and condemnations. The Revolving Credit Facility must be prepaid upon payment
in full of the Term Loan Facility.
Voluntary prepayments are permitted in whole or in part, at the option of
Hudson RCI, in minimum principal amounts to be agreed upon, without premium or
penalty, subject to reimbursement of the Lenders' redeployment costs in the case
of prepayment of eurodollar borrowings other than on the last day of the
relevant interest period.
Interest. The interest rate under the New Credit Facility is based, at the
option of Hudson RCI, upon either a eurodollar rate plus 2.25% per annum or a
base rate plus 1.25% per annum. If Hudson RCI achieves performance goals to be
agreed upon, the margins will be reduced in increments to be agreed upon. A
commitment fee of 0.50% per annum will be charged on the unused portion of the
New Credit Facility.
Collateral and Guarantees. The New Credit Facility is guaranteed by
Holding and all existing and subsequently acquired or organized domestic and, to
the extent no adverse tax consequences would result, foreign, subsidiaries of
Hudson RCI. The New Credit Facility is secured by a first priority lien in
substantially all of the properties and assets of Hudson RCI and the Guarantors
now owned or acquired later, including a pledge of all of the capital stock of
Hudson RCI owned by Holding and all of the shares held by Hudson RCI of Hudson
RCI's existing and future subsidiaries; provided, that such pledge is limited to
65% of the shares of any foreign subsidiary to the extent a pledge of a greater
percentage would result in adverse tax consequences to Hudson RCI.
Covenants. The New Credit Facility contains covenants restricting the
ability of Holding, Hudson RCI and Hudson RCI's subsidiaries to, among others,
(i) incur additional debt, (ii) declare dividends or redeem or repurchase
capital stock, (iii) prepay, redeem or purchase debt, (iv) incur liens, (v) make
loans and investments, (vi) make capital expenditures, (vii) engage in mergers,
acquisitions and asset sales, (viii) engage in transactions with affiliates.
Hudson RCI is also required to comply with financial covenants with respect to
(a) a maximum leverage ratio, (b) a minimum fixed charge coverage ratio, (c) a
minimum interest coverage ratio and (d) a minimum EBITDA.
Events of Default. Events of default under the New Credit Facility include
but are not limited to (i) the Company's failure to pay principal when due or
interest after a grace period, (ii) the Company's material breach of any
covenant, representation or warranty contained in the loan documents, (iii)
customary cross-default provisions, (iv) events of bankruptcy, insolvency or
dissolution of the Company or its subsidiaries, (v) the levy of certain
judgments against the Company, its subsidiaries, or their assets, (vi) the
actual or asserted invalidity of security documents or guarantees of the Company
or its subsidiaries, and (vii) a change of control of the Company.
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<PAGE>
The preceding discussion of certain of the provisions of the New Credit
Facility is not intended to be exhaustive and is qualified in its entirety by
reference to the provisions of the New Credit Facility. Copies of the New
Credit Facility are available upon request from the Company.
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DESCRIPTION OF THE EXCHANGE NOTES
The Notes were, and the Exchange Notes will be, issued under an Indenture,
dated as of April 7, 1998 (the "Indenture") by and among Hudson RCI, Holding and
United States Trust Company of New York, as trustee (the "Trustee"), a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Upon the effectiveness of this Registration Statement
filed under the Securities Act with respect to the Exchange Notes, the Indenture
will be subject to and governed by the Trust Indenture Act of 1939, as amended
(the "TIA"). The terms of the Exchange Notes include those stated in the
Indenture and those made part of the Indenture by reference to the TIA 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
TIA for a statement of them. The following is a summary of the material terms
and provisions of the Exchange Notes. This summary does not purport to be a
complete description of the Exchange Notes and is subject to the detailed
provisions of, and qualified in its entirety by reference to, the Exchange 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". Capitalized terms that are used but
not otherwise defined herein have the meanings ascribed to them in the Indenture
and such definitions are incorporated herein by reference. For purposes of this
Section, references to the "Company" shall mean Hudson Respiratory Care Inc.
excluding its subsidiaries. Capitalized terms used in this Section and not
otherwise defined below have the respective meanings assigned to them in the
Indenture.
GENERAL
The Exchange Notes will mature on April 15, 2008, and will be limited to an
aggregate principal amount of $115.0 million. The Exchange Notes will bear
interest at the rate set forth on the cover page from the date of issuance, or
from the most recent date to which interest has been paid, payable semi-annually
on April 15 and October 15 of each year, beginning on October 15, 1998, to the
Persons who are registered holders of the Exchange Notes at the close of
business on the preceding April 1 or October 1, as the case may be. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
Principal of, and premium, if any, and interest on, the Exchange Notes will
be payable in immediately available funds, and the Exchange Notes will be
exchangeable and transferable, at an office or agency of the Company, one of
which will be maintained for such purpose in The City of New York (which
initially will be the corporate trust office of the Trustee); provided, however,
that payment of interest may be made at the option of the Company by check
mailed to the Person entitled thereto as shown on the Security Register. The
Exchange Notes will be issued only in fully registered form without coupons, in
denominations of $1,000 or any integral multiple thereof. No service charge will
be made for any registration of transfer or exchange of Exchange Notes, except
for any tax or other governmental charge that may be imposed in connection
therewith.
If (a) on or prior to the 150th day following the date of original issuance
of the Notes, neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement has been declared effective, (b) on or prior to the 180th
day following the date of original issuance of the Notes, neither the Registered
Exchange Offer has been consummated nor the Shelf Registration Statement has
been declared effective, or (c) after either the Exchange Offer Registration
Statement or the Shelf Registration Statement has been declared effective, such
Registration Statement thereafter ceases to be effective or usable (subject to
certain exceptions) in connection with resales of Notes or Exchange Notes in
accordance with and during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (a) through (c), a
"Registration Default"), interest ("Special Interest") will accrue on the
principal amount of the Notes and the Exchange Notes (in addition to the stated
interest on the Notes and the Exchange Notes) from and including the date on
which any such Registration Default shall occur to but excluding the date on
which all Registration Defaults have been cured. Special Interest will accrue at
a rate of 0.25% per annum during the 90-day period immediately following the
occurrence of such Registration Default and shall increase by 0.25% per annum at
the end of each subsequent 90-day period, but in no event shall such rate exceed
1.00% per annum.
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SUBORDINATION
The Exchange Notes will be senior subordinated, unsecured obligations of
the Company. The payment of the principal of, and premium, if any, and interest
on, the Exchange Notes will be subordinated in right of payment to the payment
when due of all Senior Debt of the Company. The Exchange Notes will rank pari
passu in right of payment with any future Senior Subordinated Debt and senior to
any future Subordinated Obligations of the Company. The Subsidiary Guaranty of
any Subsidiary Guarantor will rank subordinate in right of payment to all Senior
Indebtedness of such Subsidiary Guarantor, pari passu with any Senior
Subordinated Debt of such Subsidiary Guarantor and senior to any Subordinated
Obligations of such Subsidiary Guarantor. The Exchange Notes and the Subsidiary
Guaranties also will be effectively subordinated to any secured debt of the
Company and the Subsidiary Guarantors, as the case may be to the extent of the
value of the assets securing such debt.
As of March 27, 1998, after giving effect to the Recapitalization, the
Company would have had $40.0 million of Senior Debt, all of which would have
represented secured Debt under the New Credit Facility. The Company would also
have had $60.0 million of undrawn commitments available under the New Credit
Facility, which if drawn upon will constitute Senior Debt. The Company would not
have had any outstanding Pari Passu Debt or Subordinated Obligations.
The Exchange Notes will be effectively subordinated to creditors (including
trade creditors) and preferred stockholders, if any, of Subsidiaries of the
Company that are not Subsidiary Guarantors. Since a portion of the operations of
the Company are conducted through Subsidiaries, the Company's ability to service
its debt, including the Exchange Notes, is partially dependent upon the earnings
of any such Subsidiaries and the distribution of those earnings to, or upon
loans or other payments of funds by those Subsidiaries to, the Company. The
payment of dividends and the making of loans and advances to the Company by such
Subsidiaries are subject to statutory restrictions. Under certain circumstances,
any Subsidiary Guaranties could be effectively subordinated to all the
obligations of the Subsidiary Guarantors in which event restrictions of the type
described above on the ability of such Subsidiary Guarantors (in addition to the
Company's other Subsidiaries) to distribute funds to the Company could further
adversely effect the Company's ability to service its debt. As of March 27,
1998, after giving effect to the Recapitalization, Industrias Hudson, the
Company's principal Subsidiary, would have had total balance sheet liabilities
of $0.1 million.
The Company may not pay principal of, or premium, if any, or interest on,
the Exchange Notes, or make any deposit pursuant to the provisions described
under "--Defeasance", and may not repurchase, redeem or otherwise retire any
Exchange Notes (collectively, "pay the Exchange Notes"), if (a) any principal,
premium or interest in respect of any Senior Debt is not paid within any
applicable grace period (including at maturity) or (b) any other default on
Senior Debt occurs and the maturity of such Senior Debt is accelerated in
accordance with its terms unless, in either case, (i) the default has been cured
or waived and any such acceleration has been rescinded or (ii) such Senior Debt
has been paid in full in cash; provided, however, that the Company may pay the
Exchange Notes without regard to the foregoing if the Company and the Trustee
receive written notice approving such payment from the Representative of each
issue of Designated Senior Debt. During the continuance of any default (other
than a default described in clause (a) or (b) of the preceding sentence) with
respect to any Designated Senior Debt pursuant to which the maturity thereof may
be accelerated immediately without further notice (except notice required to
effect the acceleration) or the expiration of any applicable grace period, the
Company may not pay the Exchange Notes for a period (a "Payment Blockage
Period") commencing upon the receipt by the Company and the Trustee of written
notice of such default from the Representative of the holders of such Designated
Senior Debt specifying an election to effect a Payment Blockage Period (a
"Payment Blockage Notice") and ending 179 days thereafter (unless such Payment
Blockage Period is earlier terminated (a) by written notice to the Trustee and
the Company from the Representative which gave such Payment Blockage Notice, (b)
because such default is no longer continuing or (c) because such Designated
Senior Debt has been repaid in full in cash). Unless the holders of such
Designated Senior Debt or the Representative of such holders have accelerated
the maturity of such Designated Senior Debt and not rescinded such acceleration,
the Company may (unless otherwise prohibited as described in the first sentence
of this paragraph) resume payments on the Exchange Notes after the end of such
Payment Blockage Period. Not more than one Payment Blockage Notice with respect
to all issues of Designated Senior Debt may be given in any consecutive 360-day
period, irrespective of the number of defaults with respect to one or more
issues of Designated Senior Debt during such period.
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Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation, dissolution or winding up of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its Property, the holders of Senior Debt will be
entitled to receive payment in full in cash before the holders of the Exchange
Notes are entitled to receive any payment of principal of or interest on the
Exchange Notes, except that holders of Exchange Notes may receive and retain
shares of stock and any debt securities that are subordinated to Senior Debt to
at least the same extent as the Exchange Notes. Until the Senior Debt is paid in
full in cash, any distribution to which holders of the Exchange Notes would be
entitled but for the subordination provisions of the Indenture will be made to
holders of the Senior Debt. If a payment or distribution is made to holders of
Exchange Notes that, due to the subordination provisions, should not have been
made to them, such holders are required to hold it in trust for the holders of
Senior Debt and pay it over to them as their interests may appear.
If payment of the Exchange Notes is accelerated when any Designated Senior
Debt is outstanding, the Company may not pay the Exchange Notes until three
business days after the Representatives of all issues of Designated Senior Debt
receive notice of such acceleration and, thereafter, may pay the Exchange Notes
only if the Indenture otherwise permits payment at that time.
The Subsidiary Guaranty of each Subsidiary Guarantor will be subordinated
to Senior Debt of the applicable Subsidiary Guarantor to the same extent and in
the same manner as the Exchange Notes are subordinated to Senior Debt of the
Company.
By reason of the subordination provisions contained in the Indenture, in
the event of bankruptcy or similar proceedings relating to the Company or a
Subsidiary Guarantor, holders of Senior Debt and other creditors (including
trade creditors) of the Company or such Subsidiary Guarantor may recover more
ratably, even if the Exchange Notes or the applicable Subsidiary Guaranty are
pari passu with their claims, than the holders of the Exchange Notes. In such
event, there may be insufficient assets or no assets remaining to pay the
principal of or interest on the Exchange Notes.
Payment from the money or the proceeds of U.S. Government Obligations held
in any defeasance trust pursuant to the provisions described under "--
Defeasance" will not be subject to the subordination provisions described above.
See "Risk Factors--Subordination of Notes, Exchange Notes and Subsidiary
Guaranties," "--Fraudulent Conveyance and Distribution Limitation
Considerations," "--Substantial Leverage; Shareholders' Deficit" and
"Description of New Credit Facility."
SUBSIDIARY GUARANTIES
The obligations of the Company under the Indenture, including the
repurchase obligation resulting from a Change of Control, will be fully and
unconditionally guaranteed, jointly and severally, on a senior subordinated,
unsecured basis by each Restricted Subsidiary of the Company which Guarantees
the Company's obligations under the New Credit Facility in the future.
Upon the sale or other disposition of a Subsidiary Guarantor or the sale or
disposition of all or substantially all the assets of a Subsidiary Guarantor (in
each case other than to the Company or an Affiliate of the Company) permitted by
the Indenture, such Subsidiary Guarantor will be released from all its
obligations under its Subsidiary Guaranty. See "--Certain Covenants--Limitation
on Issuance or Sale of Capital Stock of Restricted Subsidiaries". Any Subsidiary
Guarantor that is designated an Unrestricted Subsidiary in accordance with the
Indenture will be released from all its obligations under its Subsidiary
Guaranty.
Each of the Company and, when they exist, the Subsidiary Guarantors has
agreed to contribute to any other Subsidiary Guarantor which makes payments
pursuant to its Subsidiary Guaranty an amount equal to the Company's or such
Subsidiary Guarantor's proportionate share of such payment, based on the net
worth of the Company or such Subsidiary Guarantor relative to the aggregate net
worth of the Company and the Subsidiary Guarantors.
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REDEMPTION
The Exchange Notes will not be redeemable at the option of the Company
prior to April 15, 2003. Thereafter, the Exchange Notes will be redeemable at
the option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' prior notice, at the following redemption prices (expressed as
percentages of principal amount), plus accrued and unpaid interest (if any) to
the redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on April 15 of the years set
forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
------------------- -------------
<S> <C>
2003 104.563%
2004 103.042%
2005 101.521%
2006 and thereafter 100.000%
</TABLE>
Any notice to holders of such a redemption need not set forth the
redemption price of such Exchange Notes but need only set forth the calculation
thereof as described in the immediately preceding paragraph. The redemption
price, calculated as aforesaid, shall be set forth in an Officers' Certificate
delivered to the Trustee no later than two business days prior to the redemption
date.
At any time and from time to time, prior to April 15, 2001, the Company may
redeem up to a maximum of 35% of the original aggregate principal amount of the
Exchange Notes with the proceeds of one or more Public Equity Offerings, at a
redemption price equal to 109 1/8% of the principal amount thereof, plus accrued
and unpaid interest thereon, 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 after giving
effect to any such redemption, at least 65% of the original aggregate principal
amount of the Exchange Notes remains outstanding. Any such redemption shall be
made within 60 days of such Public Equity Offering upon not less than 30 nor
more than 60 days' notice.
SINKING FUND
There will be no mandatory sinking fund payments for the Exchange Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Exchange Notes
shall have the right to require the Company to repurchase all or any part of
such holder's Exchange Notes pursuant to the offer described below (the "Change
of Control Offer") at a purchase price (the "Change of Control Purchase Price")
equal to 101% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the purchase date (subject to the right of holders of record
on the relevant record date to receive interest due on the relevant interest
payment date).
Within 30 days following any Change of Control, the Company shall (a) cause
a notice of the Change of Control Offer to be sent at least once to the Dow
Jones News Service or similar business news service in the United States and (b)
send, by first-class mail, with a copy to the Trustee, to each holder of
Exchange Notes, at such holder's address appearing in the Security Register, a
notice stating: (i) that a Change of Control has occurred and a Change of
Control Offer is being made pursuant to the covenant entitled "Repurchase at the
Option of Holders Upon a Change of Control" and that all Exchange Notes timely
tendered will be accepted for payment; (ii) the
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Change of Control Purchase Price and the purchase date, which shall be, subject
to any contrary requirements of applicable law, a business day no earlier than
30 days nor later than 60 days from the date such notice is mailed; (iii) the
circumstances and relevant facts regarding the Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to the Change of Control); and (iv) the
procedures that holders of Exchange Notes must follow in order to tender their
Exchange Notes (or portions thereof) for payment, and the procedures that
holders of Exchange Notes must follow in order to withdraw an election to tender
Exchange Notes (or portions thereof) for payment.
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 Exchange Notes pursuant to a Change of
Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the covenant described
hereunder by virtue of such compliance.
The Change of Control repurchase 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
certain covenants described 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 debt outstanding at such time
or otherwise affect the Company's capital structure or credit ratings.
The definition of Change of Control includes a phrase relating to the sale,
transfer, assignment, lease, conveyance or other disposition of "all or
substantially all" the Company's assets. Although there is a developing body of
case law interpreting the phrase "substantially all," there is no precise
established definition of the phrase under applicable law. Accordingly, the
ability of a holder of Exchange Notes to require the Company to repurchase such
Exchange Notes as a result of a sale, transfer, assignment, lease, conveyance or
other disposition of less than all the assets of the Company may be uncertain.
The New Credit Facility prohibits the Company from purchasing any Exchange
Notes, and also provides that the occurrence of certain of the events that would
constitute a Change of Control would constitute a default under such existing
debt. Other future debt of the Company may contain prohibitions of certain
events which would constitute a Change of Control or require such debt to be
repurchased upon a Change of Control. Moreover, the exercise by holders of
Exchange Notes of their right to require the Company to repurchase such Exchange
Notes could cause a default under existing or future debt of the Company, 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 holders
of Exchange Notes 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. The Company's
failure to purchase Exchange Notes in connection with a Change of Control would
result in a default under the Indenture which would, in turn, constitute a
default under existing (and may constitute a default under future) debt of the
Company. If such debt constitutes Designated Senior Debt, the subordination
provisions in the Indenture would likely restrict payment to holders of Exchange
Notes. The provisions under the Indenture relative to the Company's obligation
to make an offer to repurchase the Exchange Notes as a result of a Change of
Control may be waived or modified (at any time prior to the occurrence of such
Change of Control) with the written consent of the holders of a majority in
principal amount of the Exchange Notes.
CERTAIN COVENANTS
Limitation on Company and Subsidiary Guarantor Debt. The Company shall not,
and shall not permit any Subsidiary Guarantor to, Incur, directly or indirectly,
any Debt unless, after giving pro forma effect to the application of the
proceeds thereof, no Default or Event of Default would occur as a consequence of
such Incurrence or be continuing following such Incurrence and either (a) after
giving effect to the Incurrence of such Debt and the application of the proceeds
thereof, the Consolidated Interest Coverage Ratio would be greater than 1.75 to
1.00
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if such Debt is Incurred from the Issue Date through April 15, 2000, and 2.00 to
1.00 if such Debt is Incurred thereafter or (b) such Debt is Permitted Debt.
The term "Permitted Debt" is defined to include the following:
(a) Debt evidenced by the Exchange Notes and of Subsidiary Guarantors
evidenced by Subsidiary Guaranties;
(b) (i) Debt under the Credit Facility; provided that the aggregate
principal amount of all such Debt under the Credit Facility comprised of
(A) term loans at any one time outstanding shall not exceed $40.0 million
minus all principal amounts repaid in respect of such term loans and (B)
revolving credit loans or obligations at any one time outstanding shall not
exceed the greater of (x) $60.0 million, which amount shall be permanently
reduced by the amount of Net Available Cash used to repay Debt under the
Credit Facility, and not subsequently reinvested in Additional Assets or
used to purchase Exchange Notes, pursuant to the covenant described under
"--Limitation on Asset Sales" and (y) the sum of the amounts equal to (1)
60% of the net book value of the inventory of the Company and the
Restricted Subsidiaries and (2) 85% of the net book value of the accounts
receivable of the Company and the Restricted Subsidiaries, in each case as
of the most recent fiscal quarter ending at least 45 days prior to the date
of determination and (ii) subject to the proviso contained in clause (iii)
of the covenant described under "--Limitation on Non-Guarantor Subsidiary
Debt," "--Guarantees of Debt under the Credit Facility";
(c) Debt in respect of Capital Lease Obligations and Purchase Money
Debt; provided that (i) the aggregate principal amount of such Debt does
not exceed the Fair Market Value (on the date of the Incurrence thereof) of
the Property acquired, constructed or leased (including costs of
installation, taxes and delivery charges with respect to such acquisition,
construction or lease) and (ii) the aggregate principal amount of all Debt
Incurred and then outstanding pursuant to this clause (c) (together with
all Permitted Refinancing Debt Incurred in respect of Debt previously
Incurred pursuant to this clause (c) and then outstanding) does not exceed
$15.0 million;
(d) Debt of the Company owing to and held by any Wholly Owned
Subsidiary and Debt of a Wholly Owned Subsidiary owing to and held by the
Company or any Wholly Owned Subsidiary; provided, however, that any
subsequent issue or transfer of Capital Stock or other event that results
in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary
or any subsequent transfer of any such Debt (except to the Company or a
Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Debt by the issuer thereof;
(e) Debt of a Wholly Owned Subsidiary Incurred and outstanding on or
prior to the date on which such Wholly Owned Restricted Subsidiary was
acquired by the Company or otherwise became a Restricted Subsidiary (other
than Debt Incurred as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of transactions pursuant to which such Wholly Owned Restricted
Subsidiary became a Subsidiary of the Company or was otherwise acquired by
the Company); provided that at the time such Wholly Owned Restricted
Subsidiary was acquired by the Company or otherwise became a Restricted
Subsidiary and after giving pro forma effect to the Incurrence of such
Debt, the Company would have been able to Incur $1.00 of additional Debt
pursuant to clause (a) in the first paragraph of this covenant;
(f) Debt under Interest Rate Agreements entered into by the Company or
a Restricted Subsidiary for the purpose of limiting interest rate risk in
the ordinary course of the financial management of the Company or such
Restricted Subsidiary and not for speculative purposes, provided that the
obligations under such agreements are directly related to payment
obligations on Debt otherwise permitted by the terms of this covenant;
(g) Debt under Currency Exchange Protection Agreements entered into by
the Company or a Restricted Subsidiary for the purpose of limiting currency
exchange rate risks directly related to
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transactions entered into by the Company or such Restricted Subsidiary in
the ordinary course of business and not for speculative purposes;
(h) Debt in connection with one or more standby letters of credit or
performance bonds issued for the account of the Company or a Restricted
Subsidiary in the ordinary course of business or pursuant to self-insurance
obligations and not in connection with the borrowing of money or the
obtaining of advances;
(i) Debt outstanding on the Issue Date not otherwise described in
clauses (a) through (h) above;
(j) Debt not otherwise described in clauses (a) through (i) above in
an aggregate principal amount outstanding at any one time not to exceed
$15.0 million; and
(k) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause (a) of the first paragraph of this covenant and clauses
(a), (c), (e) and (i) above, subject, in the case of clause (c) above, to
the limitations set forth in the proviso thereto.
Notwithstanding the immediately foregoing two paragraphs, (a) the Company
shall not, and shall not permit any Subsidiary Guarantor to, Incur any Debt
pursuant to such paragraphs if the proceeds thereof are used, directly or
indirectly, to Refinance (i) any Subordinated Obligations unless such Debt shall
be subordinated to the Exchange Notes and the Subsidiary Guaranties, as
applicable, to at least the same extent as such Subordinated Obligations or (ii)
any Senior Subordinated Debt unless such Debt shall be Senior Subordinated Debt
or shall be subordinated to the Exchange Notes and the Subsidiary Guaranties, as
applicable and (b) the Company shall not permit any Restricted Subsidiary to
Incur any Debt pursuant to such paragraph if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations or Senior
Subordinated Debt.
Limitation on Non-Guarantor Subsidiary Debt. The Company shall not permit
any Restricted Subsidiary which is not a Subsidiary Guarantor to, directly or
indirectly, Incur any Debt except: (i) Debt outstanding on the Issue Date and
any Permitted Refinancing Debt with respect thereto; (ii) Debt described in
clauses (e) or (h) of the definition of Permitted Debt under "--Limitation on
Company and Subsidiary Guarantor Debt"; provided, however, that Industrias
Hudson may Incur Debt in an aggregate principal amount outstanding at any one
time not to exceed $5.0 million; and (iii) Guarantees of the Company's
obligations under the New Credit Facility; provided that any Restricted
Subsidiary which Incurs any such Guarantee shall concurrently therewith execute
and deliver to the Trustee a Subsidiary Guaranty.
Limitation on Restricted Payments. The Company shall not make, and shall
not permit any Restricted Subsidiary to make, directly or indirectly, any
Restricted Payment if at the time of, and after giving pro forma effect to, such
proposed Restricted Payment,
(a) a Default or Event of Default shall have occurred and be continuing,
(b) the Company could not Incur at least $1.00 of additional Debt pursuant
to clause (a) of the first paragraph of the covenant described under "--
Limitation on Company and Subsidiary Guarantor Debt" or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of any
Restricted Payment, if made other than in cash, to be based upon Fair Market
Value) would exceed an amount equal to the sum of:
(i) 50% of the aggregate amount of Consolidated Net Income accrued
during the period (treated as one accounting period) from the beginning of
the fiscal quarter during which the Issue Date occurs to the end of the
most recent fiscal quarter ending at least 45 days prior to the date of
such Restricted Payment (or if the aggregate amount of Consolidated Net
Income for such period shall be a deficit, minus 100% of such deficit),
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(ii) Capital Stock Sale Proceeds,
(iii) the amount by which Debt of the Company Incurred after the
Issue Date is reduced on the Company's balance sheet upon the conversion or
exchange (other than by the Company or a Subsidiary of the Company)
subsequent to the Issue Date of any Debt (other than Subordinated
Obligations) of the Company for Capital Stock (other than Disqualified
Stock) of the Company (less the amount of any cash or other Property
distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange), and
(iv) an amount equal to the sum of (A) the net reduction in
Investments in any Person other than the Company or a Restricted Subsidiary
resulting from dividends, repayments of loans or advances or other
transfers of Property, in each case to the Company or any Restricted
Subsidiary from such Person, to the extent such dividends, repayments or
transfers do not increase the amount of Permitted Investments permitted to
be made pursuant to clause (i) of the definition thereof and (B) the
portion (proportionate to the Company's equity interest in such
Unrestricted Subsidiary) of the Fair Market Value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the foregoing
sum shall not exceed, in the case of any Person, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Person, and
(v) $7.5 million.
Notwithstanding the foregoing limitation, the Company may:
(a) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with the Indenture; provided, however, that at the
time of such payment of such dividend, no other Default or Event of Default
shall have occurred and be continuing (or result therefrom); provided
further, however, that such dividend shall be included in the calculation
of the amount of Restricted Payments;
(b) purchase, repurchase, redeem, legally defease, acquire or retire
for value Capital Stock of the Company or Subordinated Obligations in
exchange for, or in an amount not in excess of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of the Company or an employee stock ownership plan or trust
established by the Company or any of its Subsidiaries for the benefit of
their employees); provided, however, that (i) such purchase, repurchase,
redemption, legal defeasance, acquisition or retirement shall be excluded
in the calculation of the amount of Restricted Payments and (ii) the
Capital Stock Sale Proceeds from such exchange or sale shall be excluded
from the calculation pursuant to clause (c)(ii) above;
(c) purchase, repurchase, redeem, legally defease, acquire or retire
for value any Subordinated Obligations in exchange for, or in an amount not
in excess of the proceeds of the substantially concurrent sale of,
Permitted Refinancing Debt; provided, however, that such purchase,
repurchase, redemption, legal defeasance, acquisition or retirement shall
be excluded in the calculation of the amount of Restricted Payments;
(d) purchase, repurchase, redeem, legally defease, acquire or retire
for value, or pay dividends or make loans to Holding to enable Holding
substantially concurrently therewith to purchase, repurchase, redeem,
legally defease, acquire or retire for value, shares of, or options to
purchase shares of, common stock of the Company or Holding from employees
or former employees of the Company, Holding or any of their Subsidiaries
(or their estates or beneficiaries thereof) upon death, disability,
retirement or termination pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto) approved
by the Board or Directors or the board of directors of Holding, as the case
may be, under which such individuals purchase or sell, or are granted the
option to purchase or sell, shares of such common stock; provided, however,
that (i) the aggregate amount of such purchases,
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repurchases, redemptions, defeasances, acquisitions or retirements shall
not exceed $1.0 million in any year or $5.0 million during the term of the
Exchange Notes, except that (x) such amounts shall be increased by the
aggregate net amount of cash received by the Company after the Issue Date
from the sale of such shares to, or the exercise of options to purchase
such shares by, employees of the Company, Holding or any of their
Subsidiaries and (y) the Company may forgive or return Employee Notes
without regard to the limitation set forth in clause (d)(i) above and such
forgiveness or return shall not be treated as a Restricted Payment for
purpose of determining compliance with such clause (d)(i) and (ii) such
purchases, repurchases, defeasances, acquisitions or retirements (but not
forgiveness or return of Employee Notes) shall be included in the
calculation of the amount of Restricted Payments;
(e) purchase or redeem Subordinated Obligations pursuant to asset sale
or change of control provisions contained in the governing instrument
relating thereto; provided, however, that (i) no offer or purchase
obligation may be triggered in respect of any such Subordinated Obligation
unless a corresponding obligation also arises with respect to the Exchange
Notes and (ii) in any event, no repurchase or redemption of any such
Subordinated Obligation may be consummated unless and until the Company
shall have satisfied all repurchase obligations with respect to any
required purchase offer made with respect to the Exchange Notes; provided,
however, that such purchases or redemptions shall be included in the
calculation of the amount of Restricted Payments; and
(f) make payments to Helen Hudson Lovaas pursuant to the Merger
Agreement in an aggregate amount not to exceed $1.1 million in any fiscal
year or $3.3 million during the term of the Exchange Notes (plus, in each
case, interest due on the unpaid portion of such required payments in
accordance with the Merger Agreement); provided, however, that such
payments shall be excluded in the calculation of the amount of Restricted
Payments.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist, any
Lien (other than Permitted Liens) upon any of its Property (including Capital
Stock of a Restricted Subsidiary), whether owned at the Issue Date or thereafter
acquired, or any interest therein or any income or profits therefrom, unless (i)
if such Lien secures Senior Subordinated Debt, the Exchange Notes or the
applicable Subsidiary Guaranty are secured on an equal and ratable basis with
such Debt and (ii) if such Lien secures Subordinated Obligations, such Lien
shall be subordinated to a Lien securing the Exchange Notes or the applicable
Subsidiary Guaranty in the same Property as that securing such Lien to the same
extent as such Subordinated Obligations are subordinated to the Exchange Notes
and the Subsidiary Guaranties.
Limitation on Issuance or Sale of Capital Stock of Restricted Subsidiaries.
The Company shall not (a) sell, pledge, hypothecate or otherwise dispose of any
shares of Capital Stock of a Restricted Subsidiary or (b) permit any Restricted
Subsidiary to, directly or indirectly, issue or sell or otherwise dispose of any
shares of its Capital Stock, other than (i) directors' qualifying shares, (ii)
to the Company or a Wholly Owned Subsidiary or (iii) a disposition of 100% of
the shares of Capital Stock of a Restricted Subsidiary that complies with the
covenant described under "--Limitation on Asset Sales"; provided, however, that,
in the case of this clause (iii), upon consummation of such disposition, any
such Restricted Subsidiary shall be released from all its obligations under its
Subsidiary Guaranty.
Limitation on Asset Sales. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale
unless (a) the Company or such Restricted Subsidiary receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value of the
Property subject to such Asset Sale; (b) at least 75% of the consideration paid
to the Company or such Restricted Subsidiary in connection with such Asset Sale
is in the form of cash or cash equivalents or the assumption by the purchaser of
liabilities of the Company or any Restricted Subsidiary (other than liabilities
that are by their terms subordinated to the Exchange Notes or the applicable
Subsidiary Guaranty) as a result of which the Company and the Restricted
Subsidiaries are no longer obligated with respect to such liabilities; and (c)
the Company delivers an Officers' Certificate to the Trustee certifying that
such Asset Sale complies with the foregoing clauses (a) and (b).
The Net Available Cash (or any portion thereof) from Asset Sales may be
applied by the Company or a Restricted Subsidiary, to the extent the Company or
such Restricted Subsidiary elects (or is required by the terms of any Debt): (a)
to prepay, repay, legally defease or purchase Senior Debt of the Company or any
Subsidiary
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Guarantor or Debt of any Restricted Subsidiary that is not a Subsidiary
Guarantor (excluding, in any such case, Disqualified Stock and Debt owed to the
Company or an Affiliate of the Company); or (b) to reinvest in Additional Assets
(including by means of an Investment in Additional Assets by a Restricted
Subsidiary with Net Available Cash received by the Company or another Restricted
Subsidiary); provided, however, that in connection with any prepayment,
repayment, legal defeasance or purchase of Debt pursuant to clause (a) above,
the Company or such Subsidiary Guarantor or other Restricted Subsidiary shall
retire such Debt and shall cause the related loan commitment (if any) to be
permanently reduced by an amount equal to the principal amount so prepaid,
repaid, legally defeased or purchased.
Any Net Available Cash from an Asset Sale not applied in accordance with
the preceding paragraph within twelve months from the date of the receipt of
such Net Available Cash shall constitute "Excess Proceeds". When the aggregate
amount of Excess Proceeds exceeds $10.0 million (taking into account income
earned on such Excess Proceeds, if any), the Company will be required to make an
offer to purchase (the "Prepayment Offer") the Exchange Notes which offer shall
be in the amount of the Excess Proceeds, on a pro rata basis according to
principal amount, at a purchase price equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon, if any, to the purchase date
(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 procedures (including prorating in the event of oversubscription) set forth
in the Indenture. To the extent that any portion of the amount of Net Available
Cash remains after compliance with the preceding sentence and provided that all
holders of Exchange Notes have been given the opportunity to tender their
Exchange Notes for purchase in accordance with the Indenture, the Company or
such Restricted Subsidiary may use such remaining amount for any purpose
permitted by the Indenture and the amount of Excess Proceeds will be reset to
zero.
Within five business days after the Company is obligated to make a
Prepayment Offer as described in the preceding paragraph, the Company shall send
a written notice, by first-class mail, to the holders of Exchange Notes,
accompanied by such information regarding the Company and its Subsidiaries as
the Company in good faith believes will enable such holders to make an informed
decision with respect to such Prepayment Offer. Such notice shall state, among
other things, the purchase price and the purchase date, which shall be, subject
to any contrary requirements of applicable law, a business day no earlier than
30 days nor later than 60 days from the date such notice is mailed.
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 Exchange Notes pursuant to the covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the covenant described hereunder, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under the covenant described
hereunder by virtue thereof.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist any
consensual restriction on the right of any Restricted Subsidiary to (a) pay
dividends, in cash or otherwise, or make any other distributions on or in
respect of its Capital Stock, or pay any Debt or other obligation owed, to the
Company or any other Restricted Subsidiary (except, with respect to restrictions
on dividends of non-cash Property, as permitted pursuant to clause (ii) of the
next sentence), (b) make any loans or advances to the Company or any other
Restricted Subsidiary or (c) transfer any of its Property to the Company or any
other Restricted Subsidiary. The foregoing limitations will not apply (i) with
respect to clauses (a), (b) and (c), to restrictions (A) in effect on the Issue
Date, (B) relating to Debt of a Restricted Subsidiary and existing at the time
it became a Restricted Subsidiary if such restriction was not created in
connection with or in anticipation of the transaction or series of transactions
pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or
was acquired by the Company or (C) which result from the Refinancing of Debt
Incurred pursuant to an agreement referred to in clause (i)(A) or (B) above or
in clause (ii)(A) or (B) below, provided such restriction is no less favorable
to the holders of Exchange Notes than those under the agreement evidencing the
Debt so Refinanced, and (ii) with respect to clause (c) only, to restrictions
(A) relating to Debt that is permitted to be Incurred and secured without also
securing the Exchange Notes or the applicable Subsidiary Guaranty without equal
and ratable treatment pursuant to the covenants described under "--Limitation on
Company and Subsidiary Guarantor Debt" and "--Limitation on Liens" that limit
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the right of the debtor to dispose of the Property securing such Debt, (B)
encumbering Property at the time such Property was acquired by the Company or
any Restricted Subsidiary, so long as such restriction relates solely to the
Property so acquired and was not created in connection with or in anticipation
of such acquisition, (C) resulting from customary provisions restricting
subletting or assignment of leases or customary provisions in other agreements
that restrict assignment of such agreements or rights thereunder or (D)
customary restrictions contained in asset sale agreements limiting the transfer
of such Property pending the closing of such sale.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, conduct
any business or enter into or suffer to exist any transaction or series of
transactions (including the purchase, sale, transfer, assignment, lease,
conveyance or exchange of any Property or the rendering of any service) with, or
for the benefit of, any Affiliate of the Company (an "Affiliate Transaction"),
unless (a) the terms of such Affiliate Transaction are (i) set forth in writing,
(ii) in the interest of the Company or such Restricted Subsidiary, as the case
may be, and (iii) no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained in a
comparable arm's-length transaction with a Person that is not an Affiliate of
the Company, (b) if such Affiliate Transaction involves aggregate payments or
value in excess of $2.5 million, the Board of Directors (including a majority of
the disinterested members of the Board of Directors) approves such Affiliate
Transaction and, in its good faith judgment, believes that such Affiliate
Transaction complies with clauses (a) (ii) and (iii) of this paragraph as
evidenced by a Board Resolution promptly delivered to the Trustee and (c) if
such Affiliate Transaction involves aggregate payments or value in excess of
$5.0 million, the Company obtains a written opinion from an Independent
Appraiser to the effect that the consideration to be paid or received in
connection with such Affiliate Transaction is fair, from a financial point of
view, to the Company or such Restricted Subsidiary, as the case may be.
Notwithstanding the foregoing limitation, the Company or any Restricted
Subsidiary may enter into or suffer to exist the following:
(i) any transaction or series of transactions between the Company
and one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business; provided that no more than
5% of the total voting power of the Voting Stock (on a fully diluted basis)
of any such Restricted Subsidiary is owned by an Affiliate of the Company
(other than a Restricted Subsidiary);
(ii) any Restricted Payment permitted to be made pursuant to the
covenant described under "--Limitation on Restricted Payments";
(iii) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and employees of the Company or any of the Restricted Subsidiaries, so long
as the Board of Directors in good faith shall have approved the terms
thereof and deemed the services theretofore or thereafter to be performed
for such compensation to be fair consideration therefor;
(iv) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or such
Restricted Subsidiary, as the case may be; provided that such loans and
advances do not exceed $1.0 million in the aggregate at any one time
outstanding;
(v) the payment of fees and expenses in connection with the
Recapitalization pursuant to written agreements in effect on the Issue
Date;
(vi) the sale of common stock of the Company for cash; provided,
that the Company may receive Employee Notes in an aggregate principal
amount not in excess of $1.0 million at any one time outstanding;
(vii) the payment of dividends in kind in respect of (i) the Company
Mirror Preferred Stock or (ii) any other Preferred Stock issued in
compliance with this covenant; and
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(viii) a proportionate split of, or a common stock dividend payable
on, the common stock of the Company.
Limitation on Layered Debt. The Company shall not, and shall not permit any
Subsidiary Guarantor to, Incur, directly or indirectly, any Debt which is
subordinate or junior in right of payment to any Senior Debt unless such Debt is
Senior Subordinated Debt or is expressly subordinated in right of payment to
Senior Subordinated Debt. In addition, no Subsidiary Guarantor shall Guarantee,
directly or indirectly, any Debt of the Company that is subordinate or junior in
right of payment to any Senior Debt unless such Guarantee is expressly
subordinate in right of payment to, or ranks pari passu with, the Subsidiary
Guaranty of such Subsidiary Guarantor.
Designation of Restricted and Unrestricted Subsidiaries. The Board of
Directors may designate any Subsidiary of the Company (other than Industrias
Hudson) to be an Unrestricted Subsidiary if (a) the Subsidiary to be so
designated does not own any Capital Stock or Debt of, or own or hold any Lien on
any Property of, the Company or any other Restricted Subsidiary, (b) the
Subsidiary to be so designated is not obligated under any Debt, Lien or other
obligation that, if in default, would result (with the passage of time or notice
or otherwise) in a default on any Debt of the Company or of any Restricted
Subsidiary and (c) either (i) the Subsidiary to be so designated has total
assets of $1,000 or less or (ii) such designation is effective immediately upon
such entity becoming a Subsidiary of the Company. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company
will be classified as a Restricted Subsidiary; provided, however, that such
Subsidiary shall not be designated a Restricted Subsidiary and shall be
automatically classified as an Unrestricted Subsidiary if either of the
requirements set forth in clauses (x) and (y) of the immediately following
paragraph will not be satisfied after giving pro forma effect to such
classification. Except as provided in the first sentence of this paragraph, no
Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary. Upon
designation of a Restricted Subsidiary as an Unrestricted Subsidiary in
compliance with this covenant, such Restricted Subsidiary will, by delivery of a
supplemental indenture in form satisfactory to the Trustee, be released from any
Subsidiary Guaranty previously made by such Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, (x) the Company could Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of the covenant described under "-
- -Company and Subsidiary Guarantor Debt" and (y) no Default or Event of Default
shall have occurred and be continuing or would result therefrom.
Any such designation or redesignation by the Board of Directors will be
evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation or redesignation and an Officers' Certificate (a)
certifying that such designation or redesignation complies with the foregoing
provisions and (b) giving the effective date of such designation or
redesignation, such filing with the Trustee to occur within 45 days after the
end of the fiscal quarter of the Company in which such designation or
redesignation is made (or, in the case of a designation or redesignation made
during the last fiscal quarter of the Company's fiscal year, within 90 days
after the end of such fiscal year).
Limitation on Holding's Business. Holding shall not, directly or
indirectly, engage in any business or activity other than the ownership of
Capital Stock of the Company and business activities incidental thereto.
MERGER, CONSOLIDATION AND SALE OF PROPERTY
The Company shall not merge, consolidate or amalgamate with or into any
other Person (other than a merger of a Wholly Owned Subsidiary into the Company)
or sell, transfer, assign, lease, convey or otherwise dispose of all or
substantially all its Property in any one transaction or series of transactions
unless: (a) the Company shall be the surviving Person (the "Surviving Person")
or the Surviving Person (if other than the Company) formed by such merger,
consolidation or amalgamation or to which such sale, transfer, assignment,
lease, conveyance or disposition is made shall be a corporation organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia; (b) the Surviving Person (if other than the Company)
expressly assumes, by supplemental indenture in form satisfactory to the
Trustee, executed and delivered to the Trustee by
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such Surviving Person, the due and punctual payment of the principal of, and
premium, if any, and interest on, all the Exchange Notes, according to their
tenor, and the due and punctual performance and observance of all the covenants
and conditions of the Indenture to be performed by the Company; (c) in the case
of a sale, transfer, assignment, lease, conveyance or other disposition of all
or substantially all the Property of the Company, such Property shall have been
transferred as an entirety or virtually as an entirety to one Person; (d)
immediately before and after giving effect to such transaction or series of
transactions on a pro forma basis (and treating, for purposes of this clause (d)
and clauses (e) and (f) below, any Debt which becomes, or is anticipated to
become, an obligation of the Surviving Person or any Restricted Subsidiary as a
result of such transaction or series of transactions as having been Incurred by
the Surviving Person or such Restricted Subsidiary at the time of such
transaction or series of transactions), no Default or Event of Default shall
have occurred and be continuing; (e) immediately after giving effect to such
transaction or series of transactions on a pro forma basis, the Company or the
Surviving Person, as the case may be, would be able to Incur at least $1.00 of
additional Debt under clause (a) of the first paragraph of the covenant
described under "--Certain Covenants--Company and Subsidiary Guarantor Debt";
provided, however, that this clause (e) shall not apply to a merger between the
Company and a Wholly Owned Subsidiary of the Company or Holding incorporated in
another state of the United States solely for the purpose of reincorporating the
Company as long as the total amount of Debt of the Company and its Restricted
Subsidiaries is not increased as a result thereof; and (f) the Company shall
deliver, or cause to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion
of Counsel, each stating that such transaction and the supplemental indenture,
if any, in respect thereto comply with this covenant and that all conditions
precedent herein provided for relating to such transaction have been satisfied.
The Surviving Person shall succeed to, and be substituted for, and may
exercise every right and power of the Company under the Indenture, but the
predecessor Company in the case of a sale, transfer, assignment, lease,
conveyance or other disposition shall not be released from the obligation to pay
the principal of, and premium, if any, and interest on, the Exchange Notes.
EVENTS OF DEFAULT
Events of Default in respect of the Exchange Notes as set forth in the
Indenture include: (a) failure to make the payment of any interest on the
Exchange Notes when the same becomes due and payable, and such failure continues
for a period of 30 days; (b) failure to make the payment of any principal of, or
premium, if any, on, any of the Exchange Notes when the same becomes due and
payable at its Stated Maturity, upon acceleration, redemption, optional
redemption, required repurchase or otherwise; (c) failure to comply with the
covenant described above under "--Merger, Consolidation and Sale of Property";
(d) failure to comply with any other covenant or agreement in the Exchange Notes
or in the Indenture (other than a failure which is the subject of the foregoing
clause (a), (b) or (c)) and such failure continues for 30 days after written
notice is given to the Company as provided below; (e) a default under any Debt
by the Company or any Restricted Subsidiary which results in acceleration of the
stated maturity of such Debt, or failure to pay any such Debt at final maturity,
in an aggregate amount greater than $7.5 million (or its foreign currency
equivalent at the time) (the "cross acceleration provisions"); (f) any judgment
or judgments for the payment of money in an aggregate amount in excess of $7.5
million (or its foreign currency equivalent at the time) shall be rendered
against the Company or any Restricted Subsidiary and shall not be waived,
satisfied or discharged for any period of 30 consecutive days during which a
stay of enforcement shall not be in effect (the "judgment default provisions");
(g) certain events involving bankruptcy, insolvency or reorganization of the
Company or any Significant Subsidiary (the "bankruptcy provisions"); and (h) the
Subsidiary Guaranty of any Significant Subsidiary or, if issued, Industrias
Hudson ceases to be in full force and effect (other than in accordance with the
terms thereof) or any Significant Subsidiary or, if applicable, Industrias
Hudson denies or disaffirms its obligations under its Subsidiary Guaranty (the
"guaranty provisions").
A Default under clause (d) is not an Event of Default until the Trustee or
the holders of not less than 25% in aggregate principal amount of the Exchange
Notes then outstanding notify the Company of the Default and the Company does
not cure such Default within the time specified 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".
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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 which with the giving of notice and the lapse of time would become an
Event of Default, its status and what action the Company is taking or proposes
to take with respect thereto.
The Indenture provides that if an Event of Default with respect to the
Exchange Notes (other than an Event of Default resulting from certain events
involving bankruptcy, insolvency or reorganization with respect to the Company
or any Significant Subsidiary) shall have occurred and be continuing, the
Trustee or the registered holders of not less than 25% in aggregate principal
amount of the Exchange Notes then outstanding may declare to be immediately due
and payable the principal amount of all the Exchange Notes then outstanding,
plus accrued but unpaid interest to the date of acceleration. In case an Event
of Default resulting from certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary shall
occur, such amount with respect to all the Exchange Notes shall be due and
payable immediately without any declaration or other act on the part of the
Trustee or the holders of the Exchange Notes. After any such acceleration, but
before a judgment or decree based on acceleration is obtained by the Trustee,
the registered holders of a majority in aggregate principal amount of the
Exchange Notes then outstanding may, under certain circumstances, rescind and
annul such acceleration if all Events of Default, other than the nonpayment of
accelerated principal, premium or interest, have been cured or waived as
provided in the Indenture.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders of the Exchange
Notes, unless such holders shall have offered to the Trustee reasonable
indemnity. Subject to such provisions for the indemnification of the Trustee,
the holders of a majority in aggregate principal amount of the Exchange Notes
then outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Exchange Notes.
No holder of Exchange Notes will have any right to institute any proceeding
with respect to the Indenture, or for the appointment of a receiver or trustee,
or for any remedy thereunder, unless (a) such holder has previously given to the
Trustee written notice of a continuing Event of Default, (b) the registered
holders of at least 25% in aggregate principal amount of the Exchange Notes then
outstanding have made written request and offered reasonable indemnity to the
Trustee to institute such proceeding as trustee and (c) the Trustee shall not
have received from the registered holders of a majority in aggregate principal
amount of the Exchange Notes then outstanding a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a holder of any
Exchange Note for enforcement of payment of the principal of, and premium, if
any, or interest on, such Exchange Note on or after the respective due dates
expressed in such Exchange Note.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the registered holders of a majority in aggregate principal amount of
the Exchange Notes then outstanding (including consents obtained in connection
with a tender offer or exchange offer for the Exchange Notes) and any past
default or compliance with any provisions may also be waived (except a default
in the payment of principal, premium or interest and certain covenants and
provisions of the Indenture which cannot be amended without the consent of each
holder of an outstanding Exchange Note) with the consent of the registered
holders of at least a majority in aggregate principal amount of the Exchange
Notes then outstanding. However, without the consent of each holder of an
outstanding Exchange Note, no amendment may, among other things, (a) reduce the
amount of Exchange Notes whose holders must consent to an amendment or waiver,
(b) reduce the rate of or extend the time for payment of interest on any
Exchange Note, (c) reduce the principal of or extend the Stated Maturity of any
Exchange Note, (d) make any Exchange Note payable in money other than that
stated in the Exchange Note, (e) impair the right of any holder of the Exchange
Notes to receive payment of principal of and interest on such holder's Exchange
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 Exchange Notes or
any Subsidiary Guaranty, (f) release any security interest that may have been
granted in favor of the holders of the Exchange Notes, (g) reduce the premium
payable upon the redemption or repurchase of any
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Exchange Note, or change the time at which any Exchange Note may be redeemed, as
described under "--Optional Redemption", (h) reduce the premium payable upon a
Change of Control or, at any time after a Change of Control or Asset Sale has
occurred, change the time at which the Change of Control Offer or Prepayment
Offer relating thereto must be made or at which the Exchange Notes must be
repurchased pursuant to such Change of Control Offer or (i) make any change to
the subordination provisions of the Indenture that would adversely affect the
holders of the Exchange Notes or (j) make any change in any Subsidiary Guaranty
that would adversely affect the holders of the Exchange Notes.
Without the consent of any holder of the Exchange Notes, the Company and
the 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
Exchange Notes in addition to or in place of certificated Exchange Notes
(provided that the uncertificated Exchange Notes are issued in registered form
for purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Exchange Notes are described in Section 163(f)(2)(B) of the
Code), to add additional Guarantees with respect to the Exchange Notes or to
release Subsidiary Guarantors from Subsidiary Guaranties as provided by the
terms of the Indenture, to secure the Exchange Notes, to add to the covenants of
the Company for the benefit of the holders of the Exchange Notes 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 of the Exchange Notes in any material
respect, to make any change to the subordination provisions of the Indenture
that would limit or terminate the benefits available to any holder of Senior
Debt under such provisions or to comply with any requirement of the Commission
in connection with the qualification of the Indenture under the Trust Indenture
Act.
No amendment may be made to the subordination provisions of the Indenture
that adversely affects the rights of any holder of Senior Debt then outstanding
unless the holders of such Senior Debt (or their Representative) consent to such
change. The consent of the holders of the Exchange Notes 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 each registered holder of the Exchange Notes at such
holder's address appearing in the Security Register a notice briefly describing
such amendment. However, the failure to give such notice to all holders of the
Exchange Notes, or any defect therein, will not impair or affect the validity of
the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the
Exchange 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 Exchange Notes, to replace mutilated,
destroyed, lost or stolen Exchange Notes and to maintain a registrar and paying
agent in respect of the Exchange Notes. The Company at any time may terminate
its obligations under the covenants described under "--Repurchase at the Option
of Holders Upon a Change of Control" and "--Certain Covenants", the operation of
the cross acceleration provisions, the judgment default provisions, the
bankruptcy provisions with respect to Significant Subsidiaries, the guaranty
provisions described under "--Events of Default" above and the limitations
contained in clauses (e) and (f) under the first paragraph of "--Merger,
Consolidation and Sale of Property" above ("covenant defeasance"). 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
Exchange 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 Exchange Notes may not be accelerated because of an Event of
Default specified in clause (d) (with respect to the covenants described under
"--Certain Covenants"), (e), (f), (g) (with respect only to Significant
Subsidiaries) or (h) under "--Events of Default" above or because of the failure
of the Company to comply with clauses (e) and (f) under the first paragraph of
"--Merger, Consolidation and Sale of Property" above. If the Company exercises
its legal defeasance option or its covenant defeasance option, each Subsidiary
Guarantor will be released from all its obligations under its Subsidiary
Guaranty.
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In order to exercise either defeasance option, the Company must, among
other things, irrevocably deposit in trust (the "defeasance trust") with the
Trustee money or U.S. Government Obligations for the payment of principal of and
interest on the Exchange Notes to maturity or redemption, 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 Exchange 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 amounts 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).
GOVERNING LAW
The Indenture and the Exchange Notes are governed by the internal laws of
the State of New York without reference to principles of conflicts of law.
THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such of the rights and powers vested in it under the Indenture and use
the same degree of care and skill in its exercise as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Additional Assets" means (a) any Property (other than cash, cash
equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in a Related Business; or (b) Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary from any Person other than
an Affiliate of the Company; provided, however, that, in the case of clause (b),
such Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (a) any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person or (b) any other Person who is a director or
officer of (i) such specified Person, (ii) any Subsidiary of such specified
Person or (iii) any Person described in clause (a) above. For the purposes of
this definition, "control" when used with respect to any Person means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the covenant described under "--Certain Covenants--
Limitation on Transactions with Affiliates", "--Limitation on Asset Sales" and
the definition of "Additional Assets" only, "Affiliate" shall also mean any
beneficial owner of shares representing 5% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Asset Sale" means any sale, lease, transfer, issuance or other disposition
(or series of related sales, leases, transfers, issuances or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by
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means of a merger, consolidation or similar transaction (each referred to for
the purposes of this definition as a "disposition"), of (a) any shares of
Capital Stock of a Restricted Subsidiary (other than directors' qualifying
shares) or (b) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such Restricted
Subsidiary other than, in the case of clauses (a) and (b) above, (i) any
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) for purposes of the
covenant described under "--Certain Covenants--Limitation on Asset Sales" only,
any disposition that constitutes a Permitted Investment or Restricted Payment
permitted by the covenant described under "--Certain Covenants--Limitation on
Restricted Payments", (iii) any disposition effected in compliance with the
first paragraph of the covenant described under "--Merger, Consolidation and
Sale of Property", (iv) any Sale and Leaseback Transaction completed within 180
days following the original acquisition of the subject assets where such Sale
and Leaseback Transaction represents the intended financing of Property acquired
after the Issue Date and (v) any disposition or series of related dispositions
of assets having a Fair Market Value and sale price of less than $500,000.
"Attributable Debt" in respect of a Sale and Leaseback Transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such Sale and Leaseback Transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Average Life" means, as of any date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (a) the sum of the
product of the numbers of years (rounded to the nearest one-twelfth of one year)
from the date of determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by (b) the sum of
all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Capital Lease Obligations" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty. For purposes of
"--Certain Covenants--Limitation on Liens", a Capital Lease Obligation shall be
deemed secured by a Lien on the Property being leased.
"Capital Stock" means, with respect to any Person, any shares or other
equivalents (however designated) of corporate stock, partnership interests or
any other participations, rights, warrants, options or other interests in the
nature of an equity interest in such Person, including Preferred Stock, but
excluding any debt security convertible or exchangeable into such equity
interest.
"Capital Stock Sale Proceeds" means the aggregate cash proceeds received by
the Company from the issuance or sale (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 for the benefit of their employees) by the Company of any
class of its Capital Stock (other than Disqualified Stock) after the Issue Date,
net of attorneys' fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Change of Control" means the occurrence of any of the following events:
(a) prior to the first Public Equity Offering, the Permitted Holders
cease to be the "beneficial owners" (as defined in Rule 13d-3 under the
Exchange Act, except that a Person will be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of a majority of the voting
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power of the Voting Stock of the Company, whether as a result of the
issuance of securities of the Company, any merger, consolidation,
liquidation or dissolution of the Company, any direct or indirect transfer
of securities by the Permitted Holders or otherwise (for purposes of this
clause (a), the Permitted Holders will be deemed to beneficially own any
Voting Stock of a corporation (the "specified corporation") held by any
other corporation (the "parent corporation") so long as the Permitted
Holders beneficially own, directly or indirectly, in the aggregate a
majority of the voting power of the Voting Stock of such parent
corporation); or
(b) after the first Public Equity Offering, any "Person" or "group"
(as such terms are used in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provisions to either of the foregoing), including any
group acting for the purpose of acquiring, holding, voting or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act,
other than any one or more of the Permitted Holders, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except
that a Person will be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of 35% or more of the voting power of the Voting Stock of the
Company; provided, however, that the Permitted Holders are the "beneficial
owners" (as defined in Rule 13d-3 under the Exchange Act, except that a
Person will be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, in
the aggregate of a lesser percentage of the total voting power of all
classes of the Voting Stock of the Company than such other Person or group
(for purposes of this clause (b), such Person or group shall be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation so long as such Person or group beneficially owns,
directly or indirectly, in the aggregate a majority of the voting power of
the Voting Stock of such parent corporation); or
(c) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Subsidiary or one or more Permitted Holders)
shall have occurred, or the Company merges, consolidates or amalgamates
with or into any other Person (other than one or more Permitted Holders) or
any other Person (other than one or more Permitted Holders) merges,
consolidates or amalgamates with or into the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is reclassified into or exchanged for cash, securities or other
Property, other than any such transaction where (i) the outstanding Voting
Stock of the Company is reclassified into or exchanged for Voting Stock of
the surviving corporation and (ii) the holders of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving corporation
immediately after such transaction and in substantially the same proportion
as before the transaction; or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election or appointment by such Board or whose
nomination for election by the shareholders of the Company was approved by
a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the members of the Board of Directors then in office; or
(e) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Interest Coverage Ratio" means, as of any date of
determination, the ratio of (a) the aggregate amount of EBITDA for the most
recent four consecutive fiscal quarters ending at least 45 days prior to such
determination date to (b) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that
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(i) if the Company or any Restricted Subsidiary has Incurred any Debt since the
beginning of such period that remains outstanding or if the transaction giving
rise to the need to calculate the Consolidated Interest Coverage Ratio is an
Incurrence of Debt, or both, Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to such Debt as if such
Debt had been Incurred on the first day of such period and the discharge of any
other Debt repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Debt as if such discharge had occurred on the first day of
such period, (ii) if since the beginning of such period the Company or any
Restricted Subsidiary shall have repaid, repurchased, legally defeased or
otherwise discharged any Debt with Capital Stock Sale Proceeds, Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such discharge as if such discharge had occurred on the first
day of such period, (iii) if since the beginning of such period the Company or
any Restricted Subsidiary shall have made any Asset Sale or if the transaction
giving rise to the need to calculate the Consolidated Interest Coverage Ratio is
an Asset Sale, or both, EBITDA for such period shall be reduced by an amount
equal to the EBITDA (if positive) directly attributable to the Property which is
the subject of such Asset Sale for such period, or increased by an amount equal
to the EBITDA (if negative) directly attributable thereto for such period, in
either case as if such Asset Sale had occurred on the first day of such period
and Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any Debt of
the Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Sale, as if such Asset Sale had
occurred on the first day of such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, by an amount equal to the Consolidated Interest
Expense for such period directly attributable to the Debt of such Restricted
Subsidiary to the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such Debt after such sale), (iv) if since the beginning
of such period the Company or any Restricted Subsidiary (by merger or otherwise)
shall have made an Investment in any Restricted Subsidiary (or any Person which
becomes a Restricted Subsidiary) or an acquisition of Property, including any
acquisition of Property occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially all of
an operating unit of a business, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any Debt) as if such Investment or acquisition occurred on the
first day of such period and (v) if since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary or was merged with or
into the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Sale, Investment or acquisition of Property
that would have required an adjustment pursuant to clause (iii) or (iv) above if
made by the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Sale, Investment or acquisition
occurred on the first day of such period. For purposes of this definition, pro
forma calculations shall be determined in good faith by a responsible financial
or accounting Officer of the Company and as further contemplated by the
definition of the term "pro forma". If any Debt bears a floating rate of
interest and is being given pro forma effect, the interest expense on such Debt
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any Interest
Rate Agreement applicable to such Debt if such Interest Rate Agreement has a
remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
Incurred by the Company or its Restricted Subsidiaries, (a) interest expense
attributable to capital leases, (b) amortization of debt discount and debt
issuance cost, including commitment fees, other than with respect to Debt
Incurred in connection with the Recapitalization, (c) capitalized interest, (d)
non-cash interest expenses, (e) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (f) net costs associated with Hedging Obligations (including
amortization of fees), (g) Disqualified Dividends other than Disqualified
Dividends paid with shares of Capital Stock of the Company which is not
Disqualified Stock, (h) Preferred Stock dividends in respect of all Preferred
Stock of Restricted Subsidiaries held by Persons other than the Company or a
Wholly Owned Subsidiary, (i) interest Incurred in connection with Investments in
discontinued operations, (j) interest accruing on any Debt of any other Person
to the extent such Debt is Guaranteed by the Company or any Restricted
Subsidiary and (k) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Company) in connection
with Debt Incurred by such plan or trust.
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"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income (a) any net income (loss)
of any Person (other than the Company) if such Person is not a Restricted
Subsidiary, except that (i) subject to the exclusion contained in clause (d)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (c) below) and (ii) the Company's equity in a
net loss of any such Person other than an Unrestricted Subsidiary for such
period shall be included in determining such Consolidated Net Income, (b) for
the purposes of the covenant described under "--Certain Covenants--Limitation on
Restricted Payments" only, any net income (loss) of any Person acquired by the
Company or any of its consolidated Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (c) any net
income (but not loss) of any Restricted Subsidiary if such Restricted Subsidiary
is subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions, directly or indirectly, to the Company, except
that subject to the exclusion contained in clause (d) below, the Company's
equity in the net income of any such Restricted Subsidiary for such period shall
be included in such Consolidated Net Income up to the aggregate amount of cash
distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution to another Restricted Subsidiary,
to the limitation contained in this clause), (d) any gain (or, for purposes of
the covenants described under "--Certain Covenants--Limitation on Company and
Subsidiary Guarantor Debt" and "--Merger, Consolidation and Sale of Property"
only, loss) realized upon the sale or other disposition of any Property of the
Company or any of its consolidated Subsidiaries (including pursuant to any Sale
and Leaseback Transaction) which is not sold or otherwise disposed of in the
ordinary course of business, provided, that any tax benefit or tax liability
resulting therefrom shall be excluded in such Consolidated Net Income, (e) any
extraordinary gain or loss, provided, that any tax benefit or tax liability
resulting therefrom shall be excluded in such Consolidated Net Income, (f) the
cumulative effect of a change in accounting principles and (g) (i) any non-cash
compensation expense realized for grants of performance shares, stock options or
other stock awards to officers, directors and employees of the Company or any
Restricted Subsidiary or (ii) compensation expense realized with respect to
periods prior to the Issue Date in respect of payments under the Company's 1994
Amended and Restated Equity Participation Plan or compensation expense, to the
extent accrued in 1998, related to contingent payments to existing managers of
the Company pursuant to the Merger Agreement in an aggregate amount not in
excess of $2.4 million. Notwithstanding the foregoing, for the purposes of the
covenant described under "--Certain Covenants--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 clause (c)(iv) thereof.
"Credit Facility" means, with respect to the Company or any Restricted
Subsidiary, one or more debt or commercial paper facilities with banks or other
institutional lenders (including the New Credit Facility) providing for
revolving credit loans, term loans, receivables or inventory financing
(including through the sale of receivables or inventory to such lenders or to
special purpose, bankruptcy remote entities formed to borrow from such lenders
against such receivables or inventory) or trade letters of credit, in each case
together with any amendments, supplements, modifications (including by any
extension of the maturity thereof), refinancings or replacements thereof by a
lender or syndicate of lenders in one or more successive transactions (including
any such transaction that changes the amount available thereunder, replaces such
agreement or document, or provides for other agents or lenders).
"Currency Exchange Protection Agreement" means, in respect of a Person, any
foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.
"Debt" means, with respect to any Person on any date of determination
(without duplication), (a) the principal of and premium (if any) in respect of
(i) debt of such Person for money borrowed and (ii) debt evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (b) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale and Leaseback
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Transactions entered into by such Person; (c) all obligations of such Person
issued or assumed as the deferred purchase price of Property, all conditional
sale obligations of such Person and all obligations of such Person under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (d) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (a) through (c)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (e) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends); (f) all obligations of the type
referred to in clauses (a) through (e) of other Persons and all dividends of
other Persons for the payment of which, in either case, such Person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; (g) all obligations of the type
referred to in clauses (a) through (f) of other Persons secured by any Lien on
any Property of such Person (whether or not such obligation is assumed by such
Person), the amount of such obligation being deemed to be the lesser of the
value of such Property or the amount of the obligation so secured; and (h) to
the extent not otherwise included in this definition, Hedging Obligations of
such Person. The amount of Debt of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; provided
that the amount outstanding at any time of any Debt issued with original issue
discount is the face amount of such Debt less the remaining unamortized portion
of the original issue discount of such Debt at such time as determined in
accordance with GAAP.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Debt" means any Senior Debt which has, at the time of
determination, an aggregate principal amount outstanding of at least $10.0
million (including the amount of all undrawn commitments and matured and
contingent reimbursement obligations pursuant to letters of credit thereunder)
that is specifically designated in the instrument evidencing such Senior Debt
and is designated in a notice delivered by the Company to the holders or a
Representative of the holders of such Senior Debt and in an Officers'
Certificate delivered to the Trustee as "Designated Senior Debt" of the Company
for purposes of the Indenture; provided that the New Credit Facility shall be
deemed to be Designated Senior Debt under the Indenture.
"Disqualified Dividends" means, for any dividend with respect to
Disqualified Stock, the quotient of the dividend divided by the difference
between one and the maximum statutory federal income tax rate (expressed as a
decimal number between 1 and 0) then applicable to the issuer of such
Disqualified Stock.
"Disqualified Stock" means, with respect to any Person, Redeemable Stock of
such Person as to which (i) the maturity, (ii) mandatory redemption or (iii)
redemption, repurchase, conversion or exchange at the option of the holder
thereof occurs, or may occur, on or prior to the first anniversary of the Stated
Maturity of the Exchange Notes; provided, however, that Redeemable Stock of such
Person that would not otherwise be characterized as Disqualified Stock under
this definition shall not constitute Disqualified Stock (a) if such Redeemable
Stock is convertible or exchangeable into Debt or Disqualified Stock solely at
the option of the issuer thereof or (b) solely as a result of provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Redeemable Stock upon the occurrence of a "change of control" occurring
prior to the first anniversary of the Stated Maturity of the Exchange Notes, if
(x) such repurchase obligation may not be triggered in respect of such
Redeemable Stock unless a corresponding obligation also arises with respect to
the Exchange Notes and (y) no such repurchase or redemption is permitted to be
consummated unless and until such Person shall have satisfied all repurchase or
redemption obligations with respect to any required purchase offer made with
respect to the Exchange Notes.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary other than
(a) a Foreign Restricted Subsidiary or (b) a Subsidiary of a Foreign Restricted
Subsidiary.
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"EBITDA" means, for any period, an amount equal to, for the Company and its
consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net Income for
such period, plus the following to the extent reducing Consolidated Net Income
for such period: (i) the provision for taxes based on income or profits or
utilized in computing net loss, (ii) Consolidated Interest Expense, (iii)
depreciation, (iv) amortization expense and (v) any other non-cash items (other
than any such non-cash item to the extent that it represents an accrual of or
reserve for cash expenditures in any future period), minus (b) all non-cash
items increasing Consolidated Net Income for such period (other than any such
non-cash item to the extent that it will result in the receipt of cash payments
in any future period). Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization of, a
Restricted Subsidiary 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 Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its shareholders.
"Employee Notes" means promissory notes of employees of the Company,
Holding or any of their Subsidiaries payable to the Company or Holding and
received in connection with the substantially concurrent purchase of common
stock of the Company or Holding by such employees.
"Event of Default" has the meaning set forth under "-Events of Default".
"Exchange Act" means the Securities Exchange Act of 1934.
"Fair Market Value" means, with respect to any Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided, (a) if such Property has a Fair Market
Value equal to or less than $2.5 million, by any Officer of the Company or (b)
if such Property has a Fair Market Value in excess of $2.5 million, by a
majority of the Board of Directors and evidenced by a Board Resolution, dated
within 30 days of the relevant transaction, delivered to the Trustee.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary which is
not organized under the laws of the United States of America or any State
thereof or the District of Columbia.
"GAAP" means United States generally accepted accounting principles as in
effect on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such other
entity as approved by a significant segment of the accounting profession and (d)
the rules and regulations of the Commission governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the Commission.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement
or any other similar agreement or arrangement.
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"Holding" means River Holding Corp., the corporate parent of the Company,
and any successor thereto.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by merger, conversion, exchange or otherwise), extend,
assume, Guarantee or become liable in respect of such Debt or other obligation
or the recording, as required pursuant to GAAP or otherwise, of any such Debt or
obligation on the balance sheet of such Person (and "Incurrence" and "Incurred"
shall have meanings correlative to the foregoing); provided, however, that a
change in GAAP that results in an obligation of such Person that exists at such
time, and is not theretofore classified as Debt, becoming Debt shall not be
deemed an Incurrence of such Debt; provided further, however, that solely for
purposes of determining compliance with "--Certain Covenants--Limitation on
Company and Subsidiary Guarantor Debt" and "--Limitation on Non-Guarantor
Subsidiary Debt", amortization of debt discount shall not be deemed to be the
Incurrence of Debt, provided that in the case of Debt sold at a discount, the
amount of such Debt Incurred shall at all times be the aggregate principal
amount at Stated Maturity.
"Industrias Hudson" means Industrias Hudson S.A. de C.V.
"Independent Appraiser" means an investment banking firm of national
standing or any third party appraiser of national standing, provided that such
firm or appraiser is not an Affiliate of the Company.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect against fluctuations in interest rates.
"Investment" by any Person means any direct or indirect loan (other than
advances to customers in the ordinary course of business that are recorded as
accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidence of Debt issued by, any other Person. For purposes
of the covenant described under "--Certain Covenants--Limitation on Restricted
Payments", "--Designation of Restricted and Unrestricted Subsidiaries" and the
definition of "Restricted Payment", "Investment" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the Fair
Market Value of the net assets of any 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 (a) the
Company's "Investment" in such Subsidiary at the time of such redesignation less
(b) 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. In determining the amount of any Investment made by
transfer of any Property other than cash, such Property shall be valued at its
Fair Market Value at the time of such Investment.
"Issue Date" means the date on which the Exchange Notes are initially
issued.
"Lien" means, with respect to any Property of any Person, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such Property (including any Capital Lease
Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
"Merger Agreement" means the Amended and Restated Merger Agreement between
Holding, River Acquisition Corp., the Company and shareholders of the Company
dated as of March 15, 1998, as in effect on the Issue Date.
"Mirror Preferred Stock" means the 11 1/2% Senior PIK Preferred Stock due
2010 of the Company.
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"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"Net Available Cash" from any Asset Sale means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to the
Property that is the subject of such Asset Sale or received in any other noncash
form), in each case net of (a) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be accrued as a liability under
GAAP, as a consequence of such Asset Sale, (b) all payments made on any Debt
which is secured by any Property subject to such Asset Sale, in accordance with
the terms of any Lien upon or other security agreement of any kind with respect
to such Property, or which must by its terms, or in order to obtain a necessary
consent to such Asset Sale, or by applicable law, be repaid out of the proceeds
from such Asset Sale, (c) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures as a result
of such Asset Sale and (d) the deduction of appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the Property disposed in such Asset Sale and retained by the Company or any
Restricted Subsidiary after such Asset Sale.
"New Credit Facility" means the credit facilities made available pursuant
to the Credit Agreement dated as of April 7, 1998 among the Company, Holding,
the lenders party thereto, Salomon Smith Barney Inc, as Arranger, Advisor and
Syndication Agent and Bankers Trust Company, as Administrative Agent.
"Officer" means the Chief Executive Officer, the President, the Chief
Financial Officer or any Executive Vice President of the Company.
"Officers' Certificate" means a certificate signed by two Officers of the
Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Trustee.
"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.
"Permitted Holders" means Helen Hudson Lovaas, any member of the senior
management of the Company or Holding on the Issue Date and Freeman Spogli & Co.
Incorporated or any successor entity thereof controlled by the principals of
Freeman Spogli & Co. Incorporated or any entity controlled by, or under common
control with, Freeman Spogli & Co. Incorporated.
"Permitted Investment" means any Investment by the Company or a Restricted
Subsidiary in (a) any Restricted Subsidiary or any Person that will, upon the
making of such Investment, become a Restricted Subsidiary; provided that the
primary business of such Restricted Subsidiary is a Related Business; (b) any
Person if as a result of such Investment such Person is merged or consolidated
with or into, or transfers or conveys all or substantially all its Property to,
the Company or a Restricted Subsidiary; provided that such Person's primary
business is a Related Business; (c) Temporary Cash Investments; (d) receivables
owing to the Company or a Restricted Subsidiary, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade terms may include such
concessionary trade terms as the Company or such Restricted Subsidiary deems
reasonable under the circumstances; (e) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (f) (i) loans and advances to employees made in the ordinary
course of business consistent with past practices of the Company or such
Restricted Subsidiary, as the case may be; provided that such loans and advances
do not exceed $1.0 million at any one time outstanding and (ii) loans and
advances to, or the receipt of Employee Notes from, employees of Holding, the
Company or any of their Subsidiaries made or received in connection with the
substantially concurrent purchase of common stock of Holding or the Company by
such employees; provided that the aggregate principal amount of such loans,
advances and notes payable shall not exceed $1.0 million at any one time
outstanding; (g) stock, obligations or other securities received in settlement
of debts created in the ordinary course of business and owing to the Company or
a Restricted Subsidiary or in satisfaction of judgments; (h) any Person to the
extent such Investment represents the non-cash portion of the consideration
received in connection with an Asset Sale consummated in compliance with
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the covenant described under "--Certain Covenants--Limitation on Asset Sales";
and (i) Investments in Persons engaged in a Related Business not to exceed $10.0
million at any one time outstanding (it being agreed that an Investment shall
cease to be outstanding to the extent of dividends, repayments of loans or
advances or other transfers of Property received by the Company or any
Restricted Subsidiary from such Persons, provided that such amounts do not
increase the amount of Restricted Payments which the Company and the Restricted
Subsidiaries may make pursuant to clause (c)(iv)(A) of the covenant described
under "--Certain Covenants--Limitation on Restricted Payments").
"Permitted Liens" means:
(a) Liens securing Senior Debt of the Company or any Subsidiary
Guarantor;
(b) Liens for taxes, assessments or governmental charges or levies on
the Property of the Company or any Restricted Subsidiary if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or
are being contested in good faith and by appropriate proceedings;
(c) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, on the Property of the Company or any Restricted
Subsidiary arising in the ordinary course of business and securing payment
of obligations which are not more than 60 days past due or are being
contested in good faith and by appropriate proceedings;
(d) Liens on the Property of the Company or any Restricted Subsidiary
Incurred in the ordinary course of business to secure performance of
obligations with respect to statutory or regulatory requirements,
performance or return-of-money bonds, surety or indemnity bonds or other
obligations of a like nature and Incurred in a manner consistent with
industry practice, in each case which are not Incurred in connection with
the borrowing of money, the obtaining of advances or credit or the payment
of the deferred purchase price of Property and which do not in the
aggregate impair in any material respect the use of Property in the
operation of the business of the Company and the Restricted Subsidiaries
taken as a whole;
(e) Liens on Property at the time the Company or any Restricted
Subsidiary acquired such Property, including any acquisition by means of a
merger or consolidation with or into the Company or any Restricted
Subsidiary; provided, however, that any such Lien may not extend to any
other Property of the Company or any Restricted Subsidiary; provided
further, however, that such Liens shall not have been Incurred in
anticipation of or in connection with the transaction or series of
transactions pursuant to which such Property was acquired by the Company or
any Restricted Subsidiary;
(f) Liens on the Property of a Person at the time such Person becomes
a Restricted Subsidiary; provided, however, that any such Lien may not
extend to any other Property of the Company or any other Restricted
Subsidiary which is not a direct Subsidiary of such Person; provided
further, however, that any such Lien was not Incurred in anticipation of or
in connection with the transaction or series of transactions pursuant to
which such Person became a Restricted Subsidiary;
(g) pledges or deposits by the Company or any Restricted Subsidiary
under workmen's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Debt) or leases to which the
Company or any Restricted Subsidiary is party, or deposits to secure public
or statutory obligations of the Company, or deposits for the payment of
rent, in each case Incurred in the ordinary course of business;
(h) utility easements, building restrictions and such other
encumbrances or charges against real Property as are of a nature generally
existing with respect to properties of a similar character;
(i) judgment and attachment Liens in connection with (A) judgments
that do not constitute an Event of Default so long as the judgment creditor
is not seeking enforcement thereof and reserves have been established to
the extent required by GAAP as in effect at such time and (B) litigation
and legal
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proceedings that are being contested in good faith by appropriate
proceedings (or as to which the Company or Restricted Subsidiary, as the
case may be, is preparing to promptly initiate appropriate proceedings) so
long as reserves have been established to the extent required by GAAP as in
effect at such time and so long as such Liens do not encumber assets by an
aggregate amount (together with the amount of any unstayed judgments
against the Company or any Restricted Subsidiary) in excess of $7.5
million;
(j) Liens existing on the Issue Date not otherwise described in
clauses (a) through (i) above; and
(k) Liens on the Property of the Company or any Restricted Subsidiary
to secure any Refinancing, in whole or in part, of any Debt secured by
Liens referred to in clause (a), (e), (f) or (j) above; provided, however,
that any such Lien shall be limited to all or part of the same Property
that secured the original Lien (together with improvements and accessions
to such Property) and the aggregate principal amount of Debt that is
secured by such Lien shall not be increased to an amount greater than the
sum of (i) the outstanding principal amount, or, if greater, the committed
amount, of the Debt secured by Liens described under clause (a), (e), (f)
or (j) above, as the case may be, at the time the original Lien became a
Permitted Lien under the Indenture and (ii) an amount necessary to pay any
fees and expenses, including premiums and defeasance costs, Incurred by the
Company or such Restricted Subsidiary in connection with such Refinancing.
"Permitted Refinancing Debt" means any Debt that Refinances any other Debt,
including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance costs,
related to such Refinancing, (b) the Average Life of such Debt is equal to or
greater than the Average Life of the Debt being Refinanced, (c) the Stated
Maturity of such Debt is no earlier than the Stated Maturity of the Debt being
Refinanced and (d) such Debt is subordinated in right of payment to Senior Debt
and the Exchange Notes to at least the same extent, if any, as the Debt being
Refinanced; provided, however, that Permitted Refinancing Debt shall not include
(x) Debt of a Subsidiary that Refinances Debt of the Company or (y) Debt of the
Company or a Restricted Subsidiary that Refinances Debt of an Unrestricted
Subsidiary.
"Person" means any individual, corporation, company (including any limited
liability company), partnership, joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to the payment of
dividends, or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of any other class of
Capital Stock issued by such Person.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Company, as the case may be.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including Capital Stock in, and other securities of, any other
Person.
"Public Equity Offering" means an underwritten public offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act.
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"Purchase Money Debt" means Debt (a) consisting of the deferred purchase
price of property, conditional sale obligations, obligations under any title
retention agreement, other purchase money obligations and obligations in respect
of industrial revenue bonds, in each case where the maturity of such Debt does
not exceed the anticipated useful life of the asset being financed, and (b)
Incurred to finance the acquisition or construction by the Company or a
Restricted Subsidiary of such asset, including remodelling thereof and additions
and improvements thereto; provided, however, that such Debt is Incurred within
180 days after such acquisition of such asset by the Company or a Restricted
Subsidiary or completion of such construction, remodelling, addition or
improvement, as the case may be.
"Redeemable Stock" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable, in either case at the option of the holder
thereof) or otherwise (a) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (b) is or may become redeemable or
repurchaseable at the option of the holder thereof, in whole or in part, or (c)
is convertible or exchangeable, in either case at the option of the holder
thereof, for Debt or Disqualified Stock.
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue other Debt, in
exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
"Related Business" means any business that is related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means the trustee, agent or representative expressly
authorized to act in such capacity, if any, for an issue of Senior Debt.
"Restricted Payment" means (a) any dividend or distribution (whether made
in cash, securities or other Property) declared or paid on or with respect to
any shares of Capital Stock of the Company or any Restricted Subsidiary
(including any payment in connection with any merger or consolidation with or
into the Company or any Restricted Subsidiary), except for any dividend or
distribution which is made solely to the Company or a Restricted Subsidiary
(and, if such Restricted Subsidiary is not a Wholly Owned Subsidiary, to the
other shareholders of such Restricted Subsidiary on a pro rata basis or on a
basis that results in the receipt by the Company or a Restricted Subsidiary of
dividends or distributions of greater value than it would receive on a pro rata
basis) or any dividend or distribution payable solely in shares of Capital Stock
(other than Disqualified Stock) of the Company; (b) the purchase, repurchase,
redemption, acquisition or retirement for value of any Capital Stock of the
Company or any Affiliate of the Company (other than from the Company or a
Restricted Subsidiary) or any securities exchangeable for or convertible into
any such Capital Stock, including the exercise of any option to exchange any
Capital Stock (other than for or into Capital Stock of the Company that is not
Disqualified Stock); (c) the purchase, repurchase, redemption, acquisition or
retirement for value, prior to any scheduled maturity, scheduled sinking fund or
mandatory redemption payment, any Subordinated Obligation (other than the
purchase, repurchase or other acquisition of any Subordinated Obligation
purchased in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
acquisition); or (d) any Investment (other than Permitted Investments) in any
Person.
"Restricted Subsidiary" means (a) any Subsidiary of the Company unless such
Subsidiary shall have been designated an Unrestricted Subsidiary as permitted or
required pursuant to the covenant described under "--Certain Covenants--
Designation of Restricted and Unrestricted Subsidiaries" and (b) an Unrestricted
Subsidiary which is redesignated as a Restricted Subsidiary as permitted
pursuant to the covenant described under "--Certain Covenants--Designation of
Restricted and Unrestricted Subsidiaries".
"S&P" means Standard & Poor's Ratings Service or any successor to the
rating agency business thereof.
"Sale and Leaseback Transaction" means any arrangement relating to Property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such Property to another Person and the Company or a Restricted
Subsidiary leases it from such Person.
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"Securities Act" means the Securities Act of 1933.
"Senior Debt" of the Company means (a) all obligations consisting of the
principal, premium, if any, and accrued and unpaid interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company to the extent post-filing interest is
allowed in such proceeding) in respect of (i) Debt of the Company for borrowed
money and (ii) Debt of the Company evidenced by notes, debentures, bonds or
other similar instruments permitted under the Indenture for the payment of which
the Company is responsible or liable; (b) all Capital Lease Obligations of the
Company; (c) all obligations of the Company (i) for the reimbursement of any
obligor on any letter of credit, bankers' acceptance or similar credit
transaction, (ii) under Hedging Obligations or (iii) issued or assumed as the
deferred purchase price of Property and all conditional sale obligations of the
Company and all obligations under any title retention agreement permitted under
the Indenture; and (d) all obligations of other Persons of the type referred to
in clauses (a), (b) and (c) for the payment of which the Company is responsible
or liable as Guarantor; provided, however, that Senior Debt shall not include
(A) Debt of the Company that is by its terms subordinate or pari passu in right
of payment to the Exchange Notes, including any Senior Subordinated Debt or any
Subordinated Obligations; (B) any Debt Incurred in violation of the provisions
of the Indenture; (C) accounts payable or any other obligations of the Company
to trade creditors created or assumed by the Company in the ordinary course of
business in connection with the obtaining of materials or services (including
Guarantees thereof or instruments evidencing such liabilities); (D) any
liability for Federal, state, local or other taxes owed or owing by the Company;
(E) any obligation of the Company to any Subsidiary; or (F) any obligations with
respect to any Capital Stock. "Senior Debt" of any Subsidiary Guarantor has a
correlative meaning.
"Senior Subordinated Debt" of the Company means the Exchange Notes and any
other subordinated Debt of the Company that specifically provides that such Debt
is to rank pari passu with the Exchange Notes and is not subordinated by its
terms to any other subordinated Debt or other obligation of the Company which is
not Senior Debt. "Senior Subordinated Debt" of any Subsidiary Guarantor has a
correlative meaning.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the Commission.
"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 Obligation" means any Debt of the Company or any Subsidiary
Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which
is subordinate or junior in right of payment to the Exchange Notes or the
applicable Subsidiary Guarantee pursuant to a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, company,
association, partnership, joint venture or other business entity of which more
than 50% of the total voting power of shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled directly or indirectly, by (a) such
Person, (b) such Person and one or more Subsidiaries of such Person or (c) one
or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Domestic Restricted Subsidiary that
becomes a Subsidiary Guarantor pursuant to the covenant described under "--
Certain Covenants--Limitation on Non-Guarantor Subsidiary Debt".
"Subsidiary Guaranty" means a Guarantee on the terms set forth in the
Indenture by a Subsidiary Guarantor of the Company's obligations with respect to
the Exchange Notes.
"Temporary Cash Investments" means any of the following: (a) Investments in
U.S. Government Obligations; (b) Investments in time deposit accounts,
certificates of deposit and money market deposits maturing within 90 days of the
date of acquisition thereof issued by a bank or trust company which is organized
under the
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laws of the United States of America or any state thereof having capital,
surplus and undivided profits aggregating in excess of $500.0 million and whose
long-term debt is rate "A-3" or "A-" or higher according to Moody's or S&P (or
such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act); (c) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (a) entered into with a
bank meeting the qualifications described in clause (b) above; (d) Investments
in commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America with a
rating at the time as of which any Investment therein is made of "P-1" (or
higher) according to Moody's or "A-1" (or higher) according to S&P (or such
similar equivalent rating by at least one "nationally recognized statistical
rating organization" (as defined in Rule 436 under the Securities Act); (e)
direct obligations (or certificates representing an ownership interest in such
obligations) of any state of the United States of America (including any agency
or instrumentality thereof) for the payment of which the full faith and credit
of such state is pledged and which are not callable or redeemable at the
issuer's option, provided that (i) the long-term debt of such state is rated "A-
3" or "A-" or higher according to Moody's or S&P (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)) and (ii) such obligations
mature within 180 days of the date of acquisition thereof; and (f) investments
in money market funds which invest substantially all their assets in securities
of the types described in clauses (a) through (e) above.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company in
existence on the Issue Date that is not a Restricted Subsidiary; (b) any
Subsidiary of an Unrestricted Subsidiary; and (c) any Subsidiary of the Company
that is designated after the Issue Date as an Unrestricted Subsidiary as
permitted or required pursuant to the covenant described under "--Certain
Covenants--Designation of Restricted and Unrestricted Subsidiaries" and not
thereafter redesignated as a Restricted Subsidiary as permitted pursuant
thereto.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary all
the Voting Stock of which (except directors' qualifying shares) is at such time
owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.
BOOK-ENTRY SYSTEM
The Exchange Notes may be issued in the form of one or more global
securities (collectively, a "Global Security"). A Global Security will be
deposited with, or on behalf of, the DTC and registered in the name of the DTC
or its nominee. Except as set forth below, a Global Security may be transferred,
in whole and not in part, only to the DTC or another nominee of the DTC.
Investors may hold their beneficial interests in a Global Security directly
through the DTC if they have an account with the DTC or indirectly through
organizations which have accounts with the DTC.
Depository Procedures
Upon the issuance of a Global Security, DTC or its nominee will credit the
accounts of Persons holding through it with the respective principal amounts of
the Exchange Notes represented by such Global Security purchased by such Persons
in the Offering. Such accounts shall be designated by the Initial Purchasers.
Ownership of beneficial interests in a Global Security will be limited to
Persons that have accounts with DTC ("participants") or Persons that may hold
interests through participants. Any Person acquiring an interest in a Global
Security
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through an offshore transaction in reliance on Regulation S of the Securities
Act may hold such interest through Cedel or Euroclear. Ownership of beneficial
interests in a Global Security will be shown on, and the transfer of that
ownership interest will be effected only through, records maintained by DTC
(with respect to participants' interests) and such participants (with respect to
the owners of beneficial interests in such Global Security other than
participants). The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Security.
Payment of principal of and interest on Exchange Notes represented by a
Global Security will be made in immediately available funds to DTC or its
nominee, as the case may be, as the sole registered owner and the sole holder of
the Exchange Notes represented thereby for all purposes under the Indenture. The
Company has been advised by DTC that upon receipt of any payment of principal of
or interest on any Global Security, DTC will immediately credit, on its book-
entry registration and transfer system, the accounts of participants with
payments in amounts proportionate to their respective beneficial interests in
the principal or face amount of such Global Security as shown on the records of
DTC. Payments by participants to owners of beneficial interests in a Global
Security held through such participants will be governed by standing
instructions and customary practices as is now the case with securities held for
customer accounts registered in "street name" and will be the sole
responsibility of such participants.
A Global Security may not be transferred except as a whole by DTC or a
nominee of DTC to a nominee of DTC or to DTC. A Global Security is exchangeable
for certificated Exchange Notes only if (a) DTC notifies the Company that it is
unwilling or unable to continue as a depositary for such Global Security or if
at any time DTC ceases to be a clearing agency registered under the Exchange
Act, (b) the Company in its discretion at any time determines not to have all
the Exchange Notes represented by such Global Security or (c) there shall have
occurred and be continuing a Default or an Event of Default with respect to the
Exchange Notes represented by such Global Security. Any Global Security that is
exchangeable for certificated Exchange Notes pursuant to the preceding sentence
will be exchanged for certificated Exchange Notes in authorized denominations
and registered in such names as DTC or any successor depositary holding such
Global Security may direct. Subject to the foregoing, a Global Security is not
exchangeable, except for a Global Security of like denomination to be registered
in the name of DTC or any successor depositary or its nominee. In the event that
a Global Security becomes exchangeable for certificated Exchange Notes, (a)
certificated Exchange Notes will be issued only in fully registered form in
denominations of $1,000 or integral multiples thereof, (b) payment of principal
of, and premium, if any, and interest on, the certificated Exchange Notes will
be payable, and the transfer of the certificated Exchange Notes will be
registerable, at the office or agency of the Company maintained for such
purposes and (c) no service charge will be made for any registration of transfer
or exchange of the certificated Exchange Notes, although the Company may require
payment of a sum sufficient to cover any tax or governmental charge imposed in
connection therewith.
So long as DTC or any successor depositary for a Global Security, or any
nominee, is the registered owner of such Global Security, DTC or such successor
depositary or nominee, as the case may be, will be considered the sole owner or
holder of the Exchange Notes represented by such Global Security for all
purposes under the Indenture and the Exchange Notes. Except as set forth above,
owners of beneficial interests in a Global Security will not be entitled to have
the Exchange Notes represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of
certificated Exchange Notes in definitive form and will not be considered to be
the owners or holders of any Exchange Notes under such Global Security.
Accordingly, each Person owning a beneficial interest in a Global Security must
rely on the procedures of DTC or any successor depositary, and, if such Person
is not a participant, on the procedures of the participant through which such
Person owns its interest, to exercise any rights of a holder under the
Indenture. The Company understands that under existing industry practices, in
the event that the Company requests any action of holders or that an owner of a
beneficial interest in a Global Security desires to give or take any action
which a holder is entitled to give or take under the Indenture, DTC or any
successor depositary would authorize the participants holding the relevant
beneficial interest to give or take such action and such participants would
authorize beneficial owners owning through such participants to give or take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
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DTC has advised the Company that DTC is a limited-purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
Exchange Act. DTC was created to hold the securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (which may include the Initial Purchasers), banks, trust companies,
clearing corporations and certain other organizations some of whom (or their
representatives) own DTC. Access to DTC's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies, that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in Global Securities among participants of DTC, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Trustee or
the Initial Purchasers will have any responsibility for the performance by DTC
or its participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
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DESCRIPTION OF OTHER SECURITIES
EXCHANGE PREFERRED STOCK
In connection with the Recapitalization, Holding issued 300,000 shares of
its 11 1/2% Senior Exchangeable PIK Preferred Stock due 2010, $100 liquidation
preference per share (the "Holding Preferred Stock"). Concurrently with the
Exchange Offer, Holding is offering to exchange the Holding Preferred Stock for
its 11 1/2% Senior Exchangeable PIK Preferred Stock due 2010 (the "Exchange
Preferred Stock"), which Exchange Preferred Stock in being registered pursuant
to the terms of the Exchange Offer Registration Agreement.
Subject to certain conditions, the Holding Preferred Stock is, and the
Exchange Preferred Stock will be, exchangeable for the Company's 11 1/2%
Subordinated Exchange Debentures due 2010 or the Company's 11 1/2% Senior
Exchangeable PIK Preferred Stock due 2010, $100 liquidation preference per
share, at the option of Holding at any time. When issued, the Exchange Preferred
Stock will be validly issued, fully paid and nonassessable. The holders of the
Exchange Preferred Stock will have no preemptive or preferential right to
purchase or subscribe to stock, obligations, warrants, or other securities of
Holding of any class.
Ranking. The Exchange Preferred Stock will, with respect to dividend rights
and rights on liquidation, winding up and dissolution, rank (i) senior to all
classes of common stock and to each other class of capital stock or series of
preferred stock of Holding, the terms of which do not expressly provide that it
ranks senior to, or on a parity with, the Exchange Preferred Stock as to
dividend rights and rights on liquidation, winding-up and dissolution of Holding
("Junior Stock"); and (ii) on a parity with each other class of capital stock or
series of preferred stock of Holding, the terms of which expressly provide that
such class or series will rank on a parity with the Exchange Preferred Stock as
to dividend rights and rights on liquidation, winding-up and dissolution
("Parity Stock"). While any shares of Exchange Preferred Stock are outstanding,
Holding may not authorize, create or increase the authorized amount of any class
or series of capital stock or preferred stock, the terms of which expressly
provide that such class or series will rank senior to the Exchange Preferred
Stock as to dividend rights and rights upon liquidation, winding-up and
dissolution of Holding (collectively referred to as "Senior Stock"), or Parity
Stock, without the consent of the holders of at least 66 2/3% of the outstanding
shares of Exchange Preferred Stock. Creditors of Holding will have priority over
the Exchange Preferred Stock with respect to claims on the assets of Holding. In
addition, creditors and stockholders of Holding's subsidiaries, including the
Company and Industrias Hudson, will have priority over the Exchange Preferred
Stock with respect to claims on the assets of such subsidiaries, including
claims of Holding with respect to the Mirror Preferred Stock.
Holding will rely upon distributions or advances from the Company and its
subsidiaries to provide the funds necessary to pay cash dividends on the
Exchange Preferred Stock. The Company and its subsidiaries are subject to
contractual and statutory limitations on their ability to make distributions and
advances to Holding. In particular, the New Credit Facility prohibits and the
Indenture governing the Notes and the Exchange Notes restricts the payment of
distributions and advances by the Company and its subsidiaries to Holding and
future agreements may contain similar restrictions.
Dividends. The holders of shares of Exchange Preferred Stock will be
entitled to receive, when, as and if dividends are declared by the board of
directors of Holding out of funds of Holding legally available therefor,
cumulative preferential dividends from the date of issuance of the Exchange
Preferred Stock accruing at the rate per share of 11 1/2% per annum, payable
semi-annually on April 15 and October 15. Dividends will be payable in cash,
except that on each dividend payment date occurring on or prior to April 15,
2003, dividends may be paid, at Holding's option, by the issuance of additional
shares of Exchange Preferred Stock having an aggregate liquidation preference
equal to the amount of such dividends.
Optional Redemption. The Exchange Preferred Stock will not be redeemable at
the option of Holding prior to April 15, 2003. Thereafter, the Exchange
Preferred Stock will be redeemable, at Holding's option, in whole or in part, at
any time or from time to time, upon not less than 30 no more than 60 days' prior
notice at the redemption prices set forth in the Certificate of Designation
governing the Exchange Preferred Stock (the "Certificate of Designation") plus
accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for any partial dividend). In addition, at any time prior to
April 15, 2001, Holding may redeem,
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at its option, (i) up to 50% or (ii) all but not less than all of the
outstanding shares of Exchange Preferred Stock with the proceeds of any public
equity offering of common stock of the Company at a redemption price (expressed
as a percentage of the liquidation preference thereof) of 111 1/2% plus
accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for any partial dividend period). Any such redemption shall be
made upon consummation of such public equity offering upon not less than 30 nor
more than 60 days' notice.
Exchange for Company Exchange Debentures or Company Preferred Stock.
Holding may, at its option, subject to certain conditions, exchange the Exchange
Preferred Stock at any time, in whole but not in part, for either Company
Exchange Debentures or Company Preferred Stock; provided, however, that (i) on
the date of such exchange there are no accumulated and unpaid dividends on the
Exchange Preferred Stock (including the dividend payable on such date) or other
contractual impediments to such exchange; (ii) the exchange is permitted under
applicable laws; (iii) immediately after giving effect to such exchange, no
Default (as defined in the Company Exchange Indenture) or Voting Rights
Triggering Event (as defined in the Company Certificate of Designation), as
applicable, shall have occurred and be continuing; and (iv) the Company shall
have delivered to the Trustee under the Company Exchange Indenture or the
transfer agent for the Company Preferred Stock, as applicable, an opinion of
counsel with respect to the due authorization and issuance of the Company
Exchange Debentures or Company Preferred Stock, as applicable. The exchange of
the Exchange Preferred Stock for Company Exchange Debentures or Company
Preferred Stock is prohibited by the terms of the New Credit Facility and the
exchange of Exchange Preferred Stock for Company Exchange Debentures is limited
by the terms of the Indenture governing the Notes and the Exchange Notes. See
"Description of the Exchange Notes" and "Description of New Credit Facility."
Upon any exchange of Exchange Preferred Stock for Company Exchange
Debentures, holders of outstanding shares of Exchange Preferred Stock will be
entitled to receive $1.00 principal amount of Company Exchange Debentures for
each $1.00 liquidation preference of Exchange Preferred Stock held by them and
an amount in cash equal to a prorated dividend for any partial dividend period;
provided, however, that Holding may pay cash in lieu of issuing a Company
Exchange Debenture in a principal amount less than $1,000. Upon any exchange of
Exchange Preferred Stock for Company Preferred Stock holders of outstanding
shares of Exchange Preferred Stock will be entitled to receive shares of Company
Preferred Stock with an aggregate liquidation preference equal to the aggregate
liquidation preference of the shares of Exchange Preferred Stock so exchanged
and an amount in cash equal to a prorated dividend for any partial dividend
period. Holding may pay cash in lieu of issuing a fractional share of Company
Preferred Stock.
Mandatory Redemption. On April 15, 2010, Holding will be required to redeem
(subject to the legal availability of funds therefor) all outstanding shares of
Exchange Preferred Stock at a price in cash equal to the liquidation preference
thereof, plus accumulated and unpaid dividends (including an amount in cash
equal to a prorated dividend for any partial dividend period), if any, to the
date of redemption. Holding will not be required to make sinking fund payments
with respect to the Exchange Preferred Stock.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding-up of Holding, each holder of Exchange Preferred Stock
will be entitled to be paid, out of the assets of Holding available for
distribution to stockholders, an amount equal to the liquidation preference per
share of Exchange Preferred Stock held by such holder, plus accumulated and
unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding-up.
Voting Rights. The holders of Exchange Preferred Stock, except as otherwise
required under Delaware law or as provided in the Certificate of Designation,
shall not be entitled or permitted to vote on any matter required or permitted
to be voted upon by the stockholders of Holding. The Certificate of Designation
will provide that if (i) dividends on the Exchange Preferred Stock are in
arrears and unpaid (and, in the case of dividends payable after April 15, 2003,
are not paid in cash) for six or more dividend periods (whether or not
consecutive), (ii) Holding fails to redeem the Exchange Preferred Stock on April
15, 2010, or fails to otherwise discharge any redemption obligation with respect
to the Exchange Preferred Stock, (iii) Holding fails to make an offer to
purchase all of the outstanding shares of Exchange Preferred Stock following a
change of control (whether or not Holding is permitted to do so by the terms of
the Indenture, the New Credit Facility or any other obligation of Holding), (iv)
a breach or violation of any covenant contained in the Certificate of
Designation occurs and, subject to certain exceptions, continues for a period of
30 days or more after Holding receives notice thereof specifying the default
from the
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holders of at least 25% of the shares of Exchange Preferred Stock then
outstanding, (v) a breach or violation of any of the provisions of the Mirror
Preferred Stock occurs, or (vi) Holding fails to pay at final maturity (giving
effect to any applicable grace period) the principal amount of any indebtedness
of Holding or any subsidiary of Holding or the stated maturity of any such
indebtedness of Holding or any subsidiary of Holding is accelerated because of a
default and the total amount of such indebtedness exceeds $7.5 million
(individually, a "Voting Rights Triggering Event"), then the holders of the
outstanding shares of Exchange Preferred Stock, voting together as a class with
the holders of any other series of preferred stock upon which like rights have
been conferred and are exercisable, will be entitled to elect two additional
members to the board of directors of Holding to serve on such board of
directors, and the number of members of such board of directors will be
immediately and automatically increased by two.
Repurchase at the Option of Holders Upon a Change of Control. Upon the
occurrence of certain events constituting a change of control of Holding, each
holder of Exchange Preferred Stock shall have the right to require Holding to
repurchase all or any part of such holder's Exchange Preferred Stock at a
purchase price equal to 101% of the liquidation preference thereof, plus accrued
and unpaid dividends thereon, if any, to the purchase date. Since the New Credit
Facility prohibits the Company from paying or making, and the Indenture limits
the ability of the Company to pay or make dividends or loans to Holding,
Holding's ability to pay cash to holders of Exchange Preferred Stock upon a
repurchase will be limited. See "Description of New Credit Facility" and
"Description of the Exchange Notes."
Certain Covenants. The Certificate of Designation contains covenants
restricting the ability of Holding, the Company and the Company's restricted
subsidiaries to, among others, (i) incur additional debt, (ii) make certain
restricted payments and investments, (iii) issue or sell capital stock of
certain restricted subsidiaries, (iv) restrict distributions from certain
restricted subsidiaries, (v) enter into transactions with affiliates and (vi)
engage in certain consolidations, mergers or transfers of assets. In addition,
the Certificate of Designation restricts the ability of Holding to engage in any
business or activity other than those relating to the ownership of capital stock
of the Company. All of these restrictions will be subject to a number of
important qualifications.
The preceding discussion of certain provisions of the Exchange Preferred
Stock is not intended to be exhaustive and is qualified in its entirety by
reference to the provisions of the Certificate of Designation governing the
Exchange Preferred Stock, copies of which are available upon request from
Holding.
MIRROR PREFERRED STOCK
In connection with the Recapitalization, Holding acquired 300,000 shares of
the Company's 11 1/2% Senior PIK Preferred Stock due 2010 (the "Mirror Preferred
Stock"). Dividends on the Mirror Preferred Stock accrue from the date of
issuance and are payable semiannually in arrears on April 15 and October 15 of
each year (each a "Dividend Payment Date"), commencing October 15, 1998, at a
rate per annum of 11 1/2% of the liquidation preference per share. The
liquidation preference of each share of Mirror Preferred Stock is $100 (the
"Liquidation Preference"). Dividends are payable in cash, except that on each
Dividend Payment Date occurring on or prior to April 15, 2003, dividends may be
paid, at the Company's option, by the issuance of additional shares of Mirror
Preferred Stock (including fractional shares) having an aggregate liquidation
preference equal to the amount of such dividends. The Company is required to
redeem the Mirror Preferred Stock on April 15, 2010, at a redemption price equal
to 100% of the liquidation preference thereof plus accumulated and unpaid
dividends, if any, to the date of redemption.
The Mirror Preferred Stock ranks (i) senior to all existing and future
Junior Stock of the Company and (ii) on a parity with all existing and future
Parity Stock of the Company. In addition, the Mirror Preferred Stock will rank
junior in right of payment to all obligations of the Company and its
subsidiaries, including Industrias Hudson. The Mirror Preferred will be entitled
to one half a vote per share on all matters submitted to the Company's common
shareholders and will vote as a class with the Common Stock. Upon consummation
of the Recapitalization, the Company amended the Mirror Preferred Stock to
contain additional provisions substantially similar to the Exchange Preferred
Stock, except that the Mirror Preferred Stock will not be exchangeable.
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COMPANY PREFERRED STOCK
If Holding elects to exchange any Exchange Preferred Stock for Company
Preferred Stock, holders of outstanding shares of Exchange Preferred Stock will
be entitled to receive shares of Company Preferred Stock with an aggregate
liquidation preference equal to the aggregate liquidation preference of the
shares of Exchange Preferred Stock so exchanged and an amount in cash equal to a
prorated dividend for any partial dividend period. Holding may pay cash in lieu
of a fractional share of Company Preferred Stock. If issued in exchange for the
Exchange Preferred Stock, the Company Preferred Stock will be validly issued,
fully paid and nonassessable. The holders of the Company Preferred Stock will
have no preemptive or preferential right to purchase or subscribe to stock,
obligations, warrants, or other securities of the Company of any class. The
Company Preferred Stock is expected to be eligible for trading in the Portal
Market.
Ranking. The Company Preferred Stock will, with respect to dividend rights
and rights on liquidation, winding up and dissolution, rank (i) senior to all
existing and future Parity Stock of the Company and (ii) on a parity with all
existing and future Parity Stock of the Company. While any shares of Company
Preferred Stock are outstanding, the Company may not authorize, create or
increase the authorized amount of any class or series of Senior Stock or Parity
Stock without the consent of the holders of a least 66 2/3% of the outstanding
shares of Company Preferred Stock. Creditors of the Company, including the
lenders under the New Credit Facility and holders of the Notes, will have
priority over the Company Preferred Stock with respect to claims on the assets
of the Company. In addition, creditors and stockholders of the Company's
subsidiaries, including Industrias Hudson, will have priority over the Company
Preferred Stock with respect to claims on the assets of such subsidiaries.
Dividends. The holders of shares of the Company Preferred Stock will be
entitled to receive, when, as and if dividends are declared by the board of
directors of the Company out of funds of the Company legally available therefor,
cumulative preferential dividends from the date of issuance of the Company
Preferred Stock accruing at the rate per share of 11 1/2% per annum, payable
semiannually. Dividends will be payable in cash, except that on each dividend
payment date occurring on or prior to April 15, 2003, dividends may be paid, at
the Company's option, by the issuance of additional shares of the Company
Preferred Stock (including fractional shares) having an aggregate liquidation
preference equal to the amount of such dividends.
Optional Redemption. The Company Preferred Stock will not be redeemable at
the option of the Company prior to April 15, 2003. Thereafter, the Company
Preferred Stock will be redeemable, at the Company's option, in whole or in
part, at any time or from time to time, upon not less than 30 no more than 60
days' prior notice at the redemption prices set forth in the Certificate of
Designation governing the Company Preferred Stock (the "Company Exchange
Certificate of Designation") plus accumulated and unpaid dividends (including an
amount in cash equal to a prorated dividend for any partial dividend). In
addition, at any time prior to April 15, 2001, the Company may redeem, at its
option, (i) up to 50% or (ii) all but not less than all of the outstanding
shares of Company Preferred Stock with the proceeds of any public equity
offering of common stock of the Company at a redemption price (expressed as a
percentage of the liquidation preference thereof) of 111 1/2% plus accumulated
and unpaid dividends (including an amount in cash equal to a prorated dividend
for any partial dividend period). Any such redemption shall be made upon
consummation of such public equity offering upon not less than 30 nor more than
60 days' notice.
Exchange for Company Exchange Debentures. The Company may, at its option,
subject to certain conditions, exchange the Company Preferred Stock, in whole
but not in part, for Company Exchange Debentures at any time; provided, however,
that (i) on the date of such exchange there are no accumulated and unpaid
dividends on the Company Preferred Stock (including the dividend payable on such
date) or other contractual impediments to such exchange; (ii) the exchange is
permitted under applicable laws; (iii) immediately after giving effect to such
exchange, no Default (as defined in the Company Exchange Indenture) shall have
occurred and be continuing; and (iv) the Company shall have delivered to the
Trustee under the Company Exchange Indenture an opinion of counsel with respect
to the due authorization and issuance of the Company Exchange Debentures. The
exchange of the Company Preferred Stock for Company Exchange Debentures is
limited by the terms of the New Credit Facility and the Indenture governing the
Notes and the Exchange Notes. See "Description of New Credit Facility" and
"Description of the Exchange Notes." Upon any exchange of Company Preferred
Stock for Company Exchange Debentures, holders of outstanding shares of Company
Preferred Stock will be entitled to receive $1.00 principal
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amount of Company Exchange Debentures for each $1.00 liquidation preference of
Company Preferred Stock held by them and an amount in cash equal to a prorated
dividend for any partial dividend period; provided, however, that the Company
may pay cash in lieu of issuing a Company Exchange Debenture in a principal
amount less than $1,000.
Mandatory Redemption. On April 15, 2010, the Company will be required to
redeem (subject to the legal availability of funds therefor) all outstanding
shares of Company Preferred Stock at a price in cash equal to the liquidation
preference thereof, plus accumulated and unpaid dividends (including an amount
in cash equal to a prorated dividend for any partial dividend period), if any,
to the date of redemption. The Company will not be required to make sinking fund
payments with respect to the Company Preferred Stock.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, each holder of Company Preferred Stock
will be entitled to be paid, out of the assets of the Company available for
distribution to stockholders, an amount equal to the liquidation preference per
share of Company Preferred Stock held by such holder, plus accumulated and
unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding-up.
Voting Rights. The holders of Company Preferred Stock, except as otherwise
required under California law or as provided in the Company Exchange Certificate
of Designation, shall not be entitled or permitted to vote on any matter
required or permitted to be voted upon by the stockholders of the Company. The
Company Exchange Certificate of Designation will provide that if (i) dividends
on the Company Preferred Stock are in arrears and unpaid (and, in the case of
dividends payable after April 15, 2003, are not paid in cash) for six or more
dividend periods (whether or not consecutive), (ii) the Company fails to redeem
the Company Preferred Stock on April 15, 2010, or fails to otherwise discharge
any redemption obligation with respect to the Company Preferred Stock, (iii) the
Company fails to make an offer to purchase all of the outstanding shares of
Company Preferred Stock following a change of control (whether or not the
Company is permitted to do so by the terms of the Indenture, the New Credit
Facility or any other obligation of the Company), (iv) a breach or violation of
any covenant contained in the Certificate of Designation occurs and, subject to
certain exceptions, continues for a period of 30 days or more after the Company
receives notice thereof specifying the default from the holders of at least 25%
of the shares of Company Preferred Stock then outstanding, (v) a breach or
violation of any of the provisions of the Mirror Preferred Stock occurs, or (vi)
the Company fails to pay at final maturity (giving effect to any applicable
grace period) the principal amount of any indebtedness of the Company or any
subsidiary of the Company or the stated maturity of any such indebtedness of the
Company or any subsidiary of the Company is accelerated because of a default and
the total amount of such indebtedness exceeds $7.5 million, then the holders of
the outstanding shares of Company Preferred Stock, voting together as a class
with the holders of any other series of preferred stock upon which like rights
have been conferred and are exercisable, will be entitled to elect two
additional members to the board of directors of the Company to serve on such
board of directors, and the number of members of such board of directors will be
immediately and automatically increased by two.
Repurchase at the Option of Holders Upon a Change of Control. Upon the
occurrence of certain events constituting a change of control of the Company,
each holder of Company Preferred Stock shall have the right to require the
Company to repurchase all or any part of such holder's Company Preferred Stock
at a purchase price equal to 101% of the liquidation preference thereof, plus
accrued and unpaid dividends thereon, if any, to the purchase date. The
indenture governing the Notes limits the ability of the Company to repurchase
the Company Preferred Stock.
Certain Covenants. The Company Exchange Certificate of Designation contains
covenants restricting the ability of the Company and the Company's subsidiaries
to, among others, (i) incur additional debt, (ii) make certain restricted
payments and investments, (iii) issue or sell capital stock of certain
restricted subsidiaries, (iv) restrict distributions from certain restricted
subsidiaries, (v) enter into transactions with affiliates and (vi) engage in
certain consolidations, mergers or transfers of assets. All of these
restrictions will be subject to a number of important qualifications.
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The preceding discussion of certain provisions of the Company Preferred
Stock is not intended to be exhaustive and is qualified in its entirety by
reference to the provisions of the Company Exchange Certificate of Designation
governing the Company Preferred Stock, copies of which are available upon
request from the Company.
COMPANY EXCHANGE DEBENTURES
The Company Exchange Debentures, if issued, will be issued under the
Exchange Indenture dated as of April 7, 1998 (the "Company Exchange Indenture").
The Company Exchange Debentures are expected to be eligible for trading in the
Portal Market.
The Company Exchange Debentures will mature on April 15, 2010 and will be
limited in aggregate principal amount to the liquidation preference of the
Exchange Preferred Stock or Company Preferred Stock, as the case may be, plus
without duplication, accumulated and unpaid dividends on the exchange date of
the Exchange Preferred Stock into Company Exchange Debentures (plus any
additional Company Exchange Debentures issued in lieu of cash interest as
described herein).
Interest. The Company Exchange Debentures will bear interest at the rate of
11 1/2% per annum from the most recent date on which interest has been paid or,
if no interest has been paid from the Exchange Date, payable semiannually in
cash (or, on or prior to April 15, 2003, in additional Company Exchange
Debentures, at the option of Company) in arrears. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months.
Optional Redemption. The Company Exchange Debentures will not be redeemable
at the option of Company prior to April 15, 2003. Thereafter, the Company
Exchange Debentures will be redeemable, at the Company's option, in whole or in
part at any time or from time to time, upon not less than 30 no more than 60
days' prior notice at the redemption prices set forth in the Company Exchange
Indenture plus accrued interest to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date). In addition, at any time prior to April 15,
2001, the Company may redeem, at its option, (i) up to 50% or (ii) all but not
less than all of the outstanding Company Exchange Debentures with the proceeds
of any public equity offering of common stock of the Company at a redemption
price (expressed as a percentage of principal amount) of 111 1/2% plus accrued
interest to the redemption date (subject to the right of holders of record on
the relevant record date to receive interest due on the relevant interest
payment date). Any such redemption shall be made upon consummation of such
public equity offering upon not less than 30 nor more than 60 days' notice.
Subordination. The Company Exchange Debentures will be subordinated,
unsecured obligations of the Company. The payment of the principal of, and
premium, if any, and interest on, the Company Exchange Debentures will be
subordinated in right of payment to the payment when due of all Senior Debt
(including senior subordinated indebtedness) of the Company. The Company
Exchange Debentures will rank pari passu in right of payment with any future
subordinated obligations of the Company. The Company Exchange Debentures will be
effectively subordinated to creditors (including trade creditors) and preferred
stockholders, if any, of subsidiaries of the Company. Since a portion of the
operations of the Company are conducted through subsidiaries, the Company's
ability to service its debt, including the Company Exchange Debentures, is
partially dependent upon the earnings of any such Subsidiaries and the
distribution of those earnings to, or upon loans or other payments of funds by
those Subsidiaries to, the Company. The payment of dividends and the making of
loans and advances to the Company by such Subsidiaries are subject to statutory
restrictions.
The Company may not pay principal of, or premium, if any, or interest on,
or defease, the Company Exchange Debentures and may not repurchase, redeem or
otherwise retire any Company Exchange Debentures (collectively, "pay the Company
Exchange Debentures"), if (a) any principal, premium or interest in respect of
any Senior Debt (as defined), including the New Credit Facility and the Notes
and Exchange Notes, is not paid within any applicable grace period (including at
maturity) or (b) any other default on Senior Debt occurs and the maturity of
such Senior Debt is accelerated in accordance with its terms unless, in either
case, (i) the default has been cured or waived and any such acceleration has
been rescinded or (ii) such Senior Debt has been paid in full in cash; provided,
however, that the Company may pay the Company Exchange Debentures without regard
to the foregoing
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if the Company and the Trustee receive written notice approving such payment
from the Representative of each issue of Designated Senior Debt (as defined).
During the continuance of any default (other than a default described in clause
(a) or (b) of the preceding sentence) with respect to any Designated Senior Debt
pursuant to which the maturity thereof may be accelerated immediately without
further notice or the expiration of any applicable grace period, the Company may
not pay the Company Exchange Debentures for a period (a "Payment Blockage
Period") commencing upon the receipt by the Company and the Exchange Trustee of
written notice of such default from the Representative of the holders of such
Designated Senior Debt specifying an election to effect a Payment Blockage
Period and ending 179 days thereafter.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation, dissolution or winding up of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, the holders of Senior Debt, including
the New Credit Facility and the Notes or Exchange Notes, will be entitled to
receive payment in full in cash before the holders of the Company Exchange
Debentures are entitled to receive any payment of principal of or interest on
the Company Exchange Debentures, except that holders of Company Exchange
Debentures may receive and retain shares of stock and any debt securities that
are subordinated to Senior Debt to at least the same extent as the Company
Exchange Debentures.
Repurchase at the Option of the Holders Upon a Change of Control. Upon the
occurrence of certain events constituting a change of control of the Company,
each holder of Company Exchange Debentures shall have the right to require the
Company to repurchase all or any part of such holder's Company Exchange
Debentures at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the purchase date (subject
to the right of holders of record on the relevant record date to receive
interest due on the relevant interest payment date). The New Credit Facility
prohibits, and the indenture governing the Notes and Exchange Notes limits, the
ability of the Company to repurchase the Company Exchange Debentures.
Certain Covenants. The Company Exchange Indenture contains covenants
restricting the ability of the Company and certain of the Company's subsidiaries
to, among others, (i) incur additional debt, (ii) make certain restricted
payments and investments, (iii) create certain liens, (iv) issue or sell capital
stock of restricted subsidiaries, (v) make certain asset sales, (vi) restrict
distributions from restricted subsidiaries, (vii) enter into transactions with
affiliates, and (viii) engage in certain consolidations, mergers and transfers
of assets. All of these restrictions will be subject to a number of important
qualifications.
Events of Default. Events of Default in respect of the Company Exchange
Debentures as set forth in the Company Exchange Indenture include: (i) failure
to make the payment of any interest on the Company Exchange Debentures when the
same becomes due and payable, and such failure continues for a period of 30
days, (ii) failure to make the payment of any principal of, or premium, if any,
on, any of the Company Exchange Debentures when the same becomes due and payable
at its stated maturity, upon acceleration, redemption, optional redemption,
required repurchase or otherwise, (iii) failure to comply with any other
covenant or agreement in the Company Exchange Debentures or in the Company
Exchange Indenture, subject in certain cases, to applicable grace periods, (iv)
cross-acceleration to any debt of the Company or any Restricted Subsidiary (as
defined) in an aggregate amount greater than $7.5 million, (v) entering of any
judgment or judgments for the payment of money in an aggregate amount in excess
of $7.5 million against the Company or any Restricted Subsidiary, and (vi)
certain events involving bankruptcy, insolvency or reorganization of the Company
or any Significant Subsidiary (as defined).
The preceding discussion of certain provisions of the Company Exchange
Debentures is not intended to be exhaustive and is qualified in its entirety by
reference to the provisions of the Company Exchange Indenture, copies of which
are available upon request from the Company.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following general discussion summarizes certain of the material U.S.
federal income tax aspects of the acquisition, ownership and disposition of the
Exchange Notes that are exchanged for Notes in the Exchange Offer. This
discussion is a summary for general information only and does not consider all
aspects of U.S. federal income taxation that may be relevant to the purchase,
ownership and disposition of the Exchange Notes by a prospective investor in
light of such investor's individual circumstances. This discussion also does
not address the U.S. federal income tax consequences of ownership of Exchange
Notes not held as capital assets within the meaning of Section 1221 of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), or the U.S. federal
income tax consequences to investors subject to special treatment under the U.S.
federal income tax laws, such as dealers in securities or foreign currency, tax-
exempt entities, financial institutions, insurance companies, persons that hold
the Exchange Notes as part of a "straddle," a "hedge" or a "conversion
transaction," persons that have a "functional currency" other than the U.S.
dollar, and investors in pass-through entities. In addition, this discussion
does not describe any tax consequences arising under U.S. federal gift and
estate taxes (except to the limited extent set forth below under "Non-U.S.
Holders") or under the tax laws of any state, local or foreign jurisdiction.
This discussion is based upon the Code, existing regulations thereunder,
and current administrative rulings and court decisions. All of the foregoing is
subject to change, possibly on a retroactive basis, and any such change could
affect the continuing validity of this discussion.
PERSONS CONSIDERING THE PURCHASE OF EXCHANGE NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE APPLICATION OF FEDERAL INCOME TAX LAWS, AS WELL AS
THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR
SITUATIONS.
U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of an Exchange Note that is (i) a citizen or
resident (as defined in Section 7701(b)(1) of the Code) of the United States,
(ii) a corporation or other entity taxable as a corporation organized under the
laws of the United States or any political subdivision thereof or therein, (iii)
an estate, the income of which is subject to U.S. federal income tax regardless
of the source, (iv) a trust, with respect to which a court within the United
States is able to exercise primary supervision over its administration and one
or more United States persons have the authority to control all its substantial
decisions or (v) a person whose worldwide income or gain is subject to U.S.
federal income tax on a net income basis (a "U.S. Holder"). Certain U.S.
federal income tax consequences relevant to a holder other than a U.S. Holder
are discussed separately below.
STATED INTEREST
Interest on an Exchange Note will be taxable to a U.S. Holder as ordinary
interest income at the time it accrues or is received in accordance with such
Holder's method of accounting for U.S. federal income tax purposes.
MARKET DISCOUNT
If an Exchange Note is acquired at a "market discount," some or all of any
gain realized upon a sale or other disposition or payment at maturity or some or
all of a partial principal payment, of such Exchange Note may be treated as
ordinary income, as described below. For this purpose, "market discount" is the
excess (if any) of the issue price, or, in the case of a subsequent purchaser,
the stated redemption price at maturity, over the purchase price, subject to a
statutory de minimis exception. Unless a U.S. Holder has elected to include the
market discount in income as it accrues, any gain realized on any subsequent
disposition of such Exchange Note (other than in connection with certain
nonrecognition transactions) or payment at maturity, or some or all of any
partial principal payment with respect to the Exchange Note, will be treated as
ordinary income to the extent of the market discount
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that has not previously been included in income and that is treated as having
accrued during the period such U.S. Holder held the Exchange Note.
The amount of market discount treated as having accrued will be determined
either (i) on a straight-line basis by multiplying the market discount times a
fraction, the numerator of which is the number of days the Exchange Note was
held by the U.S. Holder and the denominator of which is the total number of days
after the date such U.S. Holder acquired the Exchange Note up to and including
the date of its maturity or (ii) if the U.S. Holder so elects, on a constant
interest rate method. A U.S. Holder may make that election with respect to any
Exchange Note but, once made, such election is irrevocable.
In lieu of recharacterizing gain upon disposition as ordinary income to the
extent of accrued market discount at the time of disposition, a U.S. Holder of
an Exchange Note acquired at a market discount may elect to include market
discount in income currently, through the use of either the straight-line
inclusion method or the elective constant interest method. Once made, the
election to include market discount in income currently applies to all Exchange
Notes and other obligations held by the U.S. Holder that are purchased at a
market discount during the taxable year for which the election is made, and all
subsequent taxable years of the U.S. Holder, unless the Internal Revenue Service
(the "IRS") consents to a revocation of the election. If an election is made to
include market discount in income currently, the basis of the Exchange Note in
the hands of the U.S. Holder will be increased by the market discount thereon as
it is included in income.
Unless a U.S. Holder who acquires an Exchange Note at a market discount
elects to include market discount in income currently, such U.S. Holder may be
required to defer deductions of all or a portion of any interest paid on
indebtedness allocable to such Exchange Notes in an amount not exceeding the
deferred income until such income is realized.
BOND PREMIUM
If a U.S. Holder purchases an Exchange Note and immediately after the
purchase the adjusted basis of the Exchange Note exceeds the sum of all amounts
payable on the instrument after the purchase date (other than qualified stated
interest), the Exchange Note has "bond premium." A U.S. Holder may elect to
amortize such bond premium over the remaining term of such Exchange Note (or if
it results in a smaller amount of amortizable bond premium, until an earlier
call date and in such case by reference to the amount payable on that date).
If bond premium is amortized, the amount of interest that must be included
in the U.S. Holder's income for each period ending on an interest payment date
or at the stated maturity, as the case may be, will be reduced by the portion of
premium allocable to such period based on the Exchange Note's yield to maturity
(or earlier call date, if reference to the call date and price produces a
smaller allowance). If such an election to amortize bond premium is not made, a
U.S. Holder must include the full amount of each interest payment in income in
accordance with its regular method of accounting and will receive a tax benefit
from the premium only in computing such U.S. Holder's gain or loss upon the sale
or other disposition or payment of the principal amount of the Exchange Note.
An election to amortize premium will apply to amortizable bond premium on
all Exchange Notes and other bonds, the interest on which is includible in the
U.S. Holder's gross income, held at the beginning of the U.S. Holder's first
taxable year to which the election applies or that are thereafter acquired and
may be revoked only with the consent of the IRS.
SALE, EXCHANGE OR REDEMPTION OF THE EXCHANGE NOTES
Upon the disposition of an Exchange Note by sale, exchange or redemption, a
U.S. Holder will generally recognize gain or loss equal to the difference
between (i) the amount realized on the disposition (other than amounts
attributable to accrued interest not yet taken into income) and (ii) the U.S.
Holder's adjusted tax basis in the Exchange Note. A U.S. Holder's adjusted tax
basis in an Exchange Note generally will equal the cost of the Exchange Note to
the U.S. Holder increased by amounts includible in income as market discount (if
the U.S. Holder
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elects to include market discount on a current basis) and reduced by the amount
of any payments, other than qualified stated interest payments, received and any
bond premium amortized by any U.S. Holder.
Assuming the Exchange Note is held as a capital asset, such gain or loss
(except to the extent that the market discount rules otherwise provide) will
generally constitute capital gain or loss and will be long-term capital gain
(taxable at a maximum rate of 20%) if a U.S. Holder who is an individual has
held such Exchange Note for longer than eighteen months and mid-term capital
gain (taxable at a maximum rate of 28%) if such a U.S. Holder has held such
Exchange Note for more than 12 months and not more than 18 months.
EXCHANGE OFFER
The exchange of a Note for an Exchange Note pursuant to the Exchange Offer
should not constitute a taxable exchange.
Upon failure to comply with certain of its obligations under the
Registration Rights Agreement, the Company would be required to pay Special
Interest on the Notes. Although the matter is not free from doubt, if Special
Interest becomes payable on the Notes, such Special Interest should be treated
in the same manner as stated interest on the Notes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under the Code, a U.S. Holder of an Exchange Note may be subject, under
certain circumstances, to information reporting and or backup withholding at a
31% rate with respect to cash payments in respect of interest on, or the gross
proceeds from disposition of, an Exchange Note thereof. This withholding
applies, only if a U.S. Holder (i) fails to furnish its social security or other
taxpayer identification number ("TIN") within a reasonable time after a request
therefor, (ii) furnishes an incorrect TIN, (iii) fails to report interest
properly, or (iv) fails, under certain circumstances to provide a certified
statement, signed under penalty of perjury, that the TIN provided is its correct
number and that it is not subject to backup withholding. Any amount withheld
from a payment to a U.S. Holder under the backup withholding rules is allowable
as a credit and (and may entitle such holder to a refund) against such Holder's
U.S. federal income tax liability, provided that the required information is
furnished to the IRS. Certain persons are exempt from backup withholding,
including corporations and certain financial institutions. Holders of Exchange
Notes should consult their tax advisors as to their qualification for exemption
from withholding and the procedure for obtaining such exemption.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income and estate
tax consequences relevant to a holder of an Exchange Note that is not a U.S.
Holder (a "Non-U.S. Holder"). This discussion does not deal with all aspects of
U.S. federal income and estate taxation that may be relevant to the purchase,
ownership or disposition of the Exchange Notes by any particular Non-U.S. Holder
in light of such Holder's personal circumstances.
For purposes of the following discussion, interest and gain on the sale,
exchange or other disposition of the Exchange Note will be considered "U.S.
trade or business income" if such income or gain is (i) effectively connected
with the conduct of a U.S. trade or business or (ii) in the case of a treaty
resident, attributable to a U.S. permanent establishment (or to a fixed base) in
the United States.
STATED INTEREST
Generally, any interest paid to a Non-U.S. Holder of an Exchange Note that
is not U.S. trade or business income will not be subject to U.S. federal income
or withholding tax if the interest qualifies as "portfolio interest." Interest
on the Exchange Notes will qualify as portfolio interest if (i) the Non-U.S.
Holder does not actually or constructively own 10% or more of the total voting
power of all voting stock of the Company and is not a
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"controlled foreign corporation" with respect to which the Company is a "related
person" within the meaning of the Code, and (ii) the beneficial owner, under
penalties of perjury, certifies that the beneficial owner is not a U.S. person
and such certificate provides the beneficial owner's name and address.
The gross amount of payments to a Non-U.S. Holder of interest that do not
qualify for the portfolio interest exemption and that are not U.S. trade or
business income will be subject to U.S. withholding tax at the rate of 30%,
unless a U.S. income tax treaty applies to reduce or eliminate withholding.
U.S. trade or business income will be taxed at regular U.S. federal income tax
rates rather than the 30% gross rate, and, if such Non-U.S. Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or lesser
applicable treaty rate) of its U.S. effectively connected earnings and profits.
To claim the benefit of a tax treaty or to claim exemption from withholding
because the income is U.S. trade or business income, the Non-U.S. Holder must
provide a properly executed Form 1001 or 4224 (or such successor forms as the
IRS designates), as applicable, prior to payment of interest. These forms must
be periodically updated. On October 6, 1997, the Treasury Department issued
final regulations relating to withholding, information reporting and backup
withholding that unify current certification procedures and forms and clarify
reliance standards (the "Final Regulations"). The Final Regulations generally
will be effective with respect to payments made after December 31, 1998. Under
the Final Regulations, Form 1001 is replaced by Form W-8. Also under the Final
Regulations, a Non-U.S. Holder who is claiming the benefits of a tax treaty may
be required to obtain a U.S. taxpayer identification number and to provide
certain documentary evidence issued by foreign governmental authorities to prove
residence in the foreign country. Certain special procedures are provided in
the Final Regulations for payments through qualified intermediaries.
SALE, EXCHANGE OR REDEMPTION OF EXCHANGE NOTES
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of an Exchange Note generally will not be subject to U.S. federal
income tax, unless (i) such gain is U.S trade or business income or (ii) subject
to certain exceptions, the Non-U.S. Holder is an individual who holds the
Exchange Note as a capital asset and (A) is present in the United States for 183
days or more in the taxable year of the disposition and (B) meets certain other
requirements.
FEDERAL ESTATE TAX
Exchange Notes held (or treated as held) by an individual who is a Non-U.S.
Holder at the time of his or her death will not be subject to U.S. federal
estate tax, provided that the individual did not actually or constructively, own
10% or more of the total voting power of all voting stock of the Company, and
income on the Exchange Notes was not U.S. trade or business income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S. Holder any
interest that is subject to U.S. withholding tax or that is exempt from
withholding pursuant to a tax treaty or the portfolio interest exception.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.
The regulations provide that backup withholding and information reporting
will not apply to payments of principal on the Exchange Notes by the Company to
a Non-U.S. Holder, if the Holder certifies as to its non-U.S. status under
penalties of perjury or otherwise establishes an exemption (provided that
neither the Company nor its paying agent has actual knowledge that the Holder is
a U.S. Holder or that the conditions of any other exemption are not, in fact,
satisfied).
The payment of the proceeds from the disposition of Exchange Notes to or
through the United States office of any broker, U.S. or foreign, will be subject
to information reporting and possible backup withholding unless the owner
certifies as to its non-U.S. status under penalties of perjury or otherwise
establishes an exception, provided
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that the broker does not have actual knowledge that the holder is a U.S. Holder
or that the conditions of any other exemption are not, in fact, satisfied.
In the case of the payment of proceeds from the disposition of Exchange
Notes to or through a non-U.S. office of a broker that is (i) a U.S. person,
(ii) a "controlled foreign corporation" for U.S federal income tax purposes or
(iii) a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
U.S. trade or business), the regulations require information reporting on the
payment, unless the broker has documentary evidence in its files that the owner
is a Non-U.S. Holder and the broker has no actual knowledge to the contrary, but
not backup withholding on the payment (absent actual knowledge that the payee is
a U.S. Holder).
Any amounts withheld under the backup withholding rules from a payment
to a Non-U.S. Holder will be allowed as a refund or a credit against such Non-
U.S. Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
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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 Notes where such Notes were acquired as a result of market-making
activities or other trading activities and not acquired directly from the
Company. 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 ___________________________, 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 negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or 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 commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, 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 the expenses
incident to the Exchange Offer and to the Company's performance of, or
compliance with, the Exchange Offer Registration Rights Agreement (other than
commissions or concessions of any brokers or dealers) and will indemnify the
Holders of the Notes against certain liabilities, including liabilities under
the Securities Act, in connection with the Exchange Offer. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and persons controlling the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
EXPERTS
The audited financial statements and schedules included in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm in giving said
reports.
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LEGAL MATTERS
Certain legal matters with respect to the legality of the Exchange Notes
offered hereby will be passed upon for the Company by Riordan & McKinzie, a
Professional Corporation, Los Angeles, California. Certain principals and
employees of Riordan & McKinzie are limited partners in a partnership which is a
limited partner of an FS&Co. investment fund that owns a majority of Holding's
(and indirectly the Company's) equity interests.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Public Accountants........................................................ F-2
Consolidated Balance Sheets as of December 27, 1996 and December 26, 1997....................... F-3
Consolidated Statements of Operations for the Years Ended December 29, 1995, December 27, 1996
and December 26, 1997......................................................................... F-4
Consolidated Statements of Stockholders' Equity for Years Ended December 29, 1995,
December 27, 1996 and December 26, 1997......................................................... F-5
Consolidated Statements of Cash Flows for Years Ended December 29, 1995, December 27, 1996
and December 26, 1997......................................................................... F-6
Notes to Consolidated Financial Statements...................................................... F-7
Consolidated Balance Sheet as of March 27, 1998 (unaudited)..................................... F-14
Consolidated Statements of Operations for Quarters Ended March 28, 1997 and March 27, 1998
(unaudited)................................................................................... F-15
Consolidated Statements of Cash Flows for the Quarters Ended March 28, 1997 and March 27, 1998
(unaudited)................................................................................... F-16
Notes to Consolidated Financial Statements...................................................... F-17
PRO FORMA FINANCIAL STATEMENTS
Pro Forma Consolidated Balance Sheet as of March 27, 1998....................................... P-1
Pro Forma Consolidated Statements of Operations for the Year Ended December 26, 1997 and the
Quarter Ended March 27, 1998.................................................................. P-2
Notes to the Pro Forma Consolidated Financial Statements........................................ P-4
</TABLE>
F-1
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Hudson Respiratory Care Inc.:
We have audited the accompanying consolidated balance sheets of HUDSON
RESPIRATORY CARE INC. (a California corporation) and subsidiaries as of
December 26, 1997 and December 27, 1996, and the related consolidated
statements of operations, stockholder's equity and cash flows for the years
ended December 26, 1997, December 27, 1996 , and December 29, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hudson Respiratory Care
Inc. and subsidiaries as of December 26, 1997 and December 27, 1996, and the
results of their operations and their cash flows for the years ended December
26, 1997, December 27, 1996 and December 29, 1995 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Orange County, California
February 27, 1998 (except with respect
to the matter discussed in Note 11,
as to which the date is April 7, 1998)
F-2
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 1996 AND DECEMBER 26, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1996 1997
------ ------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments............................ $ 1,420 $ 470
Accounts receivable, less allowance for doubtful accounts
of $111 and $258 at December 27, 1996 and December 26,
1997, respectively........................................ 20,732 21,282
Inventories................................................ 14,017 16,613
Other assets............................................... 1,247 1,151
------- -------
Total current assets...................................... 37,416 39,516
------- -------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land....................................................... 2,172 2,044
Buildings.................................................. 13,284 13,369
Leasehold improvements..................................... 1,315 1,322
Machinery and equipment.................................... 54,751 61,316
Furniture and fixtures..................................... 1,941 2,128
Construction in progress................................... 5,457 1,592
------- -------
78,920 81,771
Less--Accumulated depreciation and amortization............ 45,453 48,728
------- -------
33,467 33,043
------- -------
OTHER ASSETS:
Intangible assets, net..................................... 5,640 4,436
Other assets............................................... 387 559
------- -------
6,027 4,995
------- -------
$76,910 $77,554
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable to bank...................................... $ 4,000 $ 4,000
Accounts payable........................................... 3,854 3,842
Accrued liabilities........................................ 5,374 5,244
Management bonus........................................... -- 20,000
------- -------
Total current liabilities................................. 13,228 33,086
------- -------
NOTES PAYABLE TO BANK, net of current portion................ 24,146 16,250
------- -------
ACCRUED EQUITY PARTICIPATION PLAN............................ 19,664 5,703
------- -------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDER'S EQUITY:
Common stock, no par value:
Authorized--15,000,000 shares
Issued and outstanding--14,468,720 shares
at December 27, 1996 and December 26, 1997................ 3,789 3,789
Cumulative translation adjustment.......................... (197) (345)
Retained earnings.......................................... 16,280 19,071
------- -------
19,872 22,515
------- -------
$76,910 $77,554
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 29, 1995, DECEMBER 27, 1996 AND DECEMBER 26, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
NET SALES......................................... $ 86,825 $93,842 $99,509
COST OF SALES..................................... 47,582 49,405 51,732
-------- ------- -------
Gross profit...................................... 39,243 44,437 47,777
-------- ------- -------
OPERATING EXPENSES:
Selling......................................... 8,283 8,961 9,643
Distribution.................................... 4,595 4,829 5,240
General and administrative...................... 9,769 11,277 11,456
Research and development........................ 2,064 2,253 1,845
-------- ------- -------
24,711 27,320 28,184
-------- ------- -------
Income from operations before equity participation
plan ............................................ 14,532 17,117 19,593
PROVISION FOR EQUITY PARTICIPATION PLAN AND
BONUSES.......................................... (11,415) (8,249) (6,954)
-------- ------- -------
Income from operations............................ 3,117 8,868 12,639
-------- ------- -------
OTHER INCOME AND (EXPENSES):
Interest expense................................ (2,424) (2,177) (1,834)
Other, net...................................... (811) 463 638
-------- ------- -------
(3,235) (1,714) (1,196)
-------- ------- -------
Income (loss) before provision for income taxes... (118) 7,154 11,443
PROVISION FOR STATE INCOME TAXES.................. 280 73 150
-------- ------- -------
Net income (loss)................................. $ (398) $ 7,081 $11,293
======== ======= =======
Pro forma net income (loss) assuming conversion to
C corporation for income tax purposes (Note 5)... $ (111) $ 4,292 $ 6,866
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 29, 1995, DECEMBER 27, 1996 AND DECEMBER 26, 1997
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------- CUMULATIVE
NUMBER TRANSLATION RETAINED
OF SHARES AMOUNT ADJUSTMENT EARNINGS TOTAL
---------- ------ ----------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 30, 1994..... 14,468,720 $3,789 $(204) $21,684 $25,269
Stockholder distributions.... -- -- -- (5,637) (5,637)
Foreign currency translation
loss (Note 1)............... -- -- (122) -- (122)
Net loss..................... -- -- -- (398) (398)
---------- ------ ----- ------- -------
BALANCE, December 29, 1995..... 14,468,720 3,789 (326) 15,649 19,112
Stockholder distributions.... -- -- -- (6,450) (6,450)
Foreign currency translation
gain (Note 1)............... -- -- 129 -- 129
Net income................... -- -- -- 7,081 7,081
---------- ------ ----- ------- -------
BALANCE, December 27, 1996..... 14,468,720 3,789 (197) 16,280 19,872
Stockholder distributions.... -- -- -- (8,502) (8,502)
Foreign currency translation
loss (Note 1)............... -- -- (148) -- (148)
Net income................... -- -- -- 11,293 11,293
---------- ------ ----- ------- -------
BALANCE, December 26, 1997..... 14,468,720 $3,789 $(345) $19,071 $22,515
========== ====== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 29, 1995, DECEMBER 27, 1996 AND DECEMBER 26, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $ (398) $ 7,081 $ 11,293
Adjustments to reconcile net income (loss) to
net cash provided by operating activities--
Depreciation and amortization................ 6,820 6,133 5,847
Gain on disposal of equipment................ (20) (872) (618)
Increase in accounts receivable.............. (2,430) (3,503) (550)
(Increase) decrease in inventories........... 1,777 (1,223) (2,596)
(Increase) decrease in other current assets.. 1 (311) 96
Increase in other assets..................... (23) (152) (100)
Increase (decrease) in accounts payable...... (283) 564 (12)
Increase (decrease) in accrued liabilities... (920) 167 (130)
Increase (decrease) in accrued equity
participation plan.......................... 11,415 8,249 (13,961)
Increase in management bonus accrual......... -- -- 20,000
-------- -------- --------
Net cash provided by operating activities.. 15,939 16,133 19,269
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment..... (5,850) (6,395) (4,659)
Proceeds from sale of property, plant and
equipment..................................... 33 1,058 1,068
Increase in notes receivable................... (18) (2) (67)
Increase in cash surrender value of life
insurance..................................... (5) (5) (5)
Additions of intangible assets................. (248) (10) (10)
Purchase of Artema (Note 9).................... -- (6,000) --
-------- -------- --------
Net cash used in investing activities...... (6,088) (11,354) (3,673)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable to bank............. (6,743) (4,000) (14,396)
Borrowings on notes payable to bank............ 500 6,782 6,500
Stockholder distributions...................... (5,637) (6,450) (8,502)
-------- -------- --------
Net cash used in financing activities...... (11,880) (3,668) (16,398)
-------- -------- --------
Effect of exchange rate changes on cash.......... (122) 129 (148)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS..................................... (2,151) 1,240 (950)
CASH AND SHORT-TERM INVESTMENTS, beginning of
year............................................ 2,331 180 1,420
-------- -------- --------
CASH AND SHORT-TERM INVESTMENTS, end of year..... $ 180 $ 1,420 $ 470
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for--
Interest..................................... $ 2,441 $ 1,688 $ 1,969
======== ======== ========
Income taxes................................. $ 155 $ 94 $ 243
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1997
1. COMPANY BACKGROUND
Hudson Respiratory Care Inc. (Hudson or the Company), founded in 1945, is a
manufacturer and marketer of disposable medical products utilized in the
respiratory care and anesthesia segments of the domestic and international
health care markets. The Company's respiratory care and anesthesia product
lines include such products as oxygen masks, humidification systems,
nebulizers, cannulae and tubing. In the United States, the Company markets its
products to a variety of health care providers, including hospitals and
alternate site service providers such as outpatient surgery centers, long-term
care facilities, physician offices and home health care agencies.
Internationally, the Company sells its products to distributors that market to
hospitals and other health care providers. The Company's products are sold to
distributors and alternate site service providers throughout the United States
and internationally. The Company's operations are conducted from its primary
facility in Temecula, California, facilities in Arlington Heights and Elk
Grove, Illinois, and a facility in Ensenada, Mexico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The consolidated financial statements include the accounts of Hudson and
subsidiaries, Industrias Hudson and Oxy Air LLC (Oxy). Hudson owns 79 percent
and 99 percent of Industrias Hudson and Oxy, respectively. Hudson's sole
stockholder owns the remaining 21 percent and 1 percent of Industrias Hudson
and Oxy, respectively. Accordingly, the accompanying financial statements have
been prepared on a consolidated basis assuming 100 percent ownership, since
all of the issued and outstanding common shares are owned either directly or
indirectly by the same stockholder. The minority interests in Industrias
Hudson and Oxy not owned by Hudson are not material to the consolidated
financial position or results of operations of the Company.
All significant intercompany accounts and transactions have been eliminated.
Hudson and subsidiaries are collectively referred to herein as the Company.
b. Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
c. Cash and Short-Term Investments
The Company's policy is to invest cash in excess of operating requirements
in income-producing short-term instruments. Short-term investments are stated
at cost plus accrued interest, which approximates market value. For purposes
of the consolidated statements of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
d. Inventories
Inventories are stated at the lower of cost or market. Effective January 1,
1996, the Company changed its method of pricing inventory from the last-in,
first-out (LIFO) method to the first-in, first-out (FIFO) method. In
accordance with APB Opinion No. 20, the Company has restated all prior periods
to reflect the conversion to the FIFO method. The effect of the change was not
material to the balance sheet or statement of operations. The change in method
was made to improve comparability of the Company's financial statements and
report inventory balances that more closely reflect the inventory's current
cost.
F-7
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 27, 1996 and December 26, 1997, inventories consisted of the
following (amounts in thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Raw materials.............................................. $ 3,962 $ 4,802
Work-in-process............................................ 4,531 4,681
Finished goods............................................. 5,524 7,130
------- -------
$14,017 $16,613
======= =======
</TABLE>
Work-in-process and finished goods include raw materials, labor and
overhead. Certain finished goods are purchased for resale and are not
manufactured.
e. Depreciation and Amortization Methods
Depreciation of property, plant and equipment is provided using both the
straight-line and declining-balance methods over the following estimated
useful lives:
<TABLE>
<S> <C>
Buildings..................................................... 31.5 years
Leasehold improvements........................................ 31.5 years
Machinery and equipment....................................... 5 to 7 years
Furniture and fixtures........................................ 7 years
Heaters....................................................... 5 years
</TABLE>
Upon retirement or disposal of depreciable assets, the cost and related
accumulated depreciation are removed and the resulting gain or loss is
reflected in income from operations. Major renewals and betterments are
capitalized while maintenance costs and repairs are expensed in the year
incurred.
f. Intangible Assets
Amortization of intangible assets is provided using the straight-line method
over the applicable amortization period. The following is a summary of the
components of intangible assets as of fiscal 1996 and 1997 (amounts in
thousands):
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 1996 1997
-------------- ------- -------
<S> <C> <C> <C>
Covenant not-to-compete................... 5 to 7 years $ 6,525 $ 3,500
Patents................................... 10 years 3,183 3,183
Loan acquisition costs.................... Loan term 258 268
Goodwill.................................. 15 to 20 years 1,920 1,920
Other..................................... 5 to 20 years 233 133
-------------- ------- -------
12,119 9,004
Less--Accumulated amortization............ (6,479) (4,568)
------- -------
$ 5,640 $ 4,436
======= =======
</TABLE>
g. Foreign Currency Translation
The Company follows the principles of Statement of Financial Accounting
Standards (SFAS) No. 52, "Foreign Currency Translation", using the local
currency as the functional currency of its operating subsidiaries.
F-8
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accordingly, all assets and liabilities outside the United States are
translated into U.S. dollars at the rate of exchange in effect at the balance
sheet date. Income and expense items are translated at the weighted average
exchange rate prevailing during the period.
h. Fiscal Year-End
The Company reports its operations on a 52-53 week fiscal year ending on the
Friday closest to December 31. The fiscal years ended December 29, 1995,
December 27, 1996, and December 26, 1997, were all comprised of 52 week years.
i. Post-employment and Post-retirement Benefits
The Company does not provide post-employment or post-retirement benefits to
employees. Accordingly, SFAS No. 112, "Employers' Accounting for Post-
employment Benefits", and SFAS No. 106, "Employers' Accounting for Post-
retirement Benefits", have no impact on the Company's financial statements.
j. Long-Lived Assets
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of", on January 1, 1996.
This standard requires that long-lived assets and certain identifiable
intangibles 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. The adoption of this standard did not have a
material effect on the consolidated financial statements.
k. New Accounting Pronouncements
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income".
This Statement requires that all items that meet the definition of components
of comprehensive income be reported in a financial statement for the period in
which they are recognized. Components of comprehensive income include
revenues, expenses, gains, and losses that under generally accepted accounting
principles are included in comprehensive income but excluded from net income.
This Statement is effective for fiscal years beginning after December 15,
1997. Management believes that adoption of this Statement will not have a
material effect on the Company's consolidated financial statements.
In June 1997, FASB also issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". This Statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Financial information is required to be
reported on the same basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. This Statement
is effective for fiscal years beginning after December 15, 1997. Management
believes that the adoption of this Statement will not have a material effect
on the Company's consolidated financial statements.
l. Reclassifications
Certain reclassifications have been made in the 1995 and 1996 statements to
conform with the 1997 presentation.
F-9
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. NOTES PAYABLE TO BANK
The Company has a credit agreement with a bank which provides for borrowings
of up to approximately $37,250,000. Total borrowings as of fiscal 1995, 1996
and 1997 were approximately $25,364,000, $28,146,000 and, $20,250,000
respectively. This agreement consists of two separate facilities which are
summarized as follows:
Revolving line of credit--maximum borrowings of $15,000,000 limited to 85
percent of qualified accounts receivable and 50 percent of qualified
inventories, maturing on March 31, 2000. The agreement provides for the
issuance of letters of credit, not to exceed the maximum borrowings nor to
expire later than the maturity date, to beneficiaries designated by the
Company, limited to $2,000,000 and a one year term. Interest on outstanding
borrowings is at the Company's option of the bank's base rate plus one-
quarter of one percent (8.75 percent at December 26, 1997) or a eurodollar
rate plus one and three-quarters percent (7.47 percent at December 26,
1997). The agreement, as amended, also provides for a one-half of one
percent per year facility fee on the difference of the maximum borrowings
and the sum of the daily averages of the outstanding revolving credit loan
and the issued and outstanding letters of credit during the period.
Term loan--maximum borrowings of $22,250,000, maturing on March 31, 2000.
The agreement, as amended, calls for quarterly principal payments of
$1,000,000 with a final payment of $5,500,000 or the aggregate outstanding
balance on March 31, 2000. Interest on the borrowings is at the bank's base
rate plus one-half of one percent or a eurodollar rate plus two percent
(7.72 percent at December 26, 1997).
The agreement gives the bank a first security interest in all assets of the
Company. The agreement also requires the Company to maintain certain financial
ratios and financial covenants, as defined in the amendment, the most
restrictive of which prohibit additional indebtedness and limits payments to
the Company's stockholder, other than for income tax payments. As of December
26, 1997 the Company was in compliance with all covenants.
As of December 26, 1997, future minimum principal payments on the
aforementioned debt, in accordance with the amended agreement, are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
ENDING
-----------
<S> <C>
1998............................................................ $ 4,000
1999............................................................ 5,000
2000............................................................ 11,250
-------
$20,250
=======
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities, automobiles and office equipment
under noncancellable leases, with the majority of the automobile leases having
a term of one year with annual renewal provisions. All of these leases have
been classified as operating leases. As of December 26, 1997, the Company had
future obligations under operating leases as follows (amounts in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
ENDING
-----------
<S> <C>
1998............................................................ $ 941
1999............................................................ 921
2000............................................................ 335
------
$2,197
======
</TABLE>
F-10
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rental expense for all leases classified as operating leases was
approximately $1,065,000, $1,106,000 and $1,132,000 in fiscal 1995, 1996 and
1997, respectively.
The Company self-insures the majority of its medical benefit programs.
Reserves for losses are established currently based upon estimated
obligations. The Company maintains excess coverage on an aggregate claim
basis.
The Company is party to lawsuits and other proceedings, including suits
relating to product liability and patent infringement. While the results of
such lawsuits and other proceedings cannot be predicted with certainty,
management does not expect that the ultimate liabilities, if any, will have a
material adverse effect on the financial position or results of operations of
the Company.
5. INCOME TAXES
Effective November 1, 1987, the stockholder of Hudson elected S corporation
status under the Internal Revenue Code, such that income of the Company is
taxed directly to the stockholder for both federal and state income tax
purposes. Hudson and Industrias Hudson will file separate federal income tax
returns for 1997.
Under the S corporation election, the stockholder of Hudson includes her
share of Hudson's taxable income on her individual federal and state income
tax returns. Hudson's provision for income taxes and income taxes payable is
limited to the California S corporation tax of 2.5 percent for 1995, and 1.5
percent for both 1996 and 1997.
The provision for state income taxes consists of the following (amounts in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ----- ----
<S> <C> <C> <C>
Current................................................... $280 $ 200 $ 74
Deferred.................................................. -- (127) 76
---- ----- ----
$280 $ 73 $150
==== ===== ====
</TABLE>
As of December 26, 1997, the Company has recorded a net deferred tax asset
of $76,000 primarily related to its Equity Participation Plan (see Note 7),
which in management's opinion is more likely than not to be realized.
The Company will become a C corporation upon consummation of the transaction
discussed in Note 10. Accordingly, the Company has presented pro forma net
income (loss) amounts to reflect a provision for income taxes at a combined
effective rate of approximately 40%, after consideration of permanent
differences between financial reporting and income tax amounts. The pro forma
amounts presented do not include the one-time effect of conversion to C
corporation status which will be reflected in the 1998 financial statements.
6. RELATED-PARTY TRANSACTIONS
Amounts included in the consolidated financial statements with respect to
transactions with companies controlled by officers, the stockholder or members
of their immediate families are as follows (amounts in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ---- ------
<S> <C> <C> <C>
Purchases............................................... $1,524 $557 $1,465
====== ==== ======
Notes receivable........................................ $ 88 $ 91 $ 157
====== ==== ======
</TABLE>
F-11
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. DEFERRED COMPENSATION AND BENEFIT PLANS
a. Pension Plan
The Company has a defined-contribution pension plan covering substantially
all its employees. Amounts charged to expense relating to this plan totaled
approximately $810,000, $767,000 and $836,000 for the fiscal years ended 1995,
1996 and 1997, respectively.
b. Deferred Compensation
Effective December 1, 1994, the Company established a deferred compensation
plan for certain key employees. As of December 27, 1996 and December 26, 1997
no material amount of compensation has been deferred.
c. Equity Participation Plan
Effective January 1, 1994, the Company's Board of Directors adopted the
Equity Participation Plan, as amended (the Plan). This Plan provides certain
key employees and independent contractors deferred compensation based upon the
Company's value, as defined in the agreement. Benefits earned by participants
are based upon a formula with a specified minimum benefit accruing each year
for each participant. Benefits are accrued and charged to compensation in the
year earned. Payments are subject to an installment period of five years with
an annual maximum limit of $1,000,000. As of fiscal year ended 1995, 1996 and
1997 the Company has recorded $11,415,000, $19,664,000 and $5,703,000,
respectively, related to accrued amounts earned by the Plan participants.
In fiscal 1997, the Company declared bonuses totaling $20 million which will
result in a corresponding decrease in amounts payable under the Plan. The
effect of the bonuses is to accelerate the timing of payments to the
participants. This management bonus accrual is included in current liabilities
on the accompanying balance sheet.
8. MAJOR CUSTOMERS AND SALES BY GEOGRAPHIC REGION
The Company sells respiratory care products to distributors and medical
facilities throughout the United States and internationally. During 1995, 1996
and 1997, the Company had foreign sales of approximately $12,843,000,
$16,077,000 and $19,008,000, respectively, which constituted approximately 15
percent, 17 percent and 19 percent of total sales, respectively. The Company's
percentage of sales by geographic region for the fiscal years ended 1995, 1996
and 1997 were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Domestic............................................. 85.2% 82.8% 80.9%
Europe............................................... 5.6 6.6 7.5
Pacific Rim (Japan, Southeast Asia, Australia/New
Zealand)............................................ 4.6 5.7 5.7
Canada............................................... 2.3 1.9 1.8
Other international.................................. 2.3 3.0 4.1
----- ----- -----
Total.............................................. 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
For the fiscal years ended 1995, 1996 and 1997, the Company had sales of 31
percent, 32 percent and 30 percent, respectively, to one distributor.
F-12
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. ACQUISITION
During 1996, the Company acquired substantially all the assets of the Artema
Medical AB corporation ("Artema") for a purchase price of $6,000,000. Artema
engaged primarily in the business of manufacturing, marketing, and selling
hygroscopic condenser humidifiers. The acquisition was accounted for as a
purchase and the purchase price was allocated as follows (amounts in
thousands):
<TABLE>
<S> <C>
Covenant not-to-compete............................................ $3,500
Goodwill........................................................... 1,743
Machinery and equipment............................................ 757
------
$6,000
======
</TABLE>
10. SUBSEQUENT EVENTS (UNAUDITED)
In February 1998, the Company announced the intent to sell a majority of the
Company pursuant to an agreement and plan of merger (the Recapitalization).
Key components of the Recapitalization include:
(1) common and preferred equity investments in consideration for an 80.8%
ownership in the Company's common stock and preferred stock with an initial
liquidation preference of $30.0 million
(2) issuance of senior subordinated notes
(3) execution of a new term loan facility and revolving loan facility
(4) repayment of existing indebtedness
(5) payment of amounts due under the Equity Participation Plan
(6) payment for common shares acquired from the existing shareholder; this
shareholder will retain a 19.2% interest in the common shares outstanding.
(7) Potential contingent payments based on 1998 performance, payable to the
Continuing Shareholder and former participants in the Equity Participation
Plan.
The Company will also terminate the Equity Participation Plan and adopt a
stock option plan and a stock purchase plan. Additionally, Hudson's sole
shareholder, who owns the remaining 21 percent of Industrias Hudson, will
transfer this interest to the Company in consideration of one dollar.
11. SUBSEQUENT EVENT--STOCK SPLIT
The Company effected a 245:1 stock split concurrent with the
Recapitalization. The stock split has been reflected in the stock amounts
shown herein.
F-13
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 27, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
March 27,
1998
-----------
(UNAUDITED)
<S> <C>
ASSETS
------
CURRENT ASSETS:
Cash and short-term investments.................................. $ 734
Accounts receivable, less allowance for doubtful accounts of
$303............................................................ 18,741
Inventories...................................................... 15,938
Other assets..................................................... 920
-------
Total current assets............................................ 36,333
-------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land............................................................. 2,044
Buildings........................................................ 13,369
Leasehold improvements........................................... 1,322
Machinery and equipment.......................................... 61,909
Furniture and fixtures........................................... 2,208
Construction in progress......................................... 1,620
-------
82,472
Less--Accumulated depreciation and amortization.................. 49,915
-------
32,557
OTHER ASSETS:
Intangible assets, net........................................... 4,197
Other assets..................................................... 515
-------
4,712
-------
$73,602
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable to bank............................................ $ 4,000
Accounts payable................................................. 2,470
Accrued liabilities.............................................. 5,006
-------
Total current liabilities....................................... 11,476
-------
NOTES PAYABLE TO BANK, net of current portion...................... 31,000
-------
ACCRUED EQUITY PARTICIPATION PLAN.................................. 7,302
-------
STOCKHOLDER'S EQUITY:
Common stock, no par value:
Authorized--15,000,000 shares
Issued and outstanding--14,468,720 shares
at March 27, 1998.............................................. 3,789
Cumulative translation adjustment................................ (464)
Retained earnings................................................ 20,499
-------
23,824
-------
$73,602
=======
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-14
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------
MARCH 28, MARCH 27,
1997 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
NET SALES.................................................. $23,987 $24,265
COST OF SALES.............................................. 11,970 13,026
------- -------
Gross profit............................................... 12,017 11,239
------- -------
OPERATING EXPENSES:
Selling.................................................. 2,331 2,317
Distribution............................................. 1,261 1,449
General and administrative............................... 2,946 3,077
Research and development................................. 418 474
------- -------
6,956 7,317
------- -------
Income from operations before equity participation plan,
bonuses and other......................................... 5,061 3,922
PROVISION FOR EQUITY PARTICIPATION PLAN AND BONUSES........ 1,966 1,974
------- -------
Income from operations..................................... 3,095 1,948
------- -------
OTHER INCOME AND (EXPENSES):
Interest expense......................................... (505) (419)
Other, net............................................... 650 (8)
------- -------
145 (427)
------- -------
Income before provision for income taxes................... 3,240 1,521
PROVISION FOR STATE INCOME TAXES........................... 45 23
------- -------
Net income (loss).......................................... $ 3,195 $ 1,498
======= =======
Pro forma net income (loss) assuming conversion to C
corporation for income tax purposes (Note 3).............. $ 1,941 $ 911
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-15
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 28, MARCH 27,
1997 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 3,195 $ 1,498
Adjustments to reconcile net income to net cash provided
by (used in) operating activities--
Depreciation and amortization.......................... 1,444 1,497
Gain on disposal of equipment.......................... (638) --
Decrease in accounts receivable........................ 3,947 2,541
(Increase) decrease in inventories..................... (1,131) 675
(Increase) decrease in other current assets............ (134) 231
(Increase) decrease in other assets.................... (162) 43
Decrease in accounts payable........................... (691) (1,221)
Decrease in accrued liabilities........................ (374) (449)
Increase in accrued equity participation plan.......... 1,966 1,974
Payment of management bonuses.......................... -- (20,375)
------- --------
Net cash provided by (used in) operating activities.. 7,422 (13,586)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............... (112) (701)
Proceeds from sale of property, plant and equipment...... 1,068 --
Increase in cash surrender value of life insurance....... (5) --
Additions of intangible assets........................... -- (70)
------- --------
Net cash provided by (used in) investing activities.. 951 (771)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable to bank....................... (4,556) (6,250)
Borrowings on notes payable to bank...................... -- 21,000
Stockholder distributions................................ (2,059) (10)
------- --------
Net cash provided by (used in) financing activities.. (6,615) 14,740
------- --------
Effect of exchange rate changes on cash.................... 28 (119)
------- --------
NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS............ 1,786 264
CASH AND SHORT-TERM INVESTMENTS, beginning of quarter...... 1,420 470
------- --------
CASH AND SHORT-TERM INVESTMENTS, end of quarter............ $ 3,206 $ 734
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the quarter for:
Interest............................................... $ 563 $ 690
======= ========
Income taxes........................................... $ -- $ 12
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-16
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 27, 1998
(UNAUDITED)
1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, and include all adjustments which are,
in the opinion of management, necessary for a fair presentation of the
financial position at March 27, 1998, and the results of operations and the
cash flows for the three-month periods ended March 28, 1997 and March 27, 1998
pursuant to the rules and regulations of the Securities and Exchange
Commission. All such adjustments are of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Although the
Company believes that the disclosures in such financial statements are
adequate to make the information presented not misleading, these consolidated
financial statements should be read in conjunction with the Company's 1997
audited financial statements and the notes thereto included. The results of
operations for the three-month periods ended March 28, 1997 and March 27, 1998
are not necessarily indicative of the results for a full year.
2. INVENTORIES
At March 27, 1998, inventories consisted of the following (amounts in
thousands):
<TABLE>
<S> <C>
Raw materials................................ $ 4,658
Work-in-process.............................. 4,574
Finished goods............................... 6,706
-------
$15,938
=======
</TABLE>
3. COMPREHENSIVE INCOME
In June 1997, FASB issued Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income". This Statement requires that all
items that meet the definition of components of comprehensive income be
reported in a financial statement for the period in which they are recognized.
This Statement is effective for fiscal years beginning after December 15, 1997
and was adopted by the Company in the quarter ended March 27, 1998.
The Company had comprehensive income for the three-month periods ended March
27, 1998 and March 28, 1997 as follows (amounts in thousands):
<TABLE>
<CAPTION>
March 28, March 27,
1997 1998
--------- ---------
<S> <C> <C>
Net income............................................ $3,195 $1,498
Other comprehensive income:
Foreign currency translation gain (loss)............ 28 (119)
------ ------
Comprehensive income.................................. $3,223 $1,379
====== ======
</TABLE>
4. INCOME TAXES
The Company became a C corporation upon consummation of the transaction
discussed in Note 5. Accordingly, the Company has presented pro forma net
income (loss) amounts to reflect a provision for income taxes at a combined
effective rate of approximately 40%, after consideration of permanent
differences between financial reporting and income tax amounts. The pro forma
amounts presented do not include the one-time effect of the conversion to C
corporation status which will be reflected in the June 1998 financial
statements.
5. EQUITY PARTICIPATION PLAN PAYOUT
In March 1998, the Company paid previously-accrued bonuses totaling $20
million, plus related payroll taxes. These payments were funded by additional
borrowings under the existing credit facility. The provision for equity
participation plan costs on an interim basis is based upon the expected
provision for the year as a percentage of income before the provision for EPP
costs.
F-17
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. SUBSEQUENT EVENTS
In April 1998, the Company consummated a plan pursuant to which a majority
of the Company was sold in accordance with an agreement and plan of merger
(the Recapitalization).
Key components of the Recapitalization include:
(1) common and preferred equity investments in consideration for an 80.8%
ownership in the Company's common stock and preferred stock with an initial
liquidation preference of $30.0 million
(2) issuance of 9 1/8% senior subordinated notes with a par value of $115.0
million, maturing in 2008
(3) execution of a new term loan facility and revolving loan facility
(4) repayment of existing indebtedness
(5) payment of amounts due under the Equity Participation Plan
(6) payment for common shares acquired from the existing shareholder; this
shareholder will retain a 19.2% interest in the common shares outstanding.
(7) potential contingent payments based on 1998 performance, payable to the
continuing shareholder and former participants in the Equity Participation
Plan.
The Company has terminated the Equity Participation Plan and will adopt a
stock option plan and has adopted a stock purchase plan. Additionally,
Hudson's sole shareholder, who owned the remaining 21 percent of Industrias
Hudson, will transfer this interest to the Company in consideration of one
dollar.
The Company effected a 245:1 stock split concurrent with the
Recapitalization. The stock split has been reflected in the stock amounts
shown herein.
F-18
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 27, 1998
(in thousands)
<TABLE>
<CAPTION>
ADJUSTMENTS (NOTE 2)
------------------------------------------
ACTUAL RECAPITALIZATION OTHER PRO FORMA
----------- -------------------- --------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets
Cash and short-term investments......................... $ 734 $ -- $ (38)(g) $ 696
Accounts Receivable, net................................ 18,741 -- 195 (g) 18,936
Inventories............................................. 15,938 -- 15,938
Other assets............................................ 920 -- (37)(g) 883
------- --------- ----- --------
Total current assets.................................. 36,333 -- 120 36,453
------- --------- ----- --------
Property, Plant & Equipment, net.......................... 32,557 -- (556)(g) 32,001
Intangibles and other assets.............................. 4,374 -- -- 4,374
Deferred income taxes..................................... -- 80,350(a) -- 80,350
Deferred debt costs....................................... 338 11,662(b) -- 12,000
Purchase price in excess of book value of net
assets......................................... -- -- -- --
------- --------- ----- --------
Total assets.......................................... $73,602 $ 92,012 $(436) $165,178
======= ========= ===== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities
Current portion of long-term debt....................... $ 4,000 $ (4,000)(c) -- $ --
Accounts payable........................................ 2,470 -- (5)(g) 2,465
Accrued liabilities..................................... 5,006 3,000 (d) (77)(g) 7,929
Management bonus........................................ -- -- (e) -- --
------- --------- ----- --------
Total current liabilities............................. 11,476 (1,000) (82) 10,394
------- --------- ----- --------
Existing long-term debt................................... 31,000 (31,000)(c) -- --
Bank facility............................................. -- 40,000 (c) -- 40,000
Senior subordinated notes................................. -- 115,000 (c) -- 115,000
Accrued Equity Participation Plan......................... 7,302 (7,302)(e) -- --
------- --------- ----- --------
Total liabilities..................................... 49,778 115,698 (82) 165,394
------ -------- ----- --------
Mandatorily redeemable preferred stock.................... -- 30,000(c) -- 30,000
------- --------- ----- --------
Shareholders' equity
Common stock............................................ 3,789 59,621(f) -- 63,410
Cumulative translation adjustment....................... (464) -- -- (464)
Retained earnings (deficit)............................. 20,499 (113,307)(f) (354)(g) (93,162)
------- --------- ----- --------
Total shareholders' equity (deficit).................. 23,824 (53,686) (354) (30,216)
------- --------- ----- --------
Total liabilities and shareholders' equity............ $73,602 $ 92,012 $(436) $165,178
======= ========= ===== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
P-1
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 26, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS (NOTE 3)
--------------------------------------
PRO
ACTUAL RECAPITALIZATION OTHER FORMA
---------- --------------------- --------- -----------
<S> <C> <C> <C> <C>
Net sales.............................................. $ 99,509 $ -- $ -- $ 99,509
Cost of sales.......................................... 51,732 -- -- 51,732
---------- ---------- -------- ----------
Gross profit..................................... 47,777 -- -- 47,777
Operating expenses:
Selling expenses..................................... 9,643 -- -- 9,643
Distribution expenses................................ 5,240 -- -- 5,240
General and administrative expenses.................. 11,456 -- (839)(c) 10,617
Research and development expenses.................... 1,845 -- -- 1,845
---------- ---------- -------- ----------
Total operating expenses before equity
participation plan...................... 28,184 -- (839) 27,345
---------- ---------- -------- ----------
Operating income before equity
participation plan...................... 19,593 -- 839 20,432
Provision for equity participation plan................ 6,954 (6,954)(a) -- --
---------- ---------- ---------- ----------
Operating income................................... 12,639 6,954 839 20,432
---------- ---------- ---------- ----------
Other (income) and expenses:
Interest expense..................................... 1,834 13,265 (b) -- 15,099
Other (income)/expense............................... (638) -- 638 (d) --
---------- ---------- ---------- ----------
Total other (income) and expenses.................. 1,196 13,265 638 15,099
---------- ---------- ---------- ----------
Income before provision for income taxes........... 11,443 (6,311) 201 5,333
Provision for state income taxes....................... 150 1,903 (e) 80 (e) 2,133
---------- ---------- ---------- ----------
Net income (loss).................................... 11,293 (8,212) 121 3,200
---------- ---------- ---------- ----------
Preferred Stock Dividends.............................. -- 3,549 (f) -- 3,549
---------- ---------- ---------- ----------
Net income available to common stock................. $11,293 $(11,763) $ 121 $ (349)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
P-2
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
QUARTER ENDED MARCH 27, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS (NOTE 3)
--------------------------- PRO
ACTUAL RECAPITALIZATION OTHER FORMA
----------- -------------------- -------- -------
<S> <C> <C> <C> <C>
Net sales................................................. $24,265 $ -- $ -- $24,265
Cost of sales............................................. 13,026 -- -- 13,026
------- ------- ----- -------
Gross profit.......................................... 11,239 -- -- 11,239
Operating expenses:
Selling expenses........................................ 2,317 -- -- 2,317
Distribution expenses................................... 1,449 -- -- 1,449
General and administrative expenses..................... 3,077 -- (172)(c) 2,905
Research and development expenses....................... 474 -- -- 474
Amortization of purchase price in excess of
net book value........................................ -- -- -- --
Total operating expenses before equity ------- ------- ----- -------
participation plan................................ 7,317 -- (172) 7,145
Operating income before equity ------- ------- ----- -------
participation plan................................ 3,922 -- 172 4,094
Provision for equity participation plan................... 1,974 (1,974)(a) -- --
------- ------- ----- -------
Operating income...................................... 1,948 1,974 172 4,094
------- ------- ----- -------
Other (income) and expenses:
Interest expense........................................ 419 3,355(b) -- 3,774
Other (income)/expense.................................. 8 -- -- 8
------- ------- ----- -------
Total other (income) and expenses.................... 427 3,355 -- 3,782
------- ------- ----- -------
Income before provision for income taxes............. 1,521 (1,381) 172 312
Provision for state income taxes.......................... 23 33(e) 69(e) 125
------- ------- ----- -------
Net income (loss)....................................... 1,498 (1,414) 103 187
------- ------- ----- -------
Preferred Stock Dividends................................. -- 863(f) -- 863
------- ------- ----- -------
Net income available to common stock.................... $ 1,498 $(2,277) $ 103 $ (676)
======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of this financial statement.
P-3
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
MARCH 27, 1998
1. TRANSACTION
In connection with the completion of an offering to sell $115.0 million 9%
Senior Subordinated Notes due 2008 (the "Offering"), Hudson Respiratory Care
Inc. (the "Company") consummated a recapitalization pursuant to an Agreement and
Plan of Merger (the "Recapitalization"). Under the terms of the
Recapitalization, River Acquisition Corp., a wholly-owned subsidiary of River
Holding Corp. ("Holding"), merged with and into the Company, with the Company
surviving as a majority-owned subsidiary of Holding.
Pursuant to the Recapitalization, Holding contributed approximately $93.0
million in equity capital into the Company (the "Holding Equity Investment") and
the current shareholder of the Company (the "Continuing Shareholder") retained
common stock of the Company. The Holding Equity Investment is comprised of
$63.0 million of common equity and $30.0 million of preferred equity and,
following the Holding Equity Investment, Holding owns 80.8% of the outstanding
Common Stock of the Company and the Continuing Shareholder owns 19.2% of the
outstanding Common Stock. The common equity investment in Holding is comprised
of a $55.0 million investment by affiliates of Freeman Spogli & Co. Incorporated
("FS&Co.") and $8.0 million by management of the Company. Upon consummation of
the Recapitalization, FS&Co. beneficially owns approximately 87.3% of the
outstanding common stock of Holding and management of the Company owns the
remaining 12.7%. Preferred stock of the Company provides for dividends payable
in cash commencing on the fifth anniversary of issuance and will be redeemable
at the option of the holders thereof upon the occurrence of certain events
constituting change in control of the Company. In addition, in connection with
the Recapitalization the Company has made payments to certain employees of $88.3
million under the Equity Participation Plan.
The Company also entered into an agreement (the "New Credit Facility") that
provides a $40.0 million secured term loan facility (the "Term Loan Facility"),
which was funded in connection with the consummation of the Recapitalization,
and a $60.0 million revolving loan facility (the "Revolving Loan Facility")
which is available for the Company's future capital requirements and to finance
acquisitions.
The Pro Forma Consolidated Financial Statements give effect to the Offering
and the Recapitalization as if these transactions occurred as of March 27, 1998
for purposes of the consolidated balance sheet, and as of the beginning of the
period for purposes of the consolidated statements of operations. The Pro Forma
Consolidated Financial Statements do not give effect to any transactions other
than the Offering, the Recapitalization and those discussed in the accompanying
notes. The objective of this pro forma financial information is to show what
the significant effects on the historical financial information might have been
had the transaction occurred at an earlier date. However, the Pro Forma
Consolidated Financial Statements are not necessarily indicative of the results
of operations or related effects on financial position that would have been
attained had the above-mentioned transaction actually occurred earlier.
The Recapitalization also provides for additional payments of up to an
aggregate of $5.7 million payable to the Continuing Shareholder and participants
in the Equity Participation Plan upon achievement by the Company of certain
operating performance targets for fiscal 1998. This amount will be recorded
when and if earned. No recognition of the contingent payments is provided in
these pro forma financial statements.
The historical Consolidated Financial Statements and accompanying notes,
included elsewhere in this Prospectus, should be read in conjunction with these
financial statements and the accompanying notes thereto.
P-4
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 27, 1998
2. PRO FORMA CONSOLIDATED BALANCE SHEET ASSUMPTIONS
The pro forma adjustments reflecting the transaction described in Note 1,
and the application of those adjustments to the historical amounts, were made
under the following assumptions:
(a) Reflects the deferred tax asset for the difference between assigned
values and tax bases of certain assets and liabilities.
(b) Reflects the portion of transaction and other related expenses which will
be attributable to the Recapitalization, net of the elimination of the
historical unamortized debt financing costs. The Company will record an
extraordinary loss on the extinguishment of the existing debt related to
the write-off of unamortized deferred finance fees of $338,000. This
extraordinary item is excluded from the pro forma statement of operations
due to its non-recurring nature.
(c) The pro forma adjustments which reflect the financing and repayment of
existing long-term debt of the Company are as follows (amounts in
thousands):
<TABLE>
<S> <C>
Repayment of existing debt--current portion........................................ $ (4,000)
------------
Long-term debt
Repayment of existing debt--long-term portion.................................... $ (31,000)
New Credit Facility.............................................................. 40,000
Senior subordinated notes........................................................ 115,000
------------
Total debt......................................................................... $ 124,000
============
Issuance of mandatorily redeemable preferred stock................................. $ 30,000
============
</TABLE>
(d) Reflects the transaction tax liability related to Section 338(h)(10) of
the Internal Revenue Code.
(e) Reflects the payment of accrued liabilities related to the Equity
Participation Plan. See Note 7 to the historical financial statements.
(f) The pro forma adjustments which reflect the consideration paid for a
portion of the Continuing Shareholder's common stock and the Common Stock
Investment are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Common Stock:
<S> <C>
Common Stock Investment......................................................... $ 63,000
Par value of a portion of Continuing Shareholder's common stock................. (3,379)
------------
Total............................................................................. $ 59,621
Retained earnings (deficit): ============
Consideration paid for a portion of Continuing Shareholder's common stock......... $ (131,685)
Consideration paid for par value of a portion of Continuing Shareholder's
common stock...................................................................... 3,379
Deferred tax asset................................................................ 80,350
Provision for Equity Participation Plan in 1998................................... (61,013)
Other............................................................................. (4,338)
------------
Total............................................................................. $ (113,307)
============
</TABLE>
(g) Reflects the elimination of assets and liabilities related to OxyAir
since OxyAir will be transferred to the Continuing Shareholder.
P-5
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 27, 1998
3. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ASSUMPTIONS
The pro forma adjustments reflecting the transaction described in Note 1,
and the application of those adjustments to the historical amounts, were made
under the following assumptions:
(a) An additional compensation charge of approximately $60.6 million will be
recorded in fiscal 1998 pursuant to the Equity Participation Plan and
concurrent with the Recapitalization. The net adjustment reflects the
elimination of the Equity Participation Plan since the Plan terminated upon
the Recapitalization. See "Management--Equity Participation Plan."
(b) The pro forma adjustments to interest expense and amortization of deferred
financing fees reflect the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 26, MARCH 27,
1997 1998
------------- ---------
<S> <C> <C>
Elimination of interest expense on existing debt............................... $(1,834) $ (419)
Interest expense on bank facility at an assumed composite interest rate of
8.00%..................................................................... 3,200 800
Interest expense on Senior Subordinated Notes at an assumed interest rate
of 9.125%................................................................. 10,494 2,623
Amortization of deferred finance fees.......................................... 1,405 351
------- ------
Total.......................................................................... $13,265 $3,355
======= ======
</TABLE>
(c) The pro forma adjustments to general and administrative expense reflect the
following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 26, MARCH 27,
1997 1998
------------- ----------
<S> <C> <C>
Elimination of Continuing Shareholder salary, bonus and fringe
benefits (1)................................................................ $(455) $ (87)
Elimination of expenses related to OxyAir (2).................................. (384) (85)
----- -----
Total.......................................................................... $(839) $(172)
===== =====
</TABLE>
______________________
(1) The Company will not continue to pay Continuing Shareholder salary,
bonus and related fringe benefits. The adjustment is to eliminate such
expenses.
(2) Reflects the elimination of expense related to OxyAir since OxyAir will
be transferred to the Continuing Shareholder.
(d) Reflects the elimination of the non-recurring gain on sale of the Company's
Orange Park, Florida facility.
(e) Reflects the income tax effect of the net changes described above, using an
effective rate of 40%. Concurrent with the Recapitalization, the Company
will become a C corporation for income tax purposes.
(f) Reflects pay-in-kind preferred stock dividends at 11.50% due semi-annually.
4. USE OF ESTIMATES IN THE PRO FORMA FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
P-6
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE NOTES
BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................ 1
Risk Factors........................... 11
Use of Proceeds........................ 19
Capitalization......................... 20
The Exchange Offer..................... 21
Selected Historical and Pro Forma
Consolidated Financial Information.... 28
Management's Discussion and Analysis
of Financial Condition and
Results of Operations................. 31
Business............................... 39
Management............................. 48
Security Ownership of Certain
Beneficial Owners..................... 52
Certain Transactions................... 52
Description of New Credit Facility..... 54
Description of the Exchange Notes...... 56
Description of Other Securities........ 87
Certain U.S. Federal Income Tax
Consequences.......................... 94
Plan of Distribution................... 99
Experts................................ 99
Legal Matters.......................... 100
Index to Consolidated Financial
Statements............................ F-1
Pro Forma Consolidated Financial
Statements............................ P-1
</TABLE>
================================================================================
================================================================================
$115,000,000
Hudson Respiratory
Care Inc.
9 1/8% Senior Subordinated
Notes due 2008
Dated _________, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Section 317 of the General Corporation Law of California (the
"California Corporation Law"), Article V of the Amended and Restated Certificate
of Incorporation of the Registrant, as amended, a copy of which is filed as
Exhibit 3.1 to this Registration Statement (the "Certificate of Incorporation"),
and Article IV, Section 4.01 of the Bylaws of the Registrant, a copy of which is
filed as Exhibit 3.2 to this Registration Statement (the "Bylaws"), provide that
the Registrant shall indemnify and hold harmless to the fullest extent
authorized by the California Corporation Law any person made a party or
threatened to be made a party to or involved in any proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he or she,
or a person of whom he or she is the legal representative, is or was a director
or officer of the Registrant or is or was serving at the request of the
Registrant as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred or suffered by such person in connection
therewith if that person acted in good faith and in a manner the person
reasonably believed to be in the best interests of the Registrant, and that the
Registrant may advance to any such person expenses incurred in defending any
such proceeding prior to final disposition thereof.
Article IV of the Bylaws permits the Registrant to maintain insurance to
protect itself and any director, officer, employee or agent or another
corporation, partnership, joint venture, trust, or other enterprise against any
such foregoing expense, liability or loss, whether or not the Registrant would
have the power to indemnify such person against such expense, liability or loss
under the California Corporation Law.
Reference is made to the Registration Agreement (attached as Exhibit 4.3 to
this Registration Statement) which provides for indemnification by the
Participants (as defined therein) of the Registrant, its directors and officers
and each person controlling the Registrant, but only with reference to
information relating to such Participant furnished to the Registrant in writing
by such Participant expressly for use in any registration statement or
prospectus.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted with respect to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
The foregoing discussion of the Certificate of Incorporation and the
California Corporation Law is not intended to be exhaustive and is qualified in
its entirety by the Certificate of Incorporation and the relevant provisions of
the California Corporation Law.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
1.1 Purchase Agreement dated April 2, 1998 among Hudson Respiratory Care Inc. ("Hudson RCI"),
River Holding Corp. ("Holding"), Salomon Brothers Inc and BT Alex. Brown Incorporated.
2.1 Amended and Restated Merger Agreement dated March 15, 1998 among Holding, River
Acquisition Corp., Hudson RCI and the shareholders of Hudson RCI.
3.1 Amended and Restated Articles of Incorporation of Hudson RCI, as amended to date.
3.2 Bylaws of Hudson RCI.
4.1 Indenture dated as of April 7, 1998 among Hudson RCI, Holding and United States Trust
Company of New York, as Trustee, with respect to the 9 1/8% Senior Subordinated Notes due 2008
(including form of 9 1/8% Senior Note due 2008).
4.2 Exchange Indenture dated as of April 7, 1998 among Hudson RCI, Holding and United States
Trust Company of New York, as Trustee, with respect to the 11 1/2% Subordinated Exchange
Debentures due 2010 (including form of 11 1/2% Senior Subordinated Exchange Debenture due
2010).
4.3 Registration Agreement dated April 7, 1998 among Hudson RCI, Holding, Salomon Brothers Inc
and BT Alex. Brown Incorporated.
5.1 Opinion of Riordan & McKinzie as to the legality of securities registered hereunder.
10.1 Credit Agreement dated as of April 7, 1998 among Hudson RCI, Holding, and lenders party
thereto, Salomon Brothers Inc. as arranger, advisor and syndication agent, and Bankers Trust
Company ("Bankers Trust") as administrative agent and collateral agent.
10.2 Security Agreement dated as of April 7, 1998 between Hudson RCI and Bankers Trust.
10.3 Pledge Agreement dated as of April 7, 1998 between Holding and Bankers Trust.
10.4 Deed of Trust, Security Agreement, Fixture Filing and Assignment of Leases and Rents dated
April 7, 1998 between Hudson RCI and Chicago Title Insurance Company fbo Bankers Trust.
10.5 Holding Guarantee Agreement dated as of April 7, 1998 between Holding and Bankers Trust.
10.6 Indemnity, Subrogation and Contribution Agreement dated as of April 7, 1998 among Hudson
RCI, Holding and Bankers Trust.
10.7 Shareholders Agreement dated April 7, 1998 among Holding, The Helen Hudson Lovaas Separate
Property Trust U/D/T dated July 17, 1997, FS Equity Partners III, L.P. ("FSEP III"), FS Equity
Partners International, L.P. ("FSEP International"), FS Equity Partners IV, L.P. ("FSEP IV"),
and Hudson RCI.
10.8 Stock Subscription Agreement dated April 7, 1998 between Holding and River Acquisition Corp.
10.9 Employment Agreement dated April 7, 1998 between Hudson RCI and Richard W. Johansen.
10.10 Employment Agreement dated April 7, 1998 between Hudson RCI and Jay R. Ogram.
10.11 Employment Agreement dated April 7, 1998 between Hudson RCI and Lougene Williams.
10.12 Employment Agreement dated April 7, 1998 between Hudson RCI and Brian W. Morgan.
12.1 Statement re Computation of Earnings to Fixed Charges Ratio.
21.1 Subsidiaries of Hudson RCI.
23.1 Consent of Riordan & McKinzie (contained in Exhibit 5.1).
23.2 Consent and Report on Schedule of Arthur Andersen LLP.
24.1 Power of Attorney (included on the signature pages hereof).
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of
United States Trust Company of New York.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal with respect to the Exchange Offer.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
99.2 Form of Notice of Guaranteed Delivery with respect to the Exchange Offer.
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULE
Schedule I - Valuation and Qualifying Accounts and Reserves.
No other schedules have been included because the information required to
be set forth therein is not applicable.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
1. To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
2. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
3. To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
4. 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 this Registration Statement when it
became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Temecula,
California, on June 5, 1998.
HUDSON RESPIRATORY CARE INC.
By: /s/ Jay R. Ogram
-------------------------------------
Jay R. Ogram
Chief Financial Officer and Secretary
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard W. Johansen and/or Jay R. Ogram his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments, including post-effective amendments,
to this Registration Statement, and any registration statement relating to the
offering covered by this Registration Statement and filed pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Richard W. Johansen Chief Executive Officer June 5, 1998
- ----------------------- and Director (Principal Executive Officer)
Richard W. Johansen
/s/ Jay R. Ogram Chief Financial Officer and Secretary June 5, 1998
- ----------------------- (Principal Financial Officer)
Jay R. Ogram
/s/ Helen Hudson Lovaas Director June 5, 1998
- -----------------------
Helen Hudson Lovaas
/s/ Ronald P. Spogli Director June 5, 1998
- -----------------------
Ronald P. Spogli
/s/ Charles P. Rullman Director June 5, 1998
- -----------------------
Charles P. Rullman
/s/ Jon D. Ralph Director June 5, 1998
- -----------------------
Jon D. Ralph
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors of
Hudson Respiratory Care Inc.:
We have audited in accordance with generally accepted accounting standards, the
financial statements of HUDSON RESPIRATORY CARE INC. (a California corporation)
and subsidiaries included in this registration statement and have issued our
report thereon dated February 27, 1998. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the index above is the responsibility of the company's
management and is presented for purposes of complying with Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Orange County, California
February 27, 1998
S-1
<PAGE>
HUDSON RESPIRATORY CARE INC.
SCHEDULE I - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
<TABLE>
<CAPTION>
Balance at
Beginning of Charges to Balance at End
Period Expenses Write-offs of Period
------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
Description
- -----------
For the Year Ending
December 31, 1997:
- -----------------
Allowance for doubtful
accounts receivable $ (111) $ (182) $ 35 $ (258)
========== ========= ====== ==========
For the Year Ending
December 31, 1996
- -----------------
Allowance for doubtful
accounts receivable $ (106) $ (40) $ 35 $ (111)
========== ========= ====== ==========
For the Year Ending
December 31, 1995:
- -----------------
Allowance for doubtful
accounts receivable $ (90) $ (99) $ 83 $ (106)
========== ========= ====== ==========
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
1.1 Purchase Agreement dated April 2, 1998 among Hudson Respiratory Care Inc. ("Hudson RCI"),
River Holding Corp. ("Holding"), Salomon Brothers Inc and BT Alex. Brown Incorporated.
2.1 Amended and Restated Merger Agreement dated March 15, 1998 among Holding, River
Acquisition Corp., Hudson RCI and the shareholders of Hudson RCI.
3.1 Amended and Restated Articles of Incorporation of Hudson RCI, as amended to date.
3.2 Bylaws of Hudson RCI.
4.1 Indenture dated as of April 7, 1998 among Hudson RCI, Holding and United States Trust
Company of New York, as Trustee, with respect to the 9 1/8% Senior Subordinated Notes due 2008
(including form of 9 1/8% Senior Note due 2008).
4.2 Exchange Indenture dated as of April 7, 1998 among Hudson RCI, Holding and United States
Trust Company of New York, as Trustee, with respect to the 11 1/2% Subordinated Exchange
Debentures due 2010 (including form of 11 1/2% Senior Subordinated Exchange Debenture due
2010).
4.3 Registration Agreement dated April 7, 1998 among Hudson RCI, Holding, Salomon Brothers Inc
and BT Alex. Brown Incorporated.
5.1 Opinion of Riordan & McKinzie as to the legality of securities registered hereunder.
10.1 Credit Agreement dated as of April 7, 1998 among Hudson RCI, Holding, and lenders party
thereto, Salomon Brothers Inc. as arranger, advisor and syndication agent, and Bankers Trust
Company ("Bankers Trust") as administrative agent and collateral agent.
10.2 Security Agreement dated as of April 7, 1998 between Hudson RCI and Bankers Trust.
10.3 Pledge Agreement dated as of April 7, 1998 between Holding and Bankers Trust.
10.4 Deed of Trust, Security Agreement, Fixture Filing and Assignment of Leases and Rents dated
April 7, 1998 between Hudson RCI and Chicago Title Insurance Company fbo Bankers Trust.
10.5 Holding Guarantee Agreement dated as of April 7, 1998 between Holding and Bankers Trust.
10.6 Indemnity, Subrogation and Contribution Agreement dated as of April 7, 1998 among Hudson
RCI, Holding and Bankers Trust.
10.7 Shareholders Agreement dated April 7, 1998 among Holding, The Helen Hudson Lovaas Separate
Property Trust U/D/T dated July 17, 1997, FS Equity Partners III, L.P. ("FSEP III"), FS Equity
Partners International, L.P. ("FSEP International"), FS Equity Partners IV, L.P. ("FSEP IV"),
and Hudson RCI.
10.8 Stock Subscription Agreement dated April 7, 1998 between Holding and River Acquisition Corp.
10.9 Employment Agreement dated April 7, 1998 between Hudson RCI and Richard W. Johansen.
10.10 Employment Agreement dated April 7, 1998 between Hudson RCI and Jay R. Ogram.
10.11 Employment Agreement dated April 7, 1998 between Hudson RCI and Lougene Williams.
10.12 Employment Agreement dated April 7, 1998 between Hudson RCI and Brian W. Morgan.
12.1 Statement re Computation of Earnings to Fixed Charges Ratio.
21.1 Subsidiaries of Hudson RCI.
23.1 Consent of Riordan & McKinzie (contained in Exhibit 5.1).
23.2 Consent and Report on Schedule of Arthur Andersen LLP.
24.1 Power of Attorney (included on the signature page hereof).
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of
United States Trust Company of New York.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal with respect to the Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery with respect to the Exchange Offer.
</TABLE>
<PAGE>
EXHIBIT 1.1
EXECUTION COPY
HUDSON RESPIRATORY CARE INC.
$115,000,000
9 1/8% Senior Subordinated Notes due 2008
RIVER HOLDING CORP.
300,000 Shares of 11 1/2%
Senior Exchangeable PIK Preferred Stock due 2010
PURCHASE AGREEMENT
New York, New York
April 2, 1998
Salomon Smith Barney
Salomon Brothers Inc
BT Alex. Brown Incorporated
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Hudson Respiratory Care Inc., a California corporation (the "Company")
proposes to issue and sell to the several initial purchasers named in Schedule A
hereto (the "Purchasers"), $115,000,000 aggregate principal amount of the
Company's 9 1/8% Senior Subordinated Notes due 2008 (the "Notes"). The Notes
are to be issued under an indenture (the "Indenture") dated as of April 7, 1998,
among the Company, River Holding Corp., a Delaware corporation ("Holding") and
United States Trust Company of New York, as trustee (the "Trustee"). In
addition, Holding proposes to issue and sell to the Purchasers 300,000 shares of
Holding's 11 1/2% Senior Exchangeable PIK Preferred Stock due 2010, $.01 par
value per share (the "Holding Preferred Stock"). The Holding Preferred Stock is
exchangeable at Holding's option, subject to certain conditions, in whole but
not in part, for either (a) the Company's 11 1/2% Subordinated Exchange
Debentures due 2010 (the "Company Exchange Debentures") or (b) the Company's 11
1/2% Senior PIK Preferred Stock due 2010 (the "Company Preferred Stock" and,
<PAGE>
2
together with the Notes, the Holding Preferred Stock and the Company Exchange
Debentures, the "Securities").
The sale of the Notes and the Holding Preferred Stock to you will be
made without registration of the Securities under the Securities Act of 1933, as
amended (the "Securities Act"), in reliance upon the exemption from the
registration requirements of the Securities Act provided by Section 4(2)
thereof. You have advised the Company and Holding that you will make an
offering of the Notes and the Holding Preferred Stock purchased by you hereunder
in accordance with Section 4 hereof as soon as you deem advisable after the
execution and delivery of this Agreement.
In connection with the sale of the Notes and the Holding Preferred
Stock, the Company and Holding have prepared a preliminary offering memorandum,
dated March 19, 1998, relating to the offering of the Notes and a preliminary
offering memorandum, dated March 19, 1998, relating to the offering of the
Holding Preferred Stock (collectively, the "Preliminary Memorandum"), and a
final offering memorandum, dated April 2, 1998, relating to the offering of the
Notes and a final offering memorandum, dated April 2, 1998, relating to the
offering of the Holding Preferred Stock (collectively, the "Final Memorandum").
Each of the Preliminary Memorandum and the Final Memorandum sets forth certain
information concerning the Company, Holding and the Securities. The Company and
Holding, jointly and severally, hereby confirm that they have authorized the
use of the Preliminary Memorandum and the Final Memorandum, and any amendment or
supplement thereto, in connection with the offer and sale of the Notes and the
Holding Preferred Stock by the Purchasers. Unless stated to the contrary, all
references herein to the Final Memorandum are to the Final Memorandum at the
Execution Time (as defined below) and are not meant to include any amendment or
supplement thereto subsequent to the Execution Time.
The holders of the Securities will be entitled to the benefits of the
Registration Agreement dated the Closing Date, between the Company, Holding and
the Purchasers (the "Registration Agreement").
Capitalized terms used herein without definition have the respective
meanings assigned to them in the Final Memorandum.
<PAGE>
3
1. Representations and Warranties. The Company and Holding, jointly
-------------------------------
and severally, represent and warrant to, and agree with, the Purchasers as set
forth below in this Section 1.
(a) The Preliminary Memorandum, at the date thereof, did not contain
any untrue statement of a material fact or omit to state any material fact
(other than pricing terms and other financial terms for the Securities
intentionally left blank) necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
The Final Memorandum, at the date hereof, does not contain any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that no
-------- -------
representation or warranty is made as to the information contained in or
omitted from the Preliminary Memorandum or the Final Memorandum, or any
amendment or supplement thereto, in reliance upon and in conformity with
information furnished in writing to the Company and Holding by or on behalf
of the Purchasers specifically for inclusion therein, it being understood
that the only such information is that described in Section 8(b) hereof.
(b) Neither the Company nor Holding has taken nor will take, directly
or indirectly, any action prohibited by Regulation M under the Exchange Act
of 1934, as amended (the "Exchange Act"), in connection with the offering
of the Securities.
(c) None of the Company, Holding, any of their respective Affiliates
(as defined in Rule 501(b) of Regulation D under the Securities Act
("Regulation D")), or any person acting on their behalf, has (i) sold,
offered for sale, solicited offers to buy or otherwise negotiated in
respect of, any security (as defined in the Securities Act) which is or
will be integrated with the Securities in a manner that would require the
registration of the Securities under the Securities Act or (ii) engaged in
any form of general solicitation or general advertising (within the meaning
of Regulation D) in connection with any offer or sale of the Securities in
the United States.
<PAGE>
4
(d) The Securities satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(e) None of Holding, the Company, any of their respective Affiliates
or any person acting on their behalf has engaged in any directed selling
efforts with respect to the Securities, and each of them has complied
with the offering restrictions requirement of Regulation S ("Regulation S")
under the Securities Act. Terms used in this paragraph have the meanings
given to them by Regulation S.
(f) Neither Holding nor the Company is an "investment company" within
the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), without taking account of any exemption arising
out of the number of holders of the Company's or Holding's securities.
(g) Holding and the Company have been duly incorporated and are
validly existing as corporations in good standing under the laws of their
respective jurisdictions of organization, with full corporate power and
authority to own or lease, as the case may be, their properties and conduct
their business as described in the Final Memorandum, and are duly qualified
to do business as foreign corporations and are in good standing under the
laws of all jurisdictions in which their ownership or lease of property or
the conduct of their business requires such qualification except where the
failure to be so qualified would not, individually or in the aggregate,
have a Material Adverse Effect (as defined below). Each of the Company and
Holding has full corporate power and authority to enter into this
Agreement, the Registration Agreement, the Amended and Restated Merger
Agreement dated as of March 15, 1998, among Holding, River Acquisition
Corp., the Company and the shareholders of the Company (the "Merger
Agreement"), the Credit Agreement dated as of the Closing Date among the
Company, Holding, Salomon Smith Barney Inc, as arranger, and the Bankers
Trust Company, as administrative agent (the "New Credit Facility"), the
Indenture, the Indenture governing the Company Exchange Debentures (the
"Exchange Indenture") and the Securities and to perform the transactions
contemplated
<PAGE>
5
hereby and thereby (the "Transactions"). This Agreement and the
Registration Agreement have been duly authorized, executed and delivered by
Holding and the Company. The execution and delivery of the Merger
Agreement, the New Credit Facility, the Indenture and the Exchange
Indenture have been duly authorized by the Company and Holding and, when
duly executed and delivered by the parties thereto (assuming the due
authorization, execution and delivery of the Indenture and the Exchange
Indenture by the Trustee), each of the Merger Agreement, the New Credit
Facility, the Indenture and the Exchange Indenture will constitute a valid
and binding obligation of the Company and Holding, enforceable against the
Company and Holding, as applicable, in accordance with its terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium 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 to
Sections 500 et seq. of the California Corporations Code (the "Code")
regarding distributions. The term "Subsidiary" means Industrias Hudson,
S.A. de C.V.
(h) All the outstanding shares of capital stock of Holding and the
Company have been duly and validly authorized and issued and are fully paid
and nonassessable, and, except as otherwise set forth in the Final
Memorandum, as of the Closing Date, all outstanding shares of capital stock
of the Company are owned by Holding and, as of the Closing Date, all
outstanding ownership interests of the Subsidiary will be owned by the
Company free and clear of any perfected security interest and any other
security interests, claims or encumbrances, except for security interests,
claims and encumbrances under the New Credit Facility.
(i) (i) The Notes have been duly and validly authorized for issuance
and sale by the Company to the Purchasers, and upon execution and delivery
of the Indenture, and when the Notes are issued, authenticated and
delivered in accordance with the Indenture and paid for in accordance with
the terms of this Agreement, the Notes will constitute valid and binding
obligations of the Company and Holding enforceable against the Company and
Holding in accordance with their terms and entitled
<PAGE>
6
to the benefits of the Indenture, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium 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).
(ii) The Holding Preferred Stock has been duly and validly
authorized for issuance and sale by Holding to the Purchasers, and
when the Holding Preferred Stock has been delivered and paid for in
accordance with the terms of this Agreement, the Holding Preferred
Stock will be validly issued, fully paid and nonassessable; and the
issuance of the Holding Preferred Stock is not subject to preemptive
or other similar rights.
(iii) The Company Preferred Stock has been duly and validly
authorized for issuance in exchange for the Holding Preferred Stock by
the Company; and when the Company Preferred Stock, if issued, is
delivered by the Company in exchange for the Holding Preferred Stock,
such Company Preferred Stock will be validly issued, fully paid and
nonassessable; and the issuance of the Company Preferred Stock will
not be subject to preemptive or other similar rights.
(iv) The Company Exchange Debentures have been duly authorized
for issuance in exchange for Holding Preferred Stock by the Company;
and upon execution and delivery of the Exchange Indenture, and, when
the Company Exchange Debentures are issued and authenticated in
accordance with the Exchange Indenture and delivered in exchange for
the Holding Preferred Stock, the Company Exchange Debentures will
constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms and entitled to the
benefits of the Exchange Indenture, subject to applicable bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium, 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 Sections 500 et seq.
of the Code.
<PAGE>
7
(j) The Securities conform, in all material respects, to the
description thereof contained in the Preliminary Memorandum and Final
Memorandum.
(k) The execution, delivery and performance of this Agreement, the
Registration Agreement, the Merger Agreement, the New Credit Facility, the
Indenture, the Exchange Indenture, the Notes, the Holding Preferred Stock,
the Company Exchange Debentures and the Company Preferred Stock by the
Company and Holding, as applicable, and the consummation of the
Transactions, will not conflict with or result in a breach or violation of
any of the terms and provisions of, or constitute a default under, (i) the
articles of incorporation, by-laws or other organizational documents of the
Company, Holding or the Subsidiary, (ii) any material statute, rule or
regulation applicable to the Company, Holding or the Subsidiary (other than
California Corporations Code Sections 500 et seq.) or any order of any
governmental agency or body or any court having jurisdiction over the
Company, Holding or the Subsidiary or any of their respective properties,
(iii) any agreement or instrument relating to borrowed money to which the
Company, Holding or the Subsidiary is a party or by which the Company,
Holding or the Subsidiary is bound or to which any of their respective
properties is subject or (iv) any other material agreement or instrument to
which the Company, Holding or the Subsidiary is a party or by which the
Company, Holding or the Subsidiary is bound or to which any of their
respective properties is subject, except in the cases of clauses (iii) or
(iv) for conflicts, breaches, violations or defaults which would not
reasonably be expected to have a Material Adverse Effect. Assuming the
Securities are sold as described in this Agreement, no consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body which has not already been obtained is
required for the execution and delivery of this Agreement, the Registration
Agreement, the Merger Agreement, the New Credit Facility, the Indenture or
the Securities or for the consummation of the Transactions, except for
compliance with state securities or blue sky laws and the Securities Act
and Trust Indenture Act in connection with the Registration Rights
Agreement.
<PAGE>
8
(l) Except as disclosed in the Final Memorandum, (i) there are no
legal or governmental actions, suits or proceedings pending or, to the best
of Holding's or the Company's knowledge, threatened to which Holding, the
Company, or the Subsidiary is, or to the best of Holding's or the Company's
knowledge, is threatened to be made a party or of which property owned or
leased by the Company, Holding or the Subsidiary is or, to the best of
Holding's or the Company's knowledge, is threatened to be made the subject,
which actions, suits or proceedings could, individually or in the
aggregate, have a material adverse effect on the condition (financial or
otherwise), properties, business, results of operations or prospects of
Holding, the Company and their Subsidiaries, taken as a whole, or
materially and adversely affect the ability of the Company and Holding to
perform their respective obligations under this Agreement, the Registration
Agreement, the Merger Agreement, the New Credit Facility, the Indenture or
the Securities or to consummate the Transactions (a "Material Adverse
Effect"), and (ii) no labor disturbance by the employees of Holding, the
Company, or the Subsidiary exists or, to the best of Holding's or the
Company's knowledge is imminent, in either case which could have a Material
Adverse Effect. Neither Holding, the Company, nor any of their
Subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(m) Neither Holding nor the Company has paid or agreed to pay to any
person any compensation for soliciting another to purchase any securities
of Holding or the Company (except as contemplated by this Agreement).
(n) Upon the closing of the purchase and sale of the Notes and the
Holding Preferred Stock and the application of the proceeds therefrom, all
of the Company's obligations under the Second Amended and Restated Credit
Agreement between the Company and the lenders named therein dated April 28,
1995, as amended (the "1995 Credit Agreement"), will be permanently
satisfied and discharged and the 1995 Credit Agreement will be terminated.
<PAGE>
9
(o) The Company and the Subsidiary are conducting business in
compliance with all applicable laws, rules and regulations of the
jurisdictions in which they are conducting business, including, without
limitation, the Food, Drug and Cosmetic Act (the "FDC Act") and the
regulations of the Food and Drug Administration ("FDA") and all applicable
environmental laws and regulations, except where the failure to be so in
compliance would not have a Material Adverse Effect.
(p) Neither Holding, the Company nor the Subsidiary (i) is in
violation of its charter, by-laws or other constituent documents or (ii) is
in default in any material respect, and no event has occurred which, with
notice or lapse of time or both, would constitute such 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 properties or assets is subject which
violation or default would cause a Material Adverse Effect.
(q) There are no defects in title to the owned properties or
encumbrances upon the leased properties of the Company and the Subsidiary
or the assets or facilities used by the Company and the Subsidiary, except
any such defects that are in the ordinary course of business of the Company
or such Subsidiary which, individually or in the aggregate, have a Material
Adverse Effect.
(r) Each of the Company and its Subsidiaries owns or possesses
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 its business, except where the failure to own or possess such rights
would not have a Material Adverse Effect, and has no reason to believe that
the conduct of its business will conflict with any such rights of others
which is reasonably likely to have a Material Adverse Effect, and has not
received any notice of any claim of
<PAGE>
10
conflict with any such rights of others which is reasonably likely to have
a Material Adverse Effect.
(s) (i) The consolidated financial statements with respect to
Holding and the Company included in the Final Memorandum present fairly the
consolidated financial position of Holding, and its consolidated
Subsidiaries and the Company and its consolidated Subsidiary, as
applicable, as of the dates shown and their results of operations and cash
flows for the periods shown, and such consolidated financial statements
have been prepared in conformity with the generally accepted accounting
principles in the United States applied on a consistent basis.
(ii) The pro forma financial statements of Holding and the Company
included in the Final Memorandum are based upon reasonable assumptions for
presenting the significant effects of the Transactions, give appropriate
effect to those assumptions, and reflect the proper application of those
adjustments to the historical consolidated financial statement amounts in
the consolidated financial statements of Holding and the Company, as
applicable. Such pro forma financial statements comply in form in all
material respects with the applicable accounting requirements of the
Exchange Act and the related published rules and regulations that would
apply to the Final Memorandum if the Final Memorandum were a prospectus
included in a registration statement on Form S-1 under the Securities Act.
(t) On the Closing Date (after giving effect to the issuance of the
Notes and the Holding Preferred Stock and the consummation of the
Transactions) each of Holding and the Company will be Solvent. As used in
this paragraph, the term "Solvent" means, with respect to a particular
-------
date, that on such date (i) the aggregate fair value or present fair
salable value of the assets of Holding and the Company, as applicable, is
not less than its total existing debts and liabilities (including
identified contingent liabilities) as they become absolute and matured in
the normal course of business, (ii) Holding and the Company are able to pay
their debts and other liabilities, contingent obligations and commitments
as they mature and become due in the normal course of business and (iii)
Holding and the Company do not have an
<PAGE>
11
unreasonably small amount of capital with which to conduct their business.
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
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.
(u) Since the date of the latest audited consolidated financial
statements of the Company and Holding included in the Final Memorandum,
there has been no material adverse change, nor to the Company's and
Holding's knowledge any development or event involving a prospective
material adverse change, in the condition (financial or other), business,
properties or results of operations of Holding, the Company and their
Subsidiaries taken as a whole, and, except as disclosed in the Final
Memorandum, since the date of the latest audited consolidated financial
statements of the Company and Holding included in the Final Memorandum,
there has been no dividend or distribution of any kind declared, paid or
made by the Company or Holding on any class of its capital stock.
(v) Assuming the accuracy of the representations and warranties
contained in Section 4, it is not necessary in connection with the offer,
sale and delivery of the Notes and Preferred Stock in the manner
contemplated by this Agreement and the Final Memorandum to register the
Securities under the Securities Act or to qualify the Indenture or the
Exchange Indenture under the Trust Indenture act of 1939, as amended (the
"Trust Indenture Act").
(w) The Company and Holding have agreed to permit the Securities to
be designated Portal eligible securities, will pay the requisite fees
related thereto and have provided all necessary information to the National
Association of Securities Dealers, Inc., in order to ensure that the
Securities are designated Portal eligible securities.
(x) The Company has preliminary determined that the computer hardware
and software used by the Company and the Subsidiary are and will be able to
process all date information prior to and after December 31, 1999
<PAGE>
12
without any errors, aborts, delays or other interruptions in operations
arising from the inability of computer hardware and software to recognize
and properly execute date sensitive function involving certain dates prior
to and any dates after December 31, 1999 (the "Year 2000 Problem") which
could reasonably be expected to result in a Material Adverse Effect.
2. Purchase and Sale. Subject to the terms and conditions and in
------------------
reliance upon the representations and warranties herein set forth, the Company
agrees, to sell to the Purchasers and each Purchaser agrees severally and not
jointly, to purchase from the Company the principal amount of Notes set forth
opposite each Purchaser's name in Schedule I hereto, at a purchase price of
97.0% of the principal amount thereof, plus accrued interest, if any, from April
7, 1998, to the Closing Date. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, Holding
agrees to sell to the Purchasers and each Purchaser agrees, severally and not
jointly, to purchase from Holding the number of shares of Holding Preferred
Stock set forth opposite each Purchaser's name in Schedule I hereto at a
purchase price of $96.50 per share, plus accrued dividends, if any, with respect
to the Preferred Stock from April 7, 1998, to the Closing Date.
3. Delivery and Payment. Delivery of and payment for the Notes and
---------------------
the Holding Preferred Stock shall be made at 10:00 AM, New York City time, on
April 7, 1998, or such later date as the Purchasers may agree or as provided in
Section 9 hereof (such date and time of delivery and payment for the Notes and
the Holding Preferred Stock being herein called the "Closing Date"). Delivery
of the Notes and the Holding Preferred Stock shall be made to the Purchasers
against payment by the Purchasers of the respective purchase prices thereof to
or upon the order of the Company and Holding, as applicable, by wire transfer in
Federal (same day) funds to U.S. dollar accounts previously designated by the
Company and Holding, as applicable. In the event that the Merger has not been
consummated at the time such funds are transferred by the Purchasers, such
accounts shall be segregated from the other accounts of the Company and Holding
and each of the Company and Holding hereby agrees that until the Merger has been
declared effective by the Secretary of State of the State of California such
funds shall not be withdrawn from such accounts or commingled with
<PAGE>
13
other funds of the Company or Holding. Delivery of the Notes and the Holding
Preferred Stock shall be made at the office of Cravath, Swaine & Moore ("Counsel
for the Purchasers"), 825 Eighth Avenue, New York, New York. Certificates for
the Notes and the Holding Preferred Stock shall be registered in such names and
in such denominations as the Purchasers may request not less than two full
business days in advance of the Closing Date.
The Company and Holding agree to have the Notes and the Holding
Preferred Stock available for inspection, checking and packaging by the
Purchasers in New York, New York, not later than 1:00 PM on the business day
prior to the Closing Date.
4. Offering of Securities. Each Purchaser (i) acknowledges that the
-----------------------
Securities have not been registered under the Securities Act and may not be
offered or sold except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act or pursuant to
an effective registration statement under the Securities Act and (ii) severally
and not jointly, represents and warrants to and agrees with the Company and
Holding that:
(a) It has not offered or sold, and will not offer or sell, any
Securities except (i) to those it reasonably believes to be qualified
institutional buyers (as defined in Rule 144A under the Securities Act) and
that, in connection with each such sale, it has taken or will take
reasonable steps to ensure that the purchaser of such Securities is aware
that such sale is being made in reliance on Rule 144A or (ii) in accordance
with the restrictions set forth in Exhibit A hereto.
(b) Neither it nor any person acting on its behalf has made or will
make offers or sales of the Securities in the United States by means of any
form of general solicitation or general advertising (within the meaning of
Regulation D) in the United States, except pursuant to a registered public
offering, whether an exchange offer or shelf registration, as provided in
the Registration Agreement.
<PAGE>
14
5. Agreements. The Company and Holding jointly and severally agree
-----------
with the Purchasers that:
(a) The Company and Holding will furnish to the Purchasers and
Cravath, Swaine & Moore, without charge, as many copies of the Final
Memorandum and any supplements or amendments thereof or thereto as the
Purchasers may reasonably request, and will pay the expenses of printing or
other production of all documents relating to the offerings.
(b) Neither the Company nor Holding will amend or supplement the
Final Memorandum without the prior consent of the Purchasers.
(c) If at any time prior to the completion of the sale of the
Securities by the Purchasers, any event occurs as a result of which the
Final Memorandum, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend
or supplement the Final Memorandum to comply with the Exchange Act or the
rules thereunder or other applicable law, the Company and Holding promptly
will notify the Purchasers of the same and, subject to paragraph (b) of
this Section 5, will prepare and provide to the Purchasers pursuant to
paragraph (a) of this Section 5 an amendment or supplement which will
correct such statement or omission or effect such compliance.
(d) The Company and Holding will arrange for the qualification of the
Securities for sale under the laws of such U.S. jurisdictions as the
Purchasers may designate and will maintain such qualifications in effect so
long as required for the sale of the Securities provided that Company and
Holding will not be obligated to qualify as foreign corporations or to
execute a general consent to service of process in any jurisdiction or to
take any other action that would subject them to general service of process
or taxation in any jurisdiction in which they are not otherwise subject.
The Company and Holding will promptly advise the Purchasers of the receipt
by them of any notification with respect to the suspension of the
<PAGE>
15
qualification of any Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose.
(e) Neither the Company nor Holding will, nor will either of them
permit any of their respective Affiliates to, resell any Securities which
constitute "restricted securities" under Rule 144 that have been reacquired
by any of them.
(f) None of the Company, Holding, nor any of their respective
Affiliates, or any person acting on their behalf will, directly or
indirectly, make offers or sales of any security, or solicit offers to buy
any security, under circumstances that would require the registration of
the Securities under the Securities Act.
(g) None of the Company, Holding nor any of their respective
Affiliates or any person acting on their behalf will engage in any form of
general solicitation or general advertising (within the meaning of
Regulation D) in connection with any offer or sale of the Securities in the
United States, except pursuant to a registered public offering, whether an
exchange offer or shelf registration, as provided in the Registration
Agreement.
(h) So long as any of the Securities are "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act, the Company
and Holding will, during any period in which it is not subject to and in
compliance with Section 13 or 15(d) of the Exchange Act, provide to each
holder of such restricted securities and to each prospective purchaser (as
designated by such holder) of such restricted securities, upon the request
of such holder or prospective purchaser, any information required to be
provided by Rule 144A(d)(4) under the Securities Act. The information
provided pursuant hereto will not, at the date thereof, contain any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading. This covenant is intended to be for
the benefit of the holders, and the prospective purchasers
<PAGE>
16
designated by such holders, from time to time of such restricted
securities.
(i) None of the Company, Holding, any of their respective Affiliates,
or any person acting on their behalf will engage in any directed selling
efforts with respect to the Securities except pursuant to a registered
public offering as provided in the Registration Agreement and each of them
will comply with the offering restrictions requirement of Regulation S.
Terms used in this paragraph have the meanings given to them by Regulation
S.
(j) The Company and Holding will cooperate with the Purchasers and
use their reasonable best efforts to permit the Securities to be eligible
for clearance and settlement through The Depository Trust Company.
(k) The Company and Holding hereby agree to permit the Securities to
be designated Portal eligible securities, will pay the requisite fees
related thereto and have been advised by The Portal Market that the
Securities have or will be designated Portal eligible securities in
accordance with the rules and regulations of the National Association of
Securities Dealers, Inc.
(l) Neither Holding nor the Company will take, directly or
indirectly, any action prohibited by Regulation M under the Exchange Act,
in connection with the offering of the Securities.
(m) Neither Holding nor the Company will, until 90 days following the
Closing Date, without the prior written consent of Salomon Brothers Inc,
offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce the offering of, or file a registration statement
for, any debt securities or capital stock which is preferred as to payment
of dividends, or as to distribution upon liquidation, over any other class
of capital stock issued or guaranteed by Holding or the Company ("preferred
stock") (other than (i) the Securities and (ii) pursuant to a registered
public offering as provided in the Registration Agreement).
(n) Holding and The Company will apply the net proceeds from the sale
of the Securities sold by them
<PAGE>
17
substantially in accordance with the statements under the caption "Use of
Proceeds" in the Final Memorandum.
(o) Immediately following consummation of the Merger, the Company
will file with the Secretary of State of the State of California a
certificate of amendment relating to the Certificate of Determination for
the Mirror Preferred Stock in the form previously agreed to by the
Purchasers. The Company will not agree to any modification in the economic
or other material terms of such certificate of amendment without the
consent of a majority of holders of the Holding Preferred Stock.
(p) In the event that the Merger has not been consummated within
three business days following consummation of the offering and sale of the
Notes and Holding Preferred Stock, the Company and Holding will redeem the
Notes and Holding Preferred Stock in accordance with the terms of the
Indenture and the Certificate of Designation governing the Holding
Preferred Stock.
6. Conditions to the Obligations of the Purchasers. The obligations
------------------------------------------------
of the Purchasers to purchase the Securities shall be subject to the accuracy of
the representations and warranties on the part of the Company and Holding
contained herein at the date and time that this Agreement is executed and
delivered by the parties hereto (the "Execution Time") and the Closing Date, to
the accuracy of the statements of the Company or Holding made in any
certificates pursuant to the provisions hereof, to the performance by the
Company and Holding of their respective obligations hereunder and to the
following additional conditions:
(a) The Company and Holding shall have caused Riordan & McKinzie,
counsel for the Company and Holding, to have furnished to the Purchasers
their opinion dated the Closing Date and addressed to the Purchasers, to
the effect that:
(i) Holding and the Company have been duly incorporated and are
validly existing as corporations in good standing under the laws of
the State of Delaware and California, respectively, with full
corporate power and
<PAGE>
18
authority to own or lease, as the case may be, their properties and
conduct their business as described in the Final Memorandum;
(ii) the authorized equity capitalization of Holding and of the
Company effective upon the consummation of the Recapitalization is as
set forth in the Final Memorandum;
(iii) the information contained in the Final Memorandum under the
headings "Description of Senior Credit Facility" and "Certain Federal
Income Tax Considerations", fairly summarizes the matters therein
described in all material respects and the information contained in
the Final Memorandum under the heading "Risk Factors --- Fraudulent
Conveyance and Distribution Limitation Considerations" relating to
Sections 500 et seq. of the California Corporations Code fairly
summarizes the possible consequences of the violation of these
sections to holders of Securities;
(iv) the Indenture and the Exchange Indenture conform as to form
in all material respects with the requirements of the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), and the rules and
regulations of the Commission applicable to an indenture which is
qualified thereunder;
(v) provided the Securities are sold in the manner contemplated
by the Purchase Agreement and Final Memorandum, no consent, approval,
authorization or order of, or filing or registration with, any court
or governmental agency or body is required for the execution, delivery
and performance of this Agreement, the Indenture, the Exchange
Indenture, the Registration Agreement and the Securities or for the
consummation of the Transactions contemplated thereby, except such as
may be required under the blue sky or securities laws of any
jurisdiction and such other approvals (specified in such opinion) as
have been obtained and except such as may be required under the
Securities Act and the Trust Indenture Act with respect to the
<PAGE>
19
Registration Agreement and the transactions contemplated thereunder;
(vi) except as set forth in the Final Memorandum, none of the
issue and sale of the Securities, the execution and delivery of this
Agreement, the Registration Agreement, the Merger Agreement, the New
Credit Facility, the Indenture, or the Exchange Indenture, the
fulfillment of the terms hereof or thereof or the consummation of the
transactions contemplated thereby will conflict with, result in a
breach or violation of, or constitute a default under any law (other
than California Corporations Code (S)(S) 500 et seq. as to which such
counsel may express no opinion) or the charter or by-laws of Holding
or the Company or the terms of any material indenture or other
material agreement or instrument identified in an officer's
certificate as material to the Company and to which Holding or the
Company or the Subsidiary is a party or bound or any judgment, order
or decree, identified in an officer's certificate, of any court,
regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over Holding or the Company;
(vii) Holding and the Company have full corporate right, power
and authority to execute and deliver the Securities, the Registration
Agreement, the Merger Agreement, the New Credit Facility, the
Indenture, the Exchange Indenture and this Agreement and to perform
their respective obligations thereunder; and all corporate action
required to be taken for the due and proper authorization, execution
and delivery of the Indenture, the Exchange Indenture, the Merger
Agreement, the New Credit Facility, the Securities, the Registration
Agreement and this Agreement and for the consummation of the
transactions contemplated thereby has been duly and validly taken;
(viii) the Merger Agreement has been duly authorized, executed
and delivered by Holding, the Company and River Acquisition Corp., and
constitutes a legal, valid and binding instrument
<PAGE>
20
enforceable against Holding, the Company and River Acquisition Corp.
in accordance with its terms (subject, as to the enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium or other laws affecting creditors' rights generally from
time to time in effect);
(ix) the New Credit Facility has been duly authorized, executed
and delivered by Holding and the Company and constitutes a legal,
valid and binding instrument enforceable against Holding and the
Company in accordance with its terms (subject, as to the enforcement
of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium or other laws affecting creditors' rights generally from
time to time in effect);
(x) this Agreement and the Registration Agreement have been
duly authorized, executed and delivered by the Company and Holding;
(xi) the Indenture has been duly authorized, executed and
delivered, and constitutes a legal, valid and binding instrument
enforceable against the Company and Holding in accordance with its
terms (subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium or other laws
affecting creditors' rights generally from time to time in effect);
the Notes are in the form contemplated by the Indenture and have been
duly authorized and executed by the Company and, when authenticated in
accordance with the provisions of the Indenture and delivered to and
paid for by the Purchasers pursuant to this Agreement, will be duly
and validly issued and outstanding and will constitute legal, valid
and binding obligations of the Company and Holding entitled to the
benefits of the Indenture and enforceable in accordance with their
terms (subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium or other laws
affecting creditors' rights generally from time to time in effect);
and the statements set forth under the heading "Description of Notes"
in the Final Memorandum, insofar as such statements purport to
summarize certain provisions of the
<PAGE>
21
Notes and the Indenture, provide a fair summary of such provisions in
all material respects;
(xii) the Holding Preferred Stock has been duly and validly
authorized by Holding and when the Holding Preferred Stock has been
delivered by Holding, countersigned by the Transfer Agent, and paid
for in accordance with the terms of this Agreement the Holding
Preferred Stock will be validly issued, fully paid and nonassessable;
to such counsel's knowledge, the issuance of the Holding Preferred
Stock is not subject to preemptive or other similar rights; and the
statements set forth under the heading "Description of the Holding
Preferred Stock" in the Final Memorandum, insofar as such statements
purport to summarize certain provisions of the Holding Preferred
Stock, provide a fair summary of such provisions in all material
respects.
(xiii) the Company Preferred Stock has been duly and validly
authorized by the Company; and the statements set forth under the
heading "Description of the Company Exchange Securities" in the Final
Memorandum, insofar as such statements purport to summarize certain
provisions of the Company Preferred Stock, provide a fair summary of
such provisions;
(xiv) each of the Company Exchange Indenture and the Company
Exchange Debentures have been duly and validly authorized by the
Company; and the statements set forth under the heading "Description
of the Exchange Securities--Company Exchange Debentures" in the Final
Memorandum, insofar as such statements purport to summarize certain
provisions of the Company Exchange Debentures and the Company Exchange
Indenture, provide a fair summary of such provisions;
(xv) to such counsel's knowledge (without independent
investigation), there is no pending or threatened action or suit or
judicial, arbitral or other administrative proceeding to which
Holding, the Company or any of their Subsidiaries is a party or of
which any property or assets of Holding, the Company or any of their
Subsidiaries
<PAGE>
22
is the subject that, singly or in the aggregate, questions the
validity of this Agreement, the Registration Agreement, the Indenture,
the Securities, the Transactions or any action taken or to be taken
pursuant hereto or thereto;
(xvi) assuming the accuracy of the representations and
warranties and compliance with the agreements contained herein, no
registration of the Securities under the Securities Act is required,
and no qualification of the Indenture or the Exchange Indenture under
the Trust Indenture Act is necessary, for the offer, sale and delivery
of the Securities in the manner contemplated by this Agreement; and
(xvii) neither Holding nor the Company is an "investment company"
within the meaning of the Investment Company Act of 1940, as amended
(the "Investment Company Act"), without taking account of any
exemption arising out of the number of holders of the Company's or
Holding's securities.
Such counsel shall also state that such counsel has participated in
conferences with officers and other representatives of the Company and
Holding, representatives of the independent public accountants for the
Company and Holding and representatives of the Initial Purchasers at which
the contents of the Final Memorandum and related matters were discussed.
Such counsel shall state that although such counsel has made no independent
check or verification of the accuracy, completeness or fairness of the
statements made in the Final Memorandum (except as set forth in paragraphs
(ii), (iii), (xi), (xii), (xiii) and (xiv) above) on the basis of the
foregoing (relying as to materiality to a large extent upon the statements
of officers and other representatives of the Company and Holding) no facts
have come to such counsel's attention that have caused such counsel to
believe that the Final Memorandum as of its date and as of the Closing Date
contained or contains an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion
on the financial statements or
<PAGE>
23
other financial and statistical data included in the Final Memorandum).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of California and the federal laws of the United States to the extent they
deem proper and specified in such opinion, upon the opinion of other
counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the purchasers and (B) as to matters of fact,
to the extent they deem proper, on certificates of responsible officers of
Holding and the Company and public officials, copies of which shall be
provided to the Purchasers.
Such counsel may deliver the opinions relating to the Merger Agreement
and the New Credit Facility set forth in paragraphs 6(vii), 6(viii), 6(ix)
and 6(x) above by delivering letters dated the Closing Date permitting the
Purchasers to rely upon separate opinion letters dated the Closing Date
rendered to the parties to the Merger Agreement and the New Credit Facility
and containing substantially similar opinions.
All references in this Section 6(a) to the Final Memorandum shall be
deemed to include any amendment or supplement thereto at the Closing Date.
(b) The Company and Holding shall have caused Hyman, Phelps &
McNamara, P.C., special regulatory counsel for the Company and Holding, to
have furnished to the Purchasers their opinion dated the Closing Date and
addressed to the Purchasers, to the effect that the information and
disclosure contained in the Final Memorandum under the headings "Risk
Factors--Government Regulation" and "Business--Government Regulation and
Environmental Matters", is accurate and complete in all material respects,
insofar as such information and disclosure relate to Food and Drug
Administration law, legal matters and compliance requirements.
Such counsel shall also state that, with respect to the other
information and disclosure contained in the Final Memorandum not specified
above, they have no reason to believe that at the Execution Time the Final
Memorandum contained an untrue statement of a material
<PAGE>
24
fact or omitted 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 or that the Final Memorandum includes an untrue
statement of a material fact or omits 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.
All references in this Section 6(b) to the Final Memorandum shall be
deemed to include any amendment or supplement thereto at the Closing Date.
(c) The Purchasers shall have received from Cravath, Swaine & Moore
such opinion or opinions, dated the Closing Date, with respect to the
issuance and sale of the Securities, the Final Memorandum (as amended or
supplemented at the Closing Date) and other related matters as the
Purchasers may reasonably require, and the Company and Holding shall have
furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(d) The Company and Holding shall have furnished to the Purchasers
certificates of the Company and of Holding, signed by the President and
Chief Financial Officer of the Company and the President or Vice President
and an Assistant Secretary of Holding, dated the Closing Date, to the
effect that the signers of such certificate have examined the Final
Memorandum, any amendment or supplement to the Final Memorandum and this
Agreement and the Registration Agreement and that:
(i) the representations and warranties of the Company and of
Holding in this Agreement and the Registration Agreement are true and
correct in all material respects on and as of the Closing Date with
the same effect as if made on the Closing Date, and the Company and
Holding have complied in all material respects with all the agreements
and satisfied all the conditions on their part to be performed or
satisfied hereunder or thereunder at or prior to the Closing Date; and
(ii) since the date of the most recent financial statements
included in the Final Memorandum, there has been no material adverse
<PAGE>
25
change in the condition (financial or otherwise), properties,
business, results of operations or prospects of the Company, Holding
or any of their respective Subsidiaries, taken as a whole, whether or
not arising from transactions in the ordinary course of business,
except as disclosed in the Final Memorandum (exclusive of any
amendment or supplement thereto).
(e) At the Execution Time and at the Closing Date, the Holding and
Company shall have caused Arthur Andersen LLP to have furnished to the
Purchasers a letter or letters, dated respectively as of the Execution Time
and as of the Closing Date, in form and substance satisfactory to the
Purchasers, confirming that they are independent accountants within the
meaning of the Securities Act and the Exchange Act and the applicable rules
and regulations thereunder and Rule 101 of the Code of Professional Conduct
of the American Institute of Certified Public Accountants (the "AICPA") and
stating in effect that:
(i) in their opinion the audited financial statements of Holding
and the Company and the audited pro forma financial statements of the
Company included in the Final Memorandum and reported on by them, and
the unaudited pro forma financial statements of Holding included in
the Final Memorandum, comply in form in all material respects with the
applicable accounting requirements of the Exchange Act and the related
published rules and regulations that would apply to the Final
Memorandum if the Final Memorandum were a prospectus included in a
registration statement on Form S-1 under the Securities Act;
(ii) on the basis of a reading of the unaudited pro forma
financial statements of Holding included in the Final Memorandum;
carrying out certain specified procedures; inquiries of certain
officials of Holding and the Company who have responsibility for
financial and accounting matters; and proving the arithmetic accuracy
of the application of the pro forma adjustments to the historical
amounts in such unaudited pro forma financial statements, nothing came
to their attention which causes them to believe that the
<PAGE>
26
pro forma adjustments have not been properly applied to the historical
amounts in the compilation of such statements.
(iii) based upon the procedures detailed in such letter with
respect to the period subsequent to the date of the latest audited
financial statements included in the Final Memorandum, including the
reading of the minutes and inquiries of certain officials of Holding
and of the Company who have responsibility for the financial and
accounting matters and certain other limited procedures requested by
the Purchasers and described in detail in such letter, nothing has
come to their attention that causes them to believe that:
(A) with respect to the period subsequent to December 26,
1997, there were any changes, at a specified date not more than
five business days prior to the date of the letter, in the total
debt of Holding, the Company and any of their Subsidiaries or
capital stock of Holding or the Company or decreases in the
stockholders' equity of Holding or the Company or decreases in
working capital of Holding, the Company, and any of their
Subsidiaries, as compared with the amounts shown on the December
26, 1997 consolidated balance sheet included in the Final
Memorandum, or for the period from December 26, 1997, to such
specified date there were any decreases, as compared with the
corresponding period in the preceding year in total revenues, net
income before income taxes, net income or EBITDA, as defined in
the Indenture, except in all instances for changes or decreases
set forth in such letter, in which case the letter shall be
accompanied by an explanation by Holding or the Company, as the
case may be, as to the significance thereof unless said
explanation is not deemed necessary by the Purchasers; or
(B) the information included under the heading "Selected
Historical Financial Data"
<PAGE>
27
is not in conformity with the disclosure requirements of
Regulation S-K that would apply to the Final Memorandum if the
Final Memorandum were a prospectus included in a registration
statement on Form S-1 under the Securities Act; and
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of Holding, the Company or any of their
Subsidiaries) set forth in the Final Memorandum, including the
information set forth under the captions "Summary", "Risk Factors",
"Use of Proceeds", "Capitalization" "Selected Historical Financial
Data", "Management's Discussion and Analysis of Financial Condition
and Results of Operations", "Business", "Management", "Description of
Senior Credit Facility" and "Description of the Notes" in the Final
Memorandum, agrees with the accounting records of Holding, the
Company, or any of their Subsidiaries, excluding any questions of
legal interpretation.
All references in this Section 6(e) to the Final Memorandum shall be
deemed to include any amendment or supplement thereto at the date of the
letter.
(f) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Final Memorandum, there shall not have
been (i) any change or decrease specified in the letter or letters referred
to in paragraph (e)(iii)(A)of this Section 6 or (ii) any change, or any
development involving a prospective change, in or affecting the business or
properties of the Company, Holding or any of their respective Subsidiaries
the effect of which, in any case referred to in clause (i) or (ii) above,
is not disclosed in the Final Memorandum and is, in the judgment of the
Purchasers, so material and adverse as to make it impractical or
inadvisable to market the Securities as contemplated by the Final
Memorandum.
<PAGE>
28
(g) Subsequent to the Execution Time, there shall not have been (i)
any decrease in the rating of any of the Securities or any other debt
securities or preferred stock of the Company or Holding by any "nationally
recognized statistical rating organization" (as defined for purposes of
Rule 436(g) under the Securities Act) or (ii) any notice given of any
intended or potential decrease in any such rating or that such organization
has under surveillance or review (other than any such notice with positive
implications of a possible upgrading) its rating of any of the Securities
or any other debt securities or preferred stock of the Company or Holding.
(h) On or prior to the Closing Date, the Registration Agreement shall
have been executed substantially in the form hereto delivered to you and
shall have been delivered to you and the Trustee.
(i) Each of the New Credit Facility and the Merger Agreement shall
have been executed and delivered by the parties thereto. The terms of the
New Credit Facility and the Merger Agreement shall be reasonably
satisfactory to the Purchasers, and the Purchasers shall have received
executed copies of the New Credit Facility and the Merger Agreement and all
other documents and agreements entered into and received in connection
therewith certified by the Secretary of the Company as being true, complete
and correct. There shall exist at and as of the Closing Date (after giving
effect to the Transactions) no condition that would constitute a default
(or an event that with notice or lapse of time, or both, would constitute a
default) under the New Credit Facility.
(j) The Purchasers shall have received evidence, reasonably
satisfactory to them, that (A) the merger of River Acquisition Corp. with
and into the Company shall have been consummated in accordance with the
terms of the Merger Agreement, (B) the initial funding shall have occurred
under the New Credit Facility, (C) Freeman Spogli & Co. and certain members
of the Company's management shall have made a $61.5 million equity
investment in Holding and (D) the Company shall have issued shares of its
11 1/2% Senior PIK Preferred Stock due 2010 ("Mirror Preferred Stock")
having an aggregate liquidation preference of $30.0 million to Holding on
the terms described in the Final Memorandum
<PAGE>
29
and otherwise reasonably satisfactory to the Purchasers. Notwithstanding
the foregoing, the condition set forth in clause (A) above shall be deemed
to have been satisfied if the Purchasers have not received evidence of the
consummation of the Merger solely as a result of differences in time zones
in connection with the processing of the certificate of merger relating to
the Merger by the Secretary of State of the State of California.
(k) Prior to the Closing Date, the Company and Holding shall have
furnished to the Purchasers such further information, certificates and
documents as the Purchasers may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Purchasers and Counsel for the Purchasers, this Agreement
and all obligations of the Purchasers hereunder may be canceled at, or at any
time prior to, the Closing Date by the Purchasers. Notice of such cancelation
shall be given to the Company and to Holding in writing or by telephone
confirmed in writing.
The documents required to be delivered by this Section 6 will be
delivered at the office of Counsel for the Purchasers, 825 Eighth Avenue, New
York, New York, on the Closing Date.
7. Reimbursement of Expenses. If the sale of the Securities provided
--------------------------
for herein is not consummated because any condition to the obligations of the
Purchasers set forth in Section 6 hereof is not satisfied or because of any
refusal, inability or failure on the part of the Company or Holding to perform
any agreement herein or comply with any provision hereof, in each case other
than by reason of a default by the Purchasers, the Company or Holding will
reimburse the Purchasers upon demand for all reasonable out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the proposed purchase and sale of the
Securities.
<PAGE>
30
8. Indemnification and Contribution. (a) The Company and Holding
---------------------------------
agree, jointly and severally, to indemnify and hold harmless each Purchaser,
each director, officer, employee and agent of any Purchaser and each other
person, if any, who controls any Purchaser within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Securities Act, the Exchange Act or other Federal
or state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Preliminary Memorandum, the Final Memorandum
or any information provided by the Company or Holding to any holder or
prospective purchaser of Securities pursuant to Section 5(h), or in any
amendments thereof or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
-------- -------
that the Company and Holding will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made in the Preliminary Memorandum or the Final Memorandum, or in any
amendment thereof or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company or Holding by or on behalf of the
Purchasers specifically for inclusion therein, it being understood that the only
such information is that described in Section 8(b); provided further, however,
---------------- -------
that the indemnity agreement contained in this Section 8(a) shall not inure to
the benefit of any indemnified party to the extent that it is determined by a
final, non-appealable judgment that (i) the Preliminary Memorandum contained an
untrue statement of a material fact or omitted to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, (ii) the
sale to the person asserting any such losses, claims, damages or
<PAGE>
31
liabilities was an initial resale of the Securities by any Purchaser, (iii) any
such loss, claim, damage or liability of such indemnified party results from the
fact that there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Securities to such person, a copy of any
revised Preliminary Memorandum, the Final Memorandum or the Final Memorandum as
amended or supplemented, and the Company had previously furnished copies thereof
to such Purchaser and (iv) the revised Preliminary Memorandum, the Final
Memorandum or the Final Memorandum as amended or supplemented corrected such
untrue statement or omission. This indemnity agreement will be in addition to
any liability that the Company and Holding may otherwise have.
(b) Each Purchaser severally and not jointly agrees to indemnify and
hold harmless the Company, Holding, their directors and officers, and each other
person, if any, who controls the Company or Holding within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company and Holding to the
Purchasers, but only with reference to written information relating to the
Purchasers furnished to the Company or Holding by or on behalf of the Purchasers
specifically for inclusion in the Preliminary Memorandum or the Final Memorandum
(or in any amendment thereof or supplement thereto). This indemnity agreement
will be in addition to any liability which the Purchasers may otherwise have.
The Company and Holding acknowledge that the statements set forth in the last
paragraph of the cover page and under the heading "Plan of Distribution" in the
Preliminary Memorandum and the Final Memorandum (or in any amendment or
supplement thereto) constitute the only information furnished in writing by or
on behalf of the Purchasers for inclusion in the Preliminary Memorandum or the
Final Memorandum (or in any amendment thereof or supplement thereto).
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such
<PAGE>
32
failure results in the forfeiture by the indemnifying party of substantial
rights and defenses and (ii) will not, in any event, relieve the indemnifying
party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to participate therein, and to the extent
it may wish, to assume the defense thereof with counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the indemnified
party in any action for which indemnification is sought (in which case the
indemnifying party shall not thereafter be responsible for the fees and expenses
of any separate counsel retained by the indemnified party or parties except as
set forth below); provided, however, that such counsel shall be satisfactory to
-------- -------
the indemnified party. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the indemnified
party shall have the right to employ separate counsel (including local counsel),
and the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel, if (i) the use of counsel chosen by the indemnifying
party to represent the indemnified party would present such counsel with a
conflict of interest, (ii) the actual or potential defendants in, or targets of,
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, (iii)
the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party; provided that the indemnifying party shall not be
responsible for the expenses of more than one separate counsel (in addition to
one local counsel in each relevant jurisdiction) in any one action. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each
<PAGE>
33
indemnified party from all liability arising out of such claim, action, suit or
proceeding. An indemnified party will not, without the prior written consent of
the indemnifying party, which consent will not be unreasonably withheld, settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason (other than as provided in paragraph (a)), the
Company, Holding and the Purchasers agree to contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating or defending same) (collectively
"Losses") to which the Company, Holding and the Purchasers may be subject in
such proportion as is appropriate to reflect the relative benefits received by
the Company and Holding on the one hand and by the Purchasers on the other from
the offering of the Securities; provided, however, that in no case shall the
-------- -------
Purchasers be responsible for any amount in excess of the purchase discount or
commission applicable to the Securities purchased by such the Purchasers
hereunder. If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the Company, Holding and the Purchasers shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and Holding on the
one hand and of the Purchasers on the other in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company and Holding shall be deemed to
be equal to the total net proceeds from the offering of the Securities (before
deducting expenses), and benefits received by the Purchasers shall be deemed to
be equal to the total purchase discounts and commissions, in each case as set
forth on the cover page of the Final Memorandum. Relative fault shall be
determined by reference to whether any alleged untrue statement or omission
relates to information provided by the Company or Holding on the one hand or the
Purchasers on the other. The Company, Holding and the Purchasers agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to
<PAGE>
34
above. Notwithstanding the provisions of this paragraph (d), 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. For purposes of this Section 8,
each person who controls a Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act and each director, officer,
employee and agent of a Purchaser shall have the same rights to contribution as
such Purchaser, and each person who controls the Company or Holding within the
meaning of either the Securities Act or the Exchange Act and each officer and
director of the Company or Holding shall have the same rights to contribution
as the Company or Holding, subject in each case to the applicable terms and
conditions of this paragraph (d).
9. Default by a Purchaser. If either Purchaser shall fail to
-----------------------
purchase and pay for any of the Securities agreed to be purchased by such
Purchaser hereunder and such failure to purchase shall constitute a default in
the performance of its or their obligations under this Agreement, the remaining
Purchaser shall be obligated severally to take up and pay for (in the proportion
which the amount of Securities set forth opposite its name in Schedule I hereto
bears to the aggregate amount of Securities set forth opposite the name of the
remaining Purchaser) the Securities that the defaulting Purchaser agreed but
failed to purchase; provided, however, that in the event that the aggregate
-------- -------
amount of Securities that the defaulting Purchaser agreed but failed to purchase
shall exceed 10% of the aggregate principal amount of Securities set forth in
Schedule I hereto, the remaining Purchaser shall have the right to purchase all,
but shall not be under any obligation to purchase any, of the Securities, and if
the non-defaulting Purchaser does not purchase all the Securities, this
Agreement will terminate without liability to the non-defaulting Purchaser, the
Company or Holding. In the event of a default by either Purchaser as set forth
in this Section 9, the Closing Date shall be postponed for such period, not
exceeding seven days, as the Purchasers shall determine in order that the
required changes in the Final Memorandum or in any other documents or
arrangements may be effected. Nothing contained in this Agreement shall relieve
any defaulting Purchaser of its liability, if any, to the Company, Holding or
the non-defaulting Purchaser for damages occasioned by its default hereunder.
<PAGE>
35
10. Termination. This Agreement shall be subject to termination in
------------
the absolute discretion of the Purchasers, by notice given to the Company and to
Holding prior to delivery of and payment for the Securities, if prior to such
time (i) trading in securities generally on the New York Stock Exchange shall
have been suspended or limited or minimum prices shall have been established on
such Exchange, (ii) a banking moratorium shall have been declared either by
Federal or New York State authorities or (iii) there shall have occurred any
outbreak or escalation of hostilities, declaration by the United States of a
national emergency or war or other calamity or crisis the effect of which on
financial markets of the United States is such as to make it, in the judgment of
the Purchasers, impracticable or inadvisable to proceed with the offering or
delivery of the Securities as contemplated by the Final Memorandum.
11. Representations and Indemnities to Survive. The respective
-------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company, Holding or their respective officers and of the Purchasers set forth in
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Purchasers, the Company, Holding or
any of the officers, directors or controlling persons referred to in Section 8
hereof, and will survive delivery of and payment for the Securities. The
provisions of Sections 7 and 8 hereof shall survive the termination or
cancelation of this Agreement.
12. Notices. All communications hereunder will be in writing and
--------
effective only on receipt, and, if sent to the Purchasers, will be mailed,
delivered or sent by fax and confirmed to them, care of Salomon Brothers Inc, at
388 Greenwich Street, New York, New York, 10013; or, if sent to Holding or the
Company, will be mailed, delivered or telegraphed and confirmed to it at 27711
Diaz Road, P.O. Box 9020, Temecula, CA 92589-9020.
13. Successors. This Agreement will inure to the benefit of and be
-----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and,
except as expressly set forth in Section 5(h) hereof, no other person will have
any right or obligation hereunder.
14. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED
---------------
IN ACCORDANCE WITH THE LAWS OF THE
<PAGE>
36
STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF).
15. Business Day. For purposes of this Agreement, "business day"
-------------
means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on
which banking institutions in The City of New York, New York are authorized or
obligated by law, executive order or regulation to close.
16. Counterparts. This Agreement may be executed in one or more
-------------
counterparts, each of which will be deemed to be an original, but all such
counterparts will together constitute one and the same instrument.
<PAGE>
37
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this Agreement and your acceptance shall represent a binding agreement between
the Company, Holding and the Purchasers.
Very truly yours,
HUDSON RESPIRATORY CARE, INC.
by /s/ Richard W. Johansen
__________________________________
Name: Richard W. Johansen
Title: President and Chief Executive Officer
by /s/ Jay R. Ogram
__________________________________
Name: Jay R. Ogram
Title: Chief Financial Officer
RIVER HOLDING CORP.
by /s/ Charles P. Rullman
__________________________________
Name: Charles P. Rullman
Title: President
<PAGE>
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
SALOMON BROTHERS INC
BT ALEX. BROWN INCORPORATED
By: SALOMON BROTHERS INC
By: /s/ H. Allen Bouch
_____________________
Name: H. Allen Bouch
Title: Director
For themselves and the other
Purchaser named in
Schedule I to the foregoing Agreement
<PAGE>
EXHIBIT 2.1
AMENDED AND RESTATED
MERGER AGREEMENT
BETWEEN
RIVER HOLDING CORP.,
RIVER ACQUISITION CORP.,
HUDSON RESPIRATORY CARE INC.
AND
THE SHAREHOLDERS OF HUDSON RESPIRATORY CARE INC.
March 15, 1998
<PAGE>
AMENDED AND RESTATED MERGER AGREEMENT
THIS AMENDED AND RESTATED MERGER AGREEMENT (the "Agreement") is made this
15 day of March, 1998, by and among River Holding Corp., a Delaware corporation
(the "Investor"), River Acquisition Corp., a California corporation and
wholly-owned subsidiary of the Investor ("Newco"), Hudson Respiratory Care Inc.,
a California corporation (the "Company") the Helen Lovaas Separate Property
Trust U/D/T dated 7/17/97 ("Lovaas") and the Helen Lovaas Trust No. 1 U/D/T
dated 11/10/97 (the "Trust"). Lovaas and the Trust are collectively referred to
herein as the "Shareholders."
RECITALS
A. The Shareholders own all of the outstanding shares of common stock of
the Company.
B. The Company manufactures disposable respiratory care and anesthesia
products and equipment.
C. The Boards of Directors of Newco, the Investor and the Company deem
advisable and in the best interests of their respective stockholders the merger
of Newco with and into the Company (the "Merger") upon the terms and conditions
set forth herein and in accordance with the Corporations Code of the State of
California (the "Corporations Code") (the Company and Newco being hereinafter
sometimes referred to as the "Constituent Corporations" and the Company,
following the effectiveness of the Merger, being hereinafter sometimes referred
to as the "Surviving Corporation");
D. The Boards of Directors of the Investor, Newco and the Company have
approved the Merger, upon the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants, and subject to the conditions, herein set forth, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.01 Defined Terms. The following words shall have the following meanings
-------------
when used in this Agreement:
"Agreed Purchase Price" shall mean $233,600,000 plus any Contingent Payment
---------------------
payable pursuant to Section 2.13 hereof.
1
<PAGE>
"Arthur Anderson" shall mean the accounting firm Arthur Anderson LLP (or
---------------
any successor thereto resulting from a merger or other business combination
involving Arthur Anderson LLP). If at any time Arthur Anderson LLP (or its
successor) shall cease to exist or shall otherwise refuse or be unable to
perform the services described in this Agreement as being provided by Arthur
Anderson, then the term Arthur Anderson shall be deemed to refer to any other
accounting firm as may be selected by Lovaas with Investor's reasonable consent.
"Balance Sheet Date" shall mean December 26, 1997.
------------------
"Closing" shall have the meaning specified in Section 2.02.
-------
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Company Transaction Expense Schedule" shall mean the schedule submitted to
------------------------------------
Investor by Lovaas five (5) business days prior to the Closing reflecting the
fees and expenses of the Company and the Shareholders in connection with the
transactions contemplated by this Agreement, including but not limited to the
Incentive Payments as described on Exhibit A attached hereto, the Ruiz
Consulting Fee, and legal, accounting and investment banking fees.
"Contingent Payment" shall have the meaning specified in Section 2.13.
------------------
"Current Assets" shall consist of the current assets as shown on the
--------------
December 26, 1997 Balance Sheet or the Final Balance Sheet, as the case may be,
excluding any deferred tax assets, and without giving effect to the transactions
contemplated by this Agreement, which balance sheets shall each be prepared in
accordance with GAAP (except as otherwise indicated in Schedule 3.05 hereto).
2
<PAGE>
"Current Liabilities" shall consist of the current liabilities as shown on
-------------------
the December 26, 1997 Balance Sheet or the Final Balance Sheet, as the case may
be, without giving effect to (i) the transactions contemplated by this
Agreement, (ii) the accruals related to the expenses associated with the
transactions contemplated by this Agreement (to the extent that such expenses
are included on the Company Transaction Expense Schedule) or (iii) tax
liabilities relating to obligations payable in connection with an election under
section 338(h)(10) of the Code), which balance sheets shall each be prepared in
accordance with GAAP (except as otherwise indicated in Schedule 3.05 hereto).
"Damages" shall have the meaning specified in Section 8.01.
-------
"Debt Schedule" shall mean the schedule submitted to Investor by Lovaas at
-------------
least five (5) business days prior to the Closing, which schedule shall set
forth the principal amount of all of the Company's indebtedness for borrowed
money, plus accrued but unpaid interest and any prepayment penalties thereon
through to and including the Effective Date, which indebtedness, accrued
interest and any prepayment penalties to be paid by the Surviving Corporation
pursuant to Section 2.09(a) hereof as of the Effective Date.
"December 26, 1997 Balance Sheet" shall have the meaning specified in
-------------------------------
Section 3.05.
"Effective Date" shall have the meaning specified in Section 2.03.
--------------
"Environmental Laws" shall have the meaning specified in Section 3.22.
------------------
3
<PAGE>
"EPP Liabilities" shall mean all liability of the Company to make payments
---------------
to EPP Participants pursuant to the EPP Plan including all amounts payable to
retired or other former employees under the EPP Plan.
"EPP Participants" shall mean the individual participants under the EPP
----------------
Plan.
"EPP Plan" shall mean the Hudson Respiratory Care Inc. Equity Participation
--------
Plan as established and maintained by the Company pursuant to the 1994 Amendment
and Restatement of the Hudson Respiratory Care Inc. Equity Participation Plan
(the "Plan Document") as such Plan Document has been amended prior to the date
hereof or may in the future be amended in the manner provided in Exhibit A
hereto.
"EPP Schedule" shall mean the schedule submitted to Investor by Lovaas at
------------
least five (5) business days prior to the Closing, which schedule shall set
forth the lump sum amount of the EPP Liability that will be payable to each EPP
Participant as of the completion of the Closing.
"Exchange Shares" shall mean the 3,739,435 shares of the Company's common
---------------
stock held of record by the Trust and 9,229,285 shares of the Company's common
stock held of record by Lovaas, after giving effect to the stock split described
in section 2.06(a) hereof, which are each to be exchanged for the Price Per
Share in the Merger in accordance with the provisions of Article II hereof.
"Final Balance Sheet" shall mean a balance sheet of the Company as of the
-------------------
Effective Date prepared in accordance with GAAP (except as otherwise indicated
in Schedule 3.05 hereto).
4
<PAGE>
"Final Balance Sheet Date" shall mean the Effective Date.
------------------------
"Final Balance Sheet Tax Liabilities" shall mean all Pre-Acquisition Tax
-----------------------------------
Liabilities set forth in the account for the accrued taxes payable or similar
account in the Final Balance Sheet and thus taken into account in determining
the Final Working Capital.
"Final Purchase Price" shall mean the Pro Forma Purchase Price as adjusted
--------------------
pursuant to Section 2.12(a).
"Final Working Capital" shall mean Current Assets, exclusive of Oxy Air,
---------------------
less Current Liabilities, exclusive of EPP Liabilities, Oxy Air Liabilities and
the current portion of Long-Term Debt or other debt reflected on the Debt
Schedule, in each case as reflected in the Final Balance Sheet.
"GAAP" shall mean United States generally accepted accounting principles as
----
applied on a consistent basis throughout the three year period ended December
26, 1997.
"Hazardous Materials" shall have the meaning specified in Section 3.22.
-------------------
"Indebtedness" shall mean (i) obligations for borrowed money (including
------------
overdrafts), (ii) reimbursement obligations in respect of any letter of credit
or instruments serving a similar function (whether secured or unsecured), (iii)
obligations representing the deferred purchase price of property other than
accounts payable arising in connection with purchases in the ordinary course of
business, (iv) interest rate swaps, currency swaps, reverse repurchase
agreements and similar instruments, (v) any guarantee in respect of any
obligations of another person, and (vi) capital lease and sale leaseback
arrangements.
5
<PAGE>
"Independent Accounting Firm" shall mean Ernst & Young or another
---------------------------
nationally recognized independent accounting firm jointly selected by Lovaas and
Investor. If such parties cannot agree on such accounting firm, the accounting
firm will be selected as follows: Lovaas and Investor shall each submit the
name of a nationally recognized independent accounting firm and the "Independent
Accounting Firm" shall mean the firm selected by lot from these two firms.
"Intangible Personal Property" shall have the meaning specified in Section
----------------------------
3.10.
"Investor Tax Liabilities" shall mean, without duplication, each and all of
------------------------
(i) the Final Balance Sheet Tax Liabilities, (ii) Tax Liabilities attributable
to that portion of a Straddle Period following the Effective Date, (iii) Tax
Liabilities attributable to Post-Acquisition Taxable Periods, and (iv) Tax
Liabilities for which the Shareholders are not liable under Section 8.06 (ii)
hereof.
"Investor Transaction Expenses" shall mean the fees and expenses of the
-----------------------------
Investor and Newco in connection with the transactions contemplated by this
Agreement.
"Investor Transaction Expense Schedule" shall mean the schedule submitted
-------------------------------------
to the Shareholders five (5) business days prior to the Closing reflecting the
Investor Transaction Expenses.
"Licenses" shall have the meaning specified in Section 3.14.
--------
"Long-Term Debt" shall mean the consolidated long-term debt of the Company,
--------------
determined in accordance with GAAP less current installments of such long-term
debt.
6
<PAGE>
"Material Adverse Effect" shall mean changes, developments or occurrences
-----------------------
which, individually or in the aggregate, have or reasonably can be expected to
have a material adverse effect on the assets, earnings, liabilities, prospects,
business, operations or financial condition or operating results of the Company
and the Subsidiary, taken as a whole.
"Merger" shall have the meaning specified in Section 2.01.
------
"New Debt" shall mean the indebtedness, consisting of short term and long
--------
term debt which as of the date of this Agreement is estimated as approximately
$167,500,000, that will be borrowed by the Company as of the Effective Date to
pay the Pro Forma Purchase Price and the Investor Transaction Expenses.
"New Debt Schedule" shall mean the written schedule of New Debt that will
-----------------
be furnished by Investor to Lovaas not less than five (5) business days prior to
the Closing and on which Investor shall specify each category of New Debt
(revolving, short term and long term), the amount thereof and the lender(s)
thereof.
"New Preferred Stock" shall mean the shares of preferred stock of the
-------------------
Company to be issued on the Effective Date in exchange for the shares of
preferred stock of Newco, which preferred stock will have the rights,
preferences and privileges agreed to by the parties hereto.
"Outstanding Shares" shall mean 59,056 shares of common stock of the
------------------
Company before giving effect to the stock split described in Section 2.06(a)
hereof which represents the total number of shares outstanding as of the date of
this Agreement.
7
<PAGE>
"Oxy Air" shall mean Oxy Air LLC, a Delaware limited liability company that
-------
is wholly-owned by the Company as of the date of this Agreement.
"Oxy Air Liabilities" shall mean any Indebtedness of Oxy Air.
-------------------
"Post-Acquisition Taxable Period" shall mean a taxable period of the
-------------------------------
Company that begins after the Effective Date.
"Pre-Acquisition Tax Liability" shall mean a Tax Liability of the Company
-----------------------------
for or with respect to any Pre-Acquisition Taxable Period or any Straddle Period
to the extent allocable to the period ending on the Effective Date.
"Pre-Acquisition Taxable Period" shall mean a taxable period of the Company
------------------------------
that ends on or before the Effective Date.
"Price Per Share" means an amount equal to:
---------------
(A) the Pro Forma Purchase Price less
(i) the aggregate amount shown on the Debt Schedule,
(ii) the aggregate amount shown on the EPP Schedule; and
(iii) the aggregate amount shown on the Company Transaction
Expense Schedule
divided by
----------
(B) the number of Exchange Shares.
8
<PAGE>
"Pro Forma Purchase Price" shall mean the Agreed Purchase Price as adjusted
------------------------
pursuant to Section 2.12(b).
"Pro Forma Working Capital" shall mean Current Assets, exclusive of Oxy
-------------------------
Air, less Current Liabilities, exclusive of EPP Liabilities, Oxy Air Liabilities
and the current portion of Long-Term Debt or other debt reflected on the Debt
Schedule, in each case as reflected in the Pre-Closing Balance Sheet prepared
pursuant to Section 2.12(b).
"Real Property" shall have the meaning specified in Section 3.12.
-------------
"Retained Shares" shall mean 1,500,000 shares of the Company's common stock
---------------
held of record by Lovaas, after giving effect to the stock split described in
Section 2.06(a) hereof.
"Ruiz Consulting Agreement" shall mean that certain Employment Termination
-------------------------
and Consulting Agreement between Hudson Respiratory Care Inc. and Richard K.
Ruiz dated as of December 31, 1996, as it may be amended.
"Ruiz Consulting Fee" shall mean the Consulting Fee that shall become
-------------------
payable, upon completion of the Closing, to Richard K. Ruiz pursuant to the Ruiz
Consulting Agreement.
"Shareholder Tax Liabilities" shall mean the U.S. federal and state income
---------------------------
tax liabilities imposed on or against the Shareholders with respect to the
Company's income pursuant to the provisions of Sections 1361 et seq. of the Code
and comparable provisions of state income tax laws.
"Straddle Period" shall mean a taxable period of the Company that includes
---------------
but does not end on the Effective Date.
9
<PAGE>
"Subsidiary" means Industrias Hudson, S.A. de C.V., a Mexican corporation
----------
in which the Company owns a 79% equity interest on the date hereof and will own
a 100% equity interest prior to the Effective Date.
"Surviving Corporation" shall have the meaning specified in Recital C
---------------------
hereof.
"Tax" or "Taxes" shall mean all taxes, including, without limitation, all
--------------
net income, gross receipts, sales, use, withholding, payroll, employment, social
security, unemployment, excise and property taxes, plus applicable penalties and
interest thereon.
"Tax Liabilities" shall mean all liabilities for Taxes.
---------------
"Tax Proceeding" shall mean any audit or other examination, or any judicial
--------------
or administrative proceeding, relating to liability for or refunds or
adjustments with respect to Taxes.
"Tax Return" shall mean all reports and returns required to be filed with
----------
respect to Taxes.
1.02 Additional Terms. In addition to the foregoing, other capitalized
----------------
terms used in this Agreement shall have the meanings given to such terms where
they first appear herein.
ARTICLE II
TRANSFER OF SHARES
2.01 The Merger. Upon the terms and conditions hereinafter set forth and
----------
in accordance with the California Corporations Code (the "Corporations Code"),
at the Effective Date (as defined in Section 2.03), Newco shall be merged with
and into the Company (the
10
<PAGE>
"Merger") and thereupon the separate existence of Newco shall cease, and the
Company, as the Surviving Corporation, shall continue to exist under and be
governed by the Corporations Code.
2.02 Closing; Filing. A closing shall be held at the offices of Gibson,
---------------
Dunn & Crutcher LLP, 4 Park Plaza, Irvine, CA 92614 or such other place as the
parties shall agree, for the purpose of confirming the satisfaction or waiver,
as the case may be, of the conditions set forth in Articles VI and VII of this
Agreement (the "Closing") on the later of April 14, 1998 or the second business
day after satisfaction or waiver of the conditions set forth in Articles VI and
VII; provided, however, that if all of the conditions set forth in Articles VI
and VII have been satisfied or waived prior to April 14, 1998, Investor may
select an earlier date for the Closing, upon five (5) business days notice to
Lovaas. Immediately thereafter, Newco and the Company will cause an agreement
of merger, in substantially the form of Exhibit D attached hereto (the
"Agreement of Merger"), to be executed and filed with the Secretary of State of
the State of California.
2.03 Effective Date of the Merger. The Merger shall become effective
----------------------------
immediately upon the filing of the Agreement of Merger with the Secretary of
State of the State of California in accordance therewith. The date and time of
such filing is herein sometimes referred to as the "Effective Date."
2.04 Articles of Incorporation and Bylaws. Upon the effectiveness of the
------------------------------------
Merger, the Articles of Incorporation of the Company shall be the Articles of
Incorporation of the Surviving Corporation, (amended to increase the number of
authorized shares of capital stock,
11
<PAGE>
create and authorize the New Preferred Stock and effect a stock split), and the
Bylaws of the Company as in effect on the Effective Date shall be the Bylaws of
the Surviving Corporation.
2.05 Directors and Officers. The persons who are directors of Newco
----------------------
immediately prior to the Effective Date (plus any directors of the Company
designated by Newco) and the officers of the Company (plus any officers of Newco
designated by Newco) shall, after the Effective Date and in accordance with the
Agreement of Merger, serve as the directors and officers, respectively, of the
Surviving Corporation, in each case such directors and officers to serve until
their successors have been duly elected and qualified in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation.
2.06 Conversion.
----------
(a) Prior to the Effective Date, the Company and the Shareholders
shall take all action necessary to amend the Company's Articles of Incorporation
to (i) increase its authorized common stock to 15 million shares, (ii) create a
class of preferred stock with two million authorized shares, (iii) authorize
600,000 shares of New Preferred Stock and (iv) effect a 245 to 1 stock split
with respect to the 59,056 Outstanding Shares.
(b) Investor covenants that (i) it will contribute to Newco $10.00
for each share of the common stock of Newco issued to Investor and $100.00 (less
any underwriting fees paid by Investor to a non-affiliate of Investor in
connection with the sale and placement of such preferred stock) for each share
of the preferred stock of Newco issued to Investor, (ii) at least 5,500,000
shares of Newco's common stock shall be issued to Investor and remain
outstanding immediately prior to the Effective Date and (iii) at least 650,000
shares of common stock of the Surviving Corporation shall be purchased by
Investor immediately following the Effective Date at a purchase price of $10.00
per share.
12
<PAGE>
(c) At the Effective Date, by virtue of the Merger and without any
action on the part of the holders thereof:
(i) Each issued and outstanding Exchange Share shall be
automatically converted into the right to receive the Price Per Share in cash,
to be paid as set forth in Section 2.08 below.
(ii) Each issued and outstanding share of the common stock of
Newco shall be converted into one (1) validly issued, fully-paid and
nonassessable share of common stock of the Surviving Corporation, and each
issued and outstanding share of preferred stock of Newco shall be converted into
one (1) validly issued, fully-paid and nonassessable share of New Preferred
Stock of the Surviving Corporation.
(iii) The Retained Shares shall remain outstanding.
2.07 Closing of the Transfer Books. At the Effective Date, the stock
-----------------------------
transfer books of the Company shall be closed, and no transfer of shares of
common stock of the Company shall thereafter be made.
2.08 Surrender of Certificates.
-------------------------
(a) The Company. Each of the Shareholders shall deliver at the
-----------
Closing certificates evidencing all of the Exchange Shares to be canceled
pursuant to Section 2.06. Upon the surrender for exchange of such certificates,
together with such documents of transfer, duly completed and properly executed,
as reasonably requested by Investor, each Shareholder shall be paid at the
Closing, by wire transfer of immediately available funds, the
13
<PAGE>
amount of cash to which such Shareholder is entitled hereunder, and such
certificates shall forthwith be canceled.
(b) Newco. The Investor, as the sole stockholder of Newco, shall,
-----
upon surrender to the Surviving Corporation of certificates representing the
common stock, $.01 par value, of Newco and the preferred stock, $.01 par value,
of Newco, receive certificates representing the number of shares of common stock
of the Surviving Corporation into which the common stock of Newco shall have
been converted and the number of shares of New Preferred Stock into which the
preferred stock of Newco shall have been converted, each pursuant to Section
-------
2.06(c)(ii) hereof.
- -----------
2.09 Additional Payments on the Effective Date. On the Effective Date,
-----------------------------------------
the Surviving Corporation shall pay:
(a) by wire transfer of immediately available funds, the
aggregate amount of indebtedness, inclusive of principal and interest accrued
through the Effective Date, as set forth in the Debt Schedule to the parties and
in accordance with the instructions as specified in the Debt Schedule;
(b) to the EPP Participants the EPP Liability payable to such EPP
Participants as set forth in the EPP Schedule, with the Surviving Corporation to
make payment of the EPP Liabilities by wire transfer of immediately available
funds to the EPP Participants in accordance with instructions as specified in
the EPP Schedule; and
(c) to the parties specified in the Company Transaction Expense
Schedule the fees and expenses reflected in the Company Transaction Expense
Schedule, with the Surviving Corporation to make payment of such fees and
expenses by wire transfer of
14
<PAGE>
immediately available funds or by check delivered at the Effective Date,
whichever may be applicable as specified in the Company Transaction Expense
Schedule, provided, however, Incentive Payments may be made following the
Effective Date solely to the extent provided for under Section 5.01(b).
2.10 Effect of Merger. On and after the Effective Date, the Surviving
----------------
Corporation shall possess all the rights, privileges, powers and franchises of a
public as well as of a private nature, and be subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations; and all
singular rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
either of the Constituent Corporations on whatever account, as well for stock
subscriptions and all other things in action or belonging to each of the
Constituent Corporations, shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the Constituent Corporations, and the title to any
real estate vested, by deed or otherwise, in either of the Constituent
Corporations shall not revert or be in any way impaired; but all rights of
creditors and all liens upon any property of either of the Constituent
Corporations shall be preserved unimpaired, and all debts, liabilities and
duties of the Constituent Corporations shall thenceforth attach to the Surviving
Corporation and may be enforced against it to the same extent as if said debts,
liabilities and duties had been incurred or contracted by it.
2.11 Further Assurances. If at any time after the Effective Date the
------------------
Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in
15
<PAGE>
law or any other acts are necessary, desirable or proper (a) to vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation, the title to any
property or right of the Constituent Corporations acquired or to be acquired by
reason of, or as a result of, the Merger, or (b) otherwise to carry out the
purposes of this Agreement, the Constituent Corporations agree that the
Surviving Corporation and its proper officers and directors shall and will
execute and deliver all such deeds, assignments and assurances in law and do all
acts necessary, desirable or proper to vest, perfect or confirm title to such
property or right in the Surviving Corporation and otherwise to carry out the
purposes of this Agreement, and that the proper officers and directors of the
Constituent Corporations and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of the Constituent Corporations or
otherwise to take any and all such action.
2.12 Working Capital Adjustment.
--------------------------
(a) The Agreed Purchase Price will be adjusted, by increasing or
decreasing the amount thereof pursuant to the following provisions of this
Section 2.12 (the "Working Capital Adjustment"). If the Final Working Capital
is less than $26,750,000 (the "Minimum Working Capital"), the Pro Forma Purchase
Price shall be reduced by, and the Shareholders shall pay to the Surviving
Corporation, an amount equal to the difference between the Minimum Working
Capital and the Final Working Capital. In the event that the Final Working
Capital is greater than $29,500,000 (the "Maximum Working Capital"), the Pro
Forma Purchase Price shall be increased by, and the Surviving Corporation shall
pay to the Shareholders, an amount equal to the difference between the Final
Working Capital and the Maximum Working Capital. Amounts equal to or greater
than the Minimum Working Capital
16
<PAGE>
and equal to or less than the Maximum Working Capital shall be referred to as
the "Working Capital Range." The Working Capital Adjustment shall be payable as
set forth below.
(b) In an effort to reduce the amount of the Working Capital
Adjustment after the Effective Date, a pro forma Working Capital Adjustment
shall initially be calculated 5 days prior to the Closing (the "Pro Forma
Working Capital Adjustment") based on the most recently available balance sheet
(the "Pre-Closing Balance Sheet"), which shall be subject to Investor's review
and approval, which approval shall not be unreasonably withheld. The Pro Forma
Working Capital Adjustment shall be determined as follows: the Agreed Purchase
Price shall be increased or decreased, as applicable, to the extent that the Pro
Forma Working Capital as reflected in the Pre-Closing Balance Sheet is greater
than or less than, as the case may be, the Working Capital Range.
(c) No later than 60 days following the Effective Date, the Company
shall prepare and deliver to Lovaas and Investor a draft Final Balance Sheet
that has been audited by Arthur Anderson. During the 15 days after delivery of
the draft Final Balance Sheet, Lovaas and Investor and their respective
representatives and accountants shall have the right to review, audit and
approve the draft Final Balance Sheet and the calculation of the Final Working
Capital. Lovaas and Investor and their respective representatives and
accountants shall have the right to review all workpapers of Arthur Anderson
used in auditing the draft Final Balance Sheet and Lovaas and her
representatives and accountants shall have full access to the books and records
of the Company for the purpose of verifying the accuracy and fairness of the
draft Final Balance Sheet. If neither party objects to the draft Final Balance
Sheet within
17
<PAGE>
such 15-day period, it shall be deemed acceptable to and binding upon the
parties and Arthur Anderson shall issue an audited Final Balance Sheet with an
unqualified opinion.
(d) If either Lovaas or Investor has any objections to the draft
Final Balance Sheet, such party will deliver a detailed statement describing
their objections to the other party within 15 days after receiving the draft
Final Balance Sheet. Investor and Lovaas will use reasonable efforts to resolve
any such objections themselves. If the parties do not obtain a final resolution
within 30 days after a party has received the statement of objections, however,
the remaining objections will be resolved by the Independent Accounting Firm
within 15 days of the expiration of the 30 day period and Arthur Anderson shall
then issue an audited Final Balance Sheet with an unqualified opinion. The fees
and expenses incurred by the Independent Accounting Firm shall be paid half by
the Shareholders and half by the Surviving Corporation.
(e) Any excess or shortfall of the Final Working Capital with
respect to the Pro Forma Working Capital shall be paid by the Surviving
Corporation or Shareholders, as the case may be, within ten (10) days following
(i) the expiration of the 15-day comment period without objection as provided in
Section 2.12(c) hereof or (ii) the final resolution of any dispute over the
Final Balance Sheet as described in Section 2.12(d) hereof, whichever may be
appropriate.
2.13 Contingent Payments.
-------------------
(a) In the event that the Surviving Corporation's EBITDA before
EPP (as defined below) for fiscal 1998 is at least $31,600,000, then the
Surviving Corporation shall pay an additional aggregate amount equal to
$5,700,000 (the "Contingent Payment"), with such amount payable as follows:
$2,479,500 payable to Lovaas, $826,500 payable to the
18
<PAGE>
Trust and $2,394,000 payable to the individuals set forth on Schedule 2.13 (the
"Participating Employees") in the respective amounts set forth on Schedule 2.13.
At the Surviving Corporation's option, the Contingent Payment shall be paid in
cash in immediately available funds or pursuant to a three-year payment schedule
(with principal and interest payable in 36 equal monthly installments and
prepayable at any time without penalty), together with interest at the rate of
8% per annum. EBITDA before EPP shall mean the Surviving Corporation's earnings
before depreciation and amortization, interest expense and income tax expense
and before charges related to the EPP Plan and the payment of special 1997
bonuses, not giving effect to any acquisitions by the Surviving Corporation
during fiscal 1998.
(b) No later than 60 days following the end of fiscal 1998, the
Surviving Corporation shall prepare and deliver to the Shareholders and the
Participating Employees the Surviving Corporation's draft financial statements
for fiscal 1998 (the "1998 Financial Statements") as audited by the Surviving
Corporation's accountants, together with a calculation of EBITDA before EPP.
During the 15 days after delivery of the draft 1998 Financial Statements, the
Shareholders and the Participating Employees and their respective
representatives and accountants shall have the right to review the draft 1998
Financial Statements and the calculation of EBITDA before EPP solely for the
purpose of determining whether the Contingent Payment is payable. The Surviving
Corporation will use its best efforts to make available to the Shareholders and
the Participating Employees and their respective representatives and accountants
all workpapers of the Surviving Corporation's accountants used in auditing the
draft 1998 Financial Statements and the Shareholders and the Participating
Employees and their respective representatives and accountants shall have full
access to the books and records of the Surviving Corporation for the purpose of
verifying the
19
<PAGE>
accuracy of the draft 1998 Financial Statements and the calculation of EBITDA
before EPP. If the Shareholders and the Participating Employees do not object to
the draft 1998 Financial Statements or the calculation of EBITDA before EPP
within such 15-day period, it shall be deemed acceptable to and binding upon the
parties.
(c) If the Shareholders or the Participating Employees have any
objections to the draft 1998 Financial Statements or the calculation of EBITDA
before EPP, such parties will deliver a detailed statement describing their
objections to the Surviving Corporation within 15 days after receiving the draft
1998 Financial Statements and the calculation of EBITDA before EPP. The
Surviving Corporation and such parties will use reasonable efforts to resolve
any such objections themselves. If the parties do not obtain a final resolution
within 5 days after the Surviving Corporation has received the statement of
objections, however, the remaining objections will be resolved by the
Independent Accounting Firm within 10 days of the expiration of the 5-day
period. The fees and expenses incurred by the Independent Accounting Firm shall
be paid half by the Shareholders and Participating Employees and half by the
Surviving Corporation.
(d) The Contingent Payment shall be paid by the Surviving
Corporation in accordance with Section 2.13(a) beginning ten (10) days following
(i) the expiration of the 15-day comment period without objection as provided in
Section 2.13(b) hereof or (ii) the final resolution of any dispute over the 1998
Financial Statements or the calculation of EBITDA before EPP as described in
Section 2.13(c) hereof, whichever may be appropriate.
(e) For all Tax purposes, the Contingent Payments to the
Shareholders shall be treated as additional purchase price consideration and the
Contingent
20
<PAGE>
Payments to the Participating Employees shall be treated as participation
payments under the EPP Plan.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders, jointly and severally, represent and warrant to
Investor that at as of the date of this Agreement:
3.01 Organization. Good Standing and Authority. The Company is a
-----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California. The Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the Country of Mexico.
Each of the Company and the Subsidiary has full power and authority to carry on
its business as it is now conducted, and is entitled to own, lease or operate
the properties and assets it now owns, leases or operates. Each of the Company
and the Subsidiary is qualified to do business and has all required and
appropriate licenses in each jurisdiction in which its failure to obtain or
maintain such qualification or licensing (i) would have a Material Adverse
Effect or (ii) would result in a material breach of any of the other
representations, warranties or covenants set forth in this Agreement. Each of
this Agreement and the Noncompetition Agreement has been duly executed and
delivered by the Shareholders and the Company, has been authorized by all
necessary corporate action of the Shareholders and the Company and constitutes a
legal, valid and binding obligation of the Shareholders and the Company,
enforceable against each of them in accordance with its terms, except as
enforcement may be limited by equitable principles or by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to creditors rights
generally. Except as
21
<PAGE>
described in Exhibit A or as set forth on Schedule 3.01, the Company does not
own, directly or indirectly, legally or beneficially, any shares of capital
stock or any equity interest in, or otherwise control, any corporation,
partnership, joint venture or other entity or business other than the
Subsidiary.
3.02 Ownership of Shares and Power to Transfer. All of the
-----------------------------------------
Outstanding Shares have been duly authorized and are validly issued and
outstanding, fully paid and nonassessable. The number of Outstanding Shares
owned by each Shareholder is set forth on Schedule 3.02 hereto. Except as set
forth in Schedule 3.02, neither the Shareholders nor the Company have granted,
issued or agreed to grant or issue any other equity interests in the Company
(other than the Outstanding Shares), and there are no outstanding options,
warrants, preemptive rights, subscription rights, securities or similar rights
of any kind that are convertible into or exchangeable for or any other
commitments of any character relating to the Outstanding Shares or any other
equity interests of the Company. The Shareholders have good and valid title to,
and sole record and beneficial ownership of, the Outstanding Shares set forth
opposite such Shareholder's name on Schedule 3.02, free and clear of any claims,
liens, pledges, options, security interests, trusts, encumbrances or other
rights or interests of any person, and the Shareholders have the absolute and
unrestricted right, power, authority and capacity to transfer the Exchange
Shares at the Closing and this Agreement constitutes a legal, valid and binding
obligation of the Shareholders enforceable against each of them in accordance
with its terms, except as enforcement may be limited by equitable principles or
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to creditors rights generally. The Outstanding Shares constitute all outstanding
shares of capital stock of the Company. All dividends, distributions and
redemptions made or to be made by the Company with respect to its equity
interests have complied or will comply with applicable law.
22
<PAGE>
3.03 Consents and Approvals of Governmental Authorities. Except as set
--------------------------------------------------
forth in Schedule 3.03 hereto, no consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority by the Shareholders, the Company or the Subsidiary is required in
connection with the execution, delivery and performance of this Agreement and
the Noncompetition Agreement by the Shareholders or the Company and the
consummation by the Shareholders or the Company of the transactions contemplated
hereby.
3.04 Agreement not a Breach. Except as set forth on Schedule 3.04, the
----------------------
execution of this Agreement and the Noncompetition Agreement by the Shareholders
or the Company and the fulfillment, performance and compliance with the terms
and provisions of this Agreement and the Noncompetition Agreement by the
Shareholders or the Company will not (i) conflict with or result in a breach of
any provision of the Company's Articles of Incorporation or Bylaws or any
organizational document of a Shareholder or the Subsidiary, (ii) conflict with,
violate or result in a breach of the terms, conditions or provisions of, or
constitute a default (or event which upon provision of notice or lapse of time
or both would become such a default) or result in the acceleration of any
obligation under, or result in the cancellation or modification of, or permit
termination of, any agreement, lease, license, note, contract or instrument to
which the Shareholders, the Company or the Subsidiary is a party or by which any
of them is bound; (iii) accelerate, or constitute an event entitling the holder
of any Indebtedness of the Company or the Subsidiary to accelerate the maturity
of any such Indebtedness, permit subordination of any such Indebtedness of the
Company or the Subsidiary to any other Indebtedness of the Company or the
Subsidiary to which the Company or the Subsidiary was not already subordinated;
(iv) conflict with or violate the provisions of any law or any
23
<PAGE>
judgment, decree, order, arbitration award, regulation or rule of any court or
governmental authority or any covenant or restriction binding upon the Company
or the Subsidiary; (v) violate or result in the modification, termination or
loss of any permit, license or other authorization applicable to the Company or
the Subsidiary; or (vi) result in the creation of any lien, charge or
encumbrance upon any equity interest in or assets of the Company or the
Subsidiary under any agreement or instrument to which the Shareholders, the
Company or the Subsidiary are a party or by which the Shareholders, the Company
or the Subsidiary are bound, unless any such matter set forth in items (ii) -
(v) above would not result in a Material Adverse Effect.
3.05 Financial Statements. Attached hereto as Schedule 3.05 is the
--------------------
unaudited consolidated balance sheet of the Company as of December 26, 1997 (the
"December 26, 1997 Balance Sheet") and related statements of income and cash
flow for the twelve month period then ended (the "Unaudited 1997 Financial
Statements"). The audited consolidated balance sheet of the Company as of
December 26, 1997 and related statements of income and cash flow for the twelve
month period then ended (the "Audited 1997 Financial Statements") to be
delivered to Investor prior to the Effective Date will not differ in any
material respect from the Unaudited 1997 Financial Statements. The Shareholders
have also delivered to Investor the audited consolidated balance sheets of the
Company as of December 27, 1996 and December 29, 1995, and related statements of
income and cash flow for the respective twelve month periods then ended
(collectively, with the Unaudited 1997 Financial Statements and, when delivered,
the Audited 1997 Financial Statements, the "Financial Statements"). Except as
set forth in Schedule 3.05 hereto, the Financial Statements (i) were prepared in
accordance with the books and records of the Company; (ii) were prepared in
accordance with the Company's accounting policies and principles and are in
accordance with GAAP in a manner consistent
24
<PAGE>
with the Company's historic accounting practices applied on a consistent basis
except as set forth on Schedule 3.05 (except that the 1997 Financial Statements
are unaudited and therefore do not have certain notes otherwise required by GAAP
and may be subject to certain immaterial audit adjustments); and (iii) present
fairly the financial position and results of operations of the Company at the
dates and for the periods covered thereby. Schedule 3.05 sets forth a true and
complete list of all of the Indebtedness of the Company and the Subsidiary
(excluding capital lease obligations) as of the Balance Sheet Date.
3.06 Absence of Certain Changes. Except as set forth in Exhibit A and
--------------------------
Schedule 3.06, since January 1, 1997, there has not been:
(a) Any Material Adverse Effect;
(b) Any increase in the compensation paid or payable by the
Company or the Subsidiary, other than in the ordinary course of business and
consistent with past practices, to any of its consultants who were paid in
excess of $100,000 in the calendar year ended December 31, 1997 or officers;
(c) Any recapitalization in respect of the equity interests in
the Company or any direct or indirect redemption, purchase or other acquisition
of any such equity interest or any agreement to do any of the foregoing;
(d) Any issuance, transfer, sale or pledge by the Company or the
Subsidiary of its capital stock or any other equity interest or of any
commitments, options, warrants, rights or privileges under which the Company or
the Subsidiary is or may become obligated to issue any shares of its capital
stock or any other equity interest;
25
<PAGE>
(e) Any liability, commitment or obligation incurred by the
Company or the Subsidiary (excluding intercompany transactions), except such as
may have been incurred or entered into in the ordinary course of business and
consistent with past practices;
(f) Any loan, capital contribution, or advance made or agreed to
be made by the Company or the Subsidiary (excluding intercompany transactions),
nor has the Company or the Subsidiary become liable or agreed to become liable
as a guarantor with respect to any obligation of a third party;
(g) Any waiver by the Company or the Subsidiary of any right or
rights of material value or any payment, direct or indirect, of any material
debt, liability or other obligation before the same became due in accordance
with its terms other than in the ordinary course of business and consistent with
past practice;
(h) Any adoption, amendment or entering into by the Company or
the Subsidiary of any bonus, profit sharing, stock option, pension, retirement,
severance, deferred compensation or other employee benefit plan or agreement
other than in the ordinary course of business and consistent with past practice;
(i) Any amendment to the Company's or the Subsidiary's Articles
of Incorporation or Bylaws;
(j) Any amendment, cancellation or termination of any contract,
license or other instrument or arrangement material to the Company or the
Subsidiary other than in the ordinary course of business and consistent with
past practice;
26
<PAGE>
(k) Any failure to repay any material obligation of the Company
or the Subsidiary when due;
(1) Any transaction entered into or committed to be entered into
between the Company or the Subsidiary, on one hand, and any Related Party (as
defined in Section 3.26) on the other hand;
(m) Any material change in the accounting methods, practices or
policies followed by the Company (other than as required by GAAP), any material
increase in reserves or any material revaluation of any of the Company's or the
Subsidiary's assets from those in effect during the past three fiscal years;
(n) Except for the purchase, replacement or disposition of
assets in the ordinary course of business, any purchase or other acquisition of,
or any sale, lease, disposition of, mortgage, pledge or subjection to any lien
or encumbrance on, any material property or assets, whether tangible or
intangible, of the Company or any agreement to do any of the foregoing;
(o) Payment or declaration of any dividend or other distribution
in respect of any shares of the Company's capital stock, or any incurrence of
any obligation to make any such dividend or distribution; or
(p) Any agreement or commitment to do any of the foregoing.
3.07 Taxes.
-----
(a) S Corporation Status.
--------------------
27
<PAGE>
(i) S Corporation Defined. As used herein the term "S
---------------------
corporation" means, with respect to any specified period, a corporation that has
in effect throughout such period a valid election under Section 1362(a) of the
Code to be an S corporation which is, and whose shareholders are, subject to the
tax treatment provided for under the provisions of Sections 1361 et seq. of the
Code.
(ii) S Corporation Status. The taxable year of the Company
--------------------
for federal and state income tax purposes is the 52-53 week year ending on the
Friday that is on or immediately before December 31 of each year. The Company
made a valid election to be taxed as an S Corporation on or before December 31,
1986, and for all periods of the Company commencing on and after November 1,
1987, for federal tax purposes the Company was and is an S corporation. For all
periods with respect to which the Company has been an S corporation, for federal
tax purposes the Company's Tax Returns have been prepared and filed on a basis
consistent with its status as an S corporation.
(iii) State S Corporation Treatment. In Schedule 3.07(a)
-----------------------------
hereto there is a true and complete list of each state in which the Company and
the Shareholders are treated, for such state's income and/or franchise tax
purposes, in a manner comparable to the federal tax treatment of a S corporation
and its shareholders. For purposes of this representation, the state tax
treatment shall be deemed comparable to that of a S corporation if the state's
income or franchise tax on the corporation's net income is eliminated or
materially reduced and such net income (net of state corporate taxes, if any) is
treated as taxable to the shareholders whether or not distributed thereto.
Schedule 3.07(a) also specifies, for each such state listed therein, the period
during which the Company has been subject to such comparable S corporation state
tax treatment.
28
<PAGE>
(b) Tax Returns. Tax Payments and Tax Audits. Except as set
----------------------------------------
forth in Schedule 3.07(b) hereto, the Company has (i) timely filed or caused to
be timely filed all Tax Returns of the Company required to be filed as of the
date hereof (after giving effect to any extension of time to file such Tax
Returns) and (ii) paid, when due, all taxes as shown to be due and payable on
said Tax Returns. Except as set forth in Schedule 3.07(b) hereto, all such
previously-filed Tax Returns were complete and accurate in all material respects
when filed, and as of the date hereof no additional Tax Liabilities for periods
covered by such previously-filed Tax Returns have been assessed on or proposed
to the Company. With respect to each such Tax Return, Schedule 3.07(b) hereto
also specifies (A) each such Tax Return that (1) is currently being audited by a
Tax authority, or (2) as to which the Company has received a written and/or oral
notice from a Tax authority that such Tax authority intends to commence an audit
or examination of such Tax Return, and (B) each such Tax Return as to which the
Company has given its consent to waive or extend the applicable statute of
limitations for such Tax Return or the assessment of Taxes required to be
reported thereon. The Company has either delivered to Investor or made available
for inspection by Investor or its representatives or agents complete and correct
copies of all Tax audit reports and statements of Tax deficiencies with respect
to any delinquent Tax assessed against or agreed to by the Company for all
taxable periods commencing on or after January 1, 1993, for which audit reports
or statements of deficiencies have been received by the Company. As used herein
the term "Company" shall be deemed in each place to refer also to the
Subsidiary.
(c) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the
------------
Company and the Subsidiary (whether imposed before or after Closing and whether
imposed
29
<PAGE>
upon filing of a Tax return or as a result of an audit or examination) which are
unpaid as of the close of business on the Effective Date will not exceed the
reserves for Tax Liabilities as set forth in the account for accrued taxes
payable or similar account included in the Final Balance Sheet Tax Liabilities
and taken into account in the Working Capital Adjustment under Section 2.12
hereof. Attached hereto as Schedule 3.07(c) is a schedule of the accruals for
taxes included in the Company's Unaudited 1997 Financial Statements.
(d) Tax Sharing Agreements. Neither the Company nor the
----------------------
Subsidiary is a party to any tax-sharing or tax-indemnity agreement and has not
otherwise assumed the Tax Liability of any other person under contract.
(e) Section 481 Adjustments. The Company has not agreed, nor is
-----------------------
it required to make, any adjustment under Code Section 481(a) by reason of a
change in accounting method or otherwise.
(f) U.S. Real Property Holding Corporation. The Company is not
--------------------------------------
and has never been a United States real property holding corporation as defined
in Section 897(c)(2) of the Code.
(g) No Liens. None of the assets of the Company or the
--------
Subsidiary are subject to any liens in respect of Taxes (other than for current
Taxes not yet due and payable).
(h) No Closing Agreements. The Company has not executed or
---------------------
entered into any closing agreement pursuant to Section 7121 of the Code, or any
predecessor provisions thereof or any similar provision of state Tax law.
30
<PAGE>
(i) No Section 1374 Liability. The Company will not be subject
-------------------------
to any Tax liability with respect to any net recognized built-in gain under
Section 1374 of the Code.
3.08 Collective Bargaining Agreements and Employee Benefits. Except as
------------------------------------------------------
described in Schedule 3.08, the Company is not involved in any labor discussion
with any unit or group seeking to become the bargaining unit for any of its
employees, nor has any such unit or group notified the Shareholders or the
Company of an intention to commence any organizational activities among the
employees of the Company. Schedule 3.08 contains a listing of (i) each
collective bargaining agreement and other labor agreement to which the Company
is a party or by which it is bound, (ii) each employment, consulting, severance,
deferred compensation, bonus and any other employee benefit plan or agreement
providing for compensation or other benefits to employees (including officers),
or independent contractors, individually or as a group, to which the Company is
a party or by which it is bound; (iii) each "employee pension benefit plan" as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974
("ERISA") and not exempted under Section 4(b) or 201 of ERISA maintained by the
Company or to which the Company is required to contribute, including any
multiemployer pension plan; and (iv) each "employee welfare benefit plan" as
defined in Section 3(1) of ERISA maintained by the Company or to which the
Company contributes or is required to contribute, including any multiemployer
welfare plan, and each other plan under which "fringe benefits" (including,
without limitation, profit-sharing, bonus, stock option, stock purchase, stock
bonus, dependent care assistance, excess benefit, incentive, salary
continuation, and other compensation arrangements, vacation plans or programs,
severance benefits, sick leave plans or
31
<PAGE>
programs, dental or medical plans or programs, and related or similar benefits)
are afforded to employees of, or otherwise required to be provided by, the
Company. All plans, programs and arrangements described in clauses (ii), (iii),
and (iv) of the previous sentence shall be referred to as "Benefit Plans." The
Company has either delivered to Investor or made available for inspection by
Investor or its representatives or agents a true and complete copy of each
Benefit Plan and any related funding agreements (e.g., trust agreements or
insurance contracts), including all amendments (and Schedule 3.08 includes a
description of any such amendment that is not in writing), the current draft of
the Summary Plan Description and Summary of Material Modifications (if
applicable) of each Benefit Plan, the most recent Internal Revenue Service
determination letter (if applicable) for each Benefit Plan, which determination
letter reflects all amendments that have been made to the plan, and the two (2)
most recent Form 5500s that were filed on behalf of the Benefit Plan, including
the actuarial report (if applicable). The Company has complied in all material
respects with all applicable laws, rules and regulations relating to employment,
including those relating to wages, hours, collective bargaining and the payment
and withholding of taxes and other sums as required by appropriate governmental
authorities. Except as set forth in Schedule 3.08, all Benefit Plans in effect
at any time since inception of the Company are now, and have always been,
established, maintained and operated in accordance, in all material respects,
with all applicable laws (including, but not limited to, ERISA and the Code) and
all regulations and interpretations thereunder and in accordance with their plan
documents. The Internal Revenue Service has issued a favorable determination
letter with respect to each Benefit Plan that is intended to qualify under
Section 401(a) of the Code, and no event has occurred (either before or after
the date of the letter) that would disqualify the plan. Except as set forth in
Schedule 3.08, there is no unfunded liability for vested or non-vested benefits
under any funded Benefit Plan, and all
32
<PAGE>
contributions required to be made to or with respect to each Benefit Plan and
all costs of administering each Benefit Plan have been completely and timely
paid, and all such costs are fully deductible. With respect to each Benefit Plan
that is subject to Title IV of ERISA, no liability or obligation to the PBGC has
been incurred or is expected except for insurance premiums under Section 4007 of
ERISA, and all insurance premiums incurred or accrued up to and including the
Effective Date have been or will be timely paid by the Company; and no amount
is, and as of the Effective Date no amount will be, due or owing from the
Company to any "multiemployer plan" (as defined in Section 3(37) of ERISA) on
account of any withdrawal therefrom, and the value, determined on a termination
basis using the actuarial assumptions stated in the plan, of all accrued and
ancillary benefits (whether or not vested) under each such plan did not exceed,
as of the most recent valuation date, and will not exceed as of the Effective
Date, the then current fair market value assets of the plan, arid there is no
accumulated funding deficiency (within the meaning of Code Section 4971),
whether or not such deficiency has been waived. The Company does not have any
liability to any Multiemployer Plans in the event of a complete withdrawal
therefrom, as of the close of the most recent plan year of the Multiemployer
Plan ended prior to the date hereof. There has been no prohibited transaction as
described in Section 406 of ERISA and Section 4975 of the Code with respect to
any employee benefit plan. No Benefit Plan provides medical or death benefits to
any former employees (including retirees) of the Company, other than benefits
required to be provided under Section 490B of the Code. For purposes of this
Section 3.08 and only with respect to this Section, the term "Company" shall
include any entity that is aggregated with the Company under Code Section 414.
To the Shareholders' knowledge, there is no liability of the Company under any
insurance policy or similar arrangement procured in connection with any
33
<PAGE>
Benefit Plan in the nature of a retroactive rate adjustment or loss sharing
arrangement. There are no investigations, proceedings, or lawsuits or other
claims (other than routine claims for benefits under the plan and qualified
domestic relations orders) pending against or involving any Benefit Plan, or any
Fiduciary of such plan (within the meaning of Section 3(21)(A) of ERISA) brought
on behalf of any participant, beneficiary, or Fiduciary thereunder, nor, to the
Shareholders' knowledge, is there any reasonable basis for any such claim. The
Company has no intention or commitment, whether legally binding or not, to
create any additional Benefit Plan, or to modify or change any existing Benefit
Plan so as to increase benefits to participants or the cost of maintaining the
plan. Other than as required by law, the benefits under all Benefit Plans have
not been, and will not be increased subsequent to the date documents are
provided to Investor. Except as provided in Schedule 3.08, none of the Benefit
Plans or employment contracts with the Company provide any benefits that become
payable solely as a result of the consummation of this transaction. None of the
persons performing services for the Company have been improperly classified as
independent contractors, leased employees, or as being exempt from the payment
of wages for overtime. The EPP Liabilities constitute all liabilities and
obligations of the Company under the EPP Plan.
3.09 Litigation. Except as set forth on Schedule 3.09, there is no
----------
pending, or to the knowledge of the Shareholders, threatened, claim, suit,
arbitration proceeding, governmental (including, without limitation, foreign)
proceeding or investigation or other proceeding of any character against any
Shareholder, the Company or the Subsidiary that could reasonably be expected to
have a Material Adverse Effect or prevent, hinder or delay consummation of the
transactions contemplated by this Agreement, declare the same unlawful, or cause
the rescission thereof. There are no judgments, decrees, injunctions or orders
of any court or governmental authority against the Company, the Subsidiary or
any Shareholder (which affect
34
<PAGE>
the Company) which could reasonably be expected to have a Material Adverse
Effect. There is no pending claim against the Company or the Subsidiary which
could reasonably be expected to have a Material Adverse Effect (i) on account of
product warranties, (ii) with respect to the sale by the Company or the
Subsidiary of allegedly defective or inferior products or (iii) with respect to
any Trademark, Copyright or Patent and, to the knowledge of the Shareholders,
there is no such threatened claim or event which may give rise to any such
claim.
3.10 Licenses of Intangible Personal Property. There is listed in
----------------------------------------
Schedule 3.10 all material licenses or similar agreements or arrangements to
which the Company or the Subsidiary is a party either as licensee or licensor
for any item of intangible personal property ("Intangible Personal Property")
and except as set forth on Schedule 3.10:
(a) No proceedings have been instituted or are pending or, to the
knowledge of the Shareholders, threatened which challenge the rights of the
Company or the Subsidiary in any material respect in and to any of such
Intangible Personal Property or any license thereof; and
(b) There are no pending or, to the knowledge of the
Shareholders, threatened claims, demands or proceedings, restricting the right
of the Company or the Subsidiary to use, charging the Company or the Subsidiary
with infringement of, or making any other claim with respect to, any of such
Intangible Personal Property or any license thereof which, if adversely
determined, could reasonably have a Material Adverse Effect.
3.11 Insurance. Schedule 3.11 sets forth a true and correct list of all
---------
insurance policies of any nature whatsoever maintained by the Company or the
Subsidiary pertaining to
35
<PAGE>
the business of the Company or the Subsidiary. The Company or the Subsidiary
maintains, with responsible insurance carriers, fire, worker's compensation,
property and general liability insurance. Such policies and binders are in full
force and effect through the Effective Date and, except as otherwise set forth
on Schedule 3.11, such policies, or other policies covering the same risks, have
been in full force and effect, without gaps, continuously for the past five (5)
years. Copies of all such policies have been made available to Investor for its
inspection. Neither the Company nor the Subsidiary is in default under any of
such policies or binders, and, to the knowledge of the Shareholders, neither has
failed to give any notice or to present any claim under any such policy or
binder in a due and timely fashion.
3.12 Real Property. There is listed in Schedule 3.12: (i) a description
-------------
of each parcel of real property owned by the Company or the Subsidiary (the "Fee
Real Property"), (ii) a listing of each lease of real property under which the
Company or the Subsidiary is a lessee, lessor, sublessee or sublessor, as so
designated therein (the "Leased Real Property" and together with the Fee Real
Property, the "Real Property"), and (iii) all options to acquire, sell or lease
any real property interests to which the Company or the Subsidiary is a party.
The Real Property constitutes all of the real property interests owned, leased
or occupied in whole or in part by the Company or the Subsidiary. Except as
indicated in Schedule 3.12:
(a) The Company has beneficial ownership of and good and
marketable title in fee simple to the Fee Real Property free and clear of all
mortgages, liens, encumbrances, leases, equities, security interests, pledges
conditional sale agreements, title retention agreements, claims, charges,
easements, licenses, rights-of-way, covenants, conditions, restrictions, options
and adverse or equitable claims or rights whatsoever (collectively, "Liens"),
except for liens, if any, for property taxes not yet due and other items
36
<PAGE>
which do not and will not impair, in any material respect, the usefulness to the
Company, or the value or the marketability, of any such Fee Real Properties
("Permitted Liens"), individually, or in the aggregate;
(b) All material leases, easements and other real property
interests held by the Company or the Subsidiary are valid and subsisting free
and clear of all Liens other than Permitted Liens and neither the Company nor
the Subsidiary, and to the Shareholders' knowledge, each other party thereto, is
in material default thereunder. The Company has either delivered to Investor or
made available for inspection by Investor or its representatives or agents true,
correct and complete copies of each of the foregoing documents;
(c) Neither the Shareholders, the Company nor the Subsidiary has
received any notice, or is aware, that any of the buildings, structures or other
material improvements erected on the Real Property owned or leased by the
Company or the Subsidiary, or the present use thereof, (i) does not conform in
all material respects with all applicable laws (or does not constitute a legal
nonconforming use), ordinances, regulations or other laws and applicable deed
restrictions, or (ii) materially encroaches on property of others;
(d) Neither the Shareholders, the Company nor the Subsidiary have
received notice from any municipal body or other public authority requiring work
to be done or improvements to be made upon any of the Real Property and have no
knowledge of the enactment or adoption of any ordinance or resolution by any
such body or authority authorizing work or improvements for which any of the
Real Property may be assessed; and
37
<PAGE>
(e) All of the improvements situated on any of the Real Property
are in good operating condition and are adequate and suitable for the purposes
for which they are presently being used.
3.13 Material Contracts. Schedule 3.13 sets forth, as of the date hereof,
------------------
whether written or oral, a true and correct list of:
(a) Each contract between the Company or the Subsidiary and any
party to whom the Company or the Subsidiary provides products or services which
involves more than $150,000 in consideration for any twelve month period; and
(b) Each contract (except for real property leases, insurance
contracts and employment or personnel-related agreements) between the Company or
the Subsidiary and any party to whom the Company or the Subsidiary is obligated
to pay more than $150,000 in consideration for any twelve month period.
(c) Each contract, agreement and commitment, whether or not fully
performed, pursuant to which the Company or the Subsidiary has acquired or
disposed of a material portion of its business or assets at any time since
December 31, 1995;
(d) Each agreement containing covenants not to compete on the
part of the Company or the Subsidiary or otherwise restricting the ability of
the Company or the Subsidiary in any material way to engage in its business and
each confidentiality agreement to which the Company or the Subsidiary is a
party;
(e) Each note, mortgage, indenture, letter of credit, guarantee,
performance bond, sale-leaseback agreement and any other agreement or instrument
for or
38
<PAGE>
relating to any lending or borrowing (including assumed debt) entered into by
the Company or the Subsidiary or pursuant to which any properties or assets of
the Company or the Subsidiary are pledged or mortgaged as collateral; and
(f) Any other executory contracts and agreements which are
material to the Company and the Subsidiary considered as a whole (except for
real property leases, insurance contracts and employment or personnel-related
agreements). The contracts and agreements which are required to be identified in
Schedule 3.13 pursuant to subsections (a) and (b) above are hereinafter referred
to as the "Material Contracts." True and complete copies of each Material
Contract have either been delivered to Investor by the Company or made available
by Company for inspection by Investor or its representatives or agents. Except
as set forth in Schedule 3.13:
(i) Each of the Material Contracts is a valid, binding and
enforceable agreement of the Company or the Subsidiary, as the case may be, and,
to the knowledge of the Shareholders, the other parties thereto and will,
subject to the receipt of consents set forth on Schedules 3.03 and 3.18,
continue to be valid, binding and enforceable immediately after the Effective
Date, subject to equitable defenses to specific performance and injunctive
relief;
(ii) As of the date hereof, the Shareholders have no reason
to believe that the Company or the Subsidiary, as the case may be, will not be
able to fulfill in all material respects all of their respective obligations
under the Material Contracts which remain to be performed after the date hereof;
39
<PAGE>
(iii) There has not occurred any material breach or default
(or event which upon provision of notice or lapse of time or both would become
such a breach or default) under any of the Material Contracts on the part of the
Company or the Subsidiary, as the case may be; and
(iv) To the knowledge of the Shareholders, there does not
exist any event that, with the giving of notice or the lapse of time or both,
would constitute a material breach of or a material default under such Material
Contract by any party other than the Company or the Subsidiary, as the case may
be, and neither the Company nor the Subsidiary has received or given notice of
any such breach, default or event.
3.14 Governmental Permits and Licenses. Schedule 3.14 contains a true and
---------------------------------
complete list of the governmental permits, licenses, franchises and other
certificates and authorizations (the "Licenses") that are required for and are
material to the operation of the business conducted by the Company and the
Subsidiary as such business is now conducted. Except as set forth on Schedule
3.14, all of such Licenses are, and as of the Effective Date will be, valid and
in full force and effect and the continuing validity and effectiveness of such
Licenses will not be affected by the Merger. The Company has provided, or prior
to the Effective Date will provide, Investor with true, correct and complete
copies of each License listed in Schedule 3.14. Except as set forth on Schedule
3.14, the Company and the Subsidiary are and have been in compliance in all
material respects with all material conditions or requirements of such Licenses,
and neither the Company, the Subsidiary nor the Shareholders have been notified
by any governmental (including any foreign governmental) or licensing authority
that any governmental or licensing authority intends to cancel, terminate or
modify any of such Licenses.
40
<PAGE>
3.15 Management Personnel. Schedule 3.15 contains a true and complete
--------------------
list of the names of and current salaries, bonuses and other monetary benefits
paid to or accrued by all management employees of the Company and the Subsidiary
who earned in excess of $100,000 in the calendar year ended December 31, 1997.
3.16 Banking Facilities. Schedule 3.16 contains a true and complete list
------------------
of:
(a) Each bank, savings and loan or other institution in which the
Company has a deposit, custodial, trust or similar account or safety deposit or
lock box account and the numbers and types of the accounts or safety deposit
boxes maintained by the Company at such institutions; and
(b) The names of all persons authorized to draw on each such
account or to have access to any such safety deposit or lock box facility,
together with a description of any limitations on such authority of each such
person with respect thereto.
3.17 Compliance with Law. Except as set forth on Schedule 3.17 hereto,
-------------------
the conduct of business by each of the Company or the Subsidiary has not
violated and does not violate in any material respect any federal, state, local
or foreign laws, statutes, ordinances, rules, regulations, decrees, orders,
permits or other similar items in force on the date hereof including, without
limitation, federal, state, municipal and foreign (a) laws and regulations
affecting the protection of the health and safety of employees, (b) laws and
regulations affecting equal employment opportunity and (c) laws and regulations
affecting the manufacture, sale and distribution of medical devices, equipment
and supplies. There are no unresolved notices of deficiency or charges of
violation brought or, to the knowledge of the
41
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Shareholders, threatened against the Company or the Subsidiary, including under
any federal, state, local or foreign regulation or otherwise, which individually
or in the aggregate will have a Material Adverse Effect, or interfere with the
maintenance or reissuance of any of the Licenses held by the Company or the
Subsidiary, and there are no facts or circumstances known to the Shareholders
that would constitute a reasonable basis on which any such proceedings, notices
or actions may be instituted, issued or brought hereafter.
3.18 Consents of Non-Governmental Third Parties. Except as set forth in
------------------------------------------
Schedule 3.18 hereto, no consent, waiver or approval of any party to a Material
Contract is necessary for the execution and delivery of this Agreement and the
Noncompetition Agreement or the consummation by the Shareholders or the Company
of the transactions contemplated hereby.
3.19 Brokers Commission or Finder's Fee. Neither the Company nor the
----------------------------------
Shareholders have retained any broker or finder (other than Salomon Smith
Barney) or agreed to become obligated to pay any fee or commission to any broker
or finder (other than fees and commissions payable to Salomon Smith Barney
pursuant to that certain agreement (the "Salomon Engagement Letter") dated as of
September 3, 1997, between the Company and Salomon Smith Barney) for or on
account of the transactions contemplated by this Agreement. The payment of fees
and commissions to Salomon Smith Barney will be paid by the Surviving
Corporation pursuant to Section 2.09(c) above.
3.20 No Undisclosed Liabilities. The Company and the Subsidiary do not
--------------------------
have, and as of the Effective Date will not have, any liabilities, obligations
or commitments (whether absolute, accrued, known or unknown, contingent or
otherwise) matured or unmatured (herein "Liabilities") except (i) Liabilities
which are adequately reflected or fully reserved against in the December 26,
1997 Balance Sheet, (ii) Liabilities which have been incurred in the ordinary
42
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course of business and consistent with past practice since the Balance Sheet
Date, (iii) Liabilities disclosed in Exhibit A or in the Schedules hereto and
(iv) Liabilities arising under contracts or other agreements which because of
the dollar amount involved are not required to be listed in the Schedules hereto
(collectively, the "Known Liabilities").
3.21 Title to Assets. The Company and the Subsidiary have good and
---------------
marketable title to all of their respective assets (real, personal or mixed,
tangible and intangible). Except as set forth on Schedule 3.21, none of the
Company's or the Subsidiary's assets is subject to any mortgage, deed of trust,
pledge, lien, security interest, encumbrance, claim or charge of any kind or
character except (i) liens for taxes or other amounts not yet due and payable,
and (ii) liens and encumbrances which in the aggregate do not materially impair
the usefulness or value of such assets.
3.22 Environmental Matters.
---------------------
(a) For the purposes of this Agreement, the term "Environmental
Laws" shall mean all federal, state, local and foreign environmental protection,
occupational, health and safety or similar laws, ordinances, restrictions,
licenses, rules, regulations and permit conditions, including, but not limited
to, the Federal Water Pollution Control Act, Resource Conservation & Recovery
Act, Clean Air Act, Comprehensive Environmental Response, Compensation and
Liability Act, Emergency Planning and Community Right to Know, Occupational
Safety and Health Act and other federal, state, local or foreign laws of similar
effect, each as amended, and the term "Hazardous Materials" shall mean any
hazardous or toxic substances, wastes or materials, defined as such or governed
by any applicable Environmental Law.
43
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(b) Except as disclosed on Schedule 3.22, (i) the Company has not
received any notices, directives, violation reports, actions or claims from or
by (1) any federal, state, local or foreign governmental agency concerning the
Company or the Subsidiary and any Environmental Laws or (2) any person alleging
that, in connection with Hazardous Materials, conditions at the Real Properties
of the Company or the Subsidiary or any real property interest previously owned,
leased, occupied or operated by the Company or the Subsidiary (the "Sites") have
resulted in or caused or threatened to result in or cause injury or death to any
person or damage to any property, including without limitation, damage to
natural resources, and to the Shareholders' knowledge, no such notices,
directives, violation reports, actions, claims, assessments or allegations
exist; (ii) neither the Company nor the Subsidiary does currently or did
previously lease, operate or own any Sites that are listed or, to the knowledge
of the Shareholders, are threatened to be listed on a "Superfund" List or with
respect to which, there is any pending or, to the knowledge of the Shareholders,
threatened proceeding or investigation under any Environmental Law; (iii)
throughout the period of ownership and/or operation of any of the Sites by the
Company or the Subsidiary, the Company or the Subsidiary has operated and
continues to operate the Sites in material compliance with all Environmental
Laws; (iv) no underground storage tanks either are or, to the Shareholders'
knowledge, have been located at any of the Sites; (v) to the knowledge of the
Shareholders, there has been no spill, discharge, release, contamination or
cleanup of or by any Hazardous Materials used, generated, treated, stored,
disposed of or handled by the Company or the Subsidiary at the Sites or
otherwise and to the Shareholders' knowledge, no spill, discharge or release or
contamination or cleanup of or by Hazardous Materials has occurred on or to the
Sites by any third party; (vi) neither the Company nor the Subsidiary has used,
generated, treated, stored, disposed of, handled, transported or released any
Hazardous Material in a manner which would give rise to any
44
<PAGE>
liability under any Environmental Laws; and (vii) neither the Company nor the
Subsidiary has released any other person from any claim under any Environmental
Law nor waived any rights or defenses concerning any environmental conditions at
any Sites or in connection with the Company's or the Subsidiary's use, ownership
and/or operation of its assets and properties. The Company has either delivered
to Investor or made available for inspection by Investor or its representatives
or agents copies of all environmental audits or similar studies or reports
prepared by or at the direction of the Company regarding any of the Sites.
3.23 Authorized and Outstanding Capital Stock. The authorized capital
----------------------------------------
stock of the Company consists of 1,000,000 shares of common stock, $.01 par
value per share, of which 59,056 shares have been issued and are outstanding.
3.24 Intellectual Property Matters.
-----------------------------
(a) Schedule 3.24 hereto sets forth a complete list of all
trademarks, trade names, product identifiers and/or trade dresses of any type
whatsoever which are presently used in the business of the Company (the
"Trademarks"). Except as set forth on Schedule 3.24, (a) each of the Trademarks
is valid and registered in the name of the Company on the Principal Register of
the United States Patent and Trademark Office and in the foreign countries
indicated thereon, (b) as of the date hereof, to the Shareholders' knowledge
there is no infringement of the Trademarks by others, (c) the use of the
Trademarks in the business of the Company (as the business is now being
conducted by the Company) does not result in any material infringement of the
rights of others in the United States, and the Shareholders have no knowledge of
any such claim as to any Trademarks registered in the foreign countries
identified on Schedule 3.24, (d) the Company is the sole and legal owner of the
Trademarks in
45
<PAGE>
the countries indicated on Schedule 3.24 and in all other jurisdictions in which
the Company uses any Trademark and, as of the date hereof, has no knowledge of
any claim by any other person that such other person is the legal owner of such
Trademarks, and (e) the Company has not granted any license or right to use any
Trademark to any other person.
(b) Schedule 3.24 hereto sets forth a complete list of all
patents, patent applications, inventions, invention disclosures of any type
whatsoever which are presently used in the business of the Company (the
"Patents"). Except as set forth on Schedule 3.24, (a) each of the Patents is
valid and registered in the name of the Company in the United States Patent and
Trademark Office and in the foreign countries indicated thereon, (b) as of the
date hereof, to the Shareholders' knowledge there is no infringement of the
Patents by others, (c) the use of the Patents in the business of the Company (as
the business is now being conducted by the Company) does not result in any
material infringement of the rights of others in the United States, and the
Shareholders have no knowledge of any such claim as to any Patents registered in
the foreign countries identified on Schedule 3.24, (d) the Company is the sole
and legal owner of the Patents in the countries indicated on Schedule 3.24 and
in all other jurisdictions in which the Company uses any Patent and, as of the
date hereof; has no knowledge of any claim by any other person that such other
person is the legal owner of such Patents, and (e) the Company has not granted
any license or right to use any Patent to any other person.
(c) Schedule 3.24 hereto sets forth a complete list of all
copyrights of any type whatsoever which are presently used in the business of
the Company (the "Copyrights"). Except as set forth on Schedule 3.24, (a) each
of the Copyrights is valid and registered in the name of the Company in the
United States Copyright Office and in the foreign
46
<PAGE>
countries indicated thereon, (b) as of the date hereof, to the Shareholders'
knowledge there is no infringement of the Copyrights by others, (c) the use of
the Copyrights in the business of the Company (as the business is now being
conducted by the Company) does not result in any material infringement of the
rights of others in the United States, and the Shareholders have no knowledge of
any such claim as to any Copyrights registered in the foreign countries
identified on Schedule 3.24, (d) the Company is the sole and legal owner of the
Copyrights in the countries indicated on Schedule 3.24 and in all other
jurisdictions in which the Company uses any Copyright and, as of the date
hereof; has no knowledge of any claim by any other person that such other person
is the legal owner of such Copyrights, and (e) the Company has not granted any
license or right to use any Copyright to any other person.
(d) The Company has obtained a written agreement from each and
every employee of the Company which provides that each such employee will
maintain the confidentiality of trade secrets and/or proprietary information of
the Company.
3.25 Inventory. All of the Company's inventory and supplies held for sale
---------
or use in connection with operating the business of the Company (the
"Inventory") was purchased or manufactured in the ordinary course of business
and is owned by the Company, free and clear of all liens, security interests and
encumbrances except as set forth on Schedule 3.25. The Inventory is maintained
on the financial records of the Company using historical valuation methods and
practices consistent with those used in preparing the Unaudited 1997 Financial
Statements and in accordance with GAAP. The Company's current inventory
consists of items of a quality which are saleable in the ordinary course of
business at prevailing prices. Since January 1, 1997, the Company has continued
to replenish its Inventory in the ordinary course
47
<PAGE>
of business consistent with past practice, and has not made any material change
in its Inventory policies or procedures.
3.26 Transactions with Affiliates. Except as set forth on Schedule 3.26,
----------------------------
no officer, director, employee or shareholder of the Company nor any member of
any such person's immediate family or any entity in which any of the foregoing
has an interest (collectively, a "Related Party") is presently, or within the
last year has been, a party to any transaction or arrangement with the Company,
including, without limitation, any contract, lease or other agreement (a)
providing for the furnishing of services (other than as an officer, director or
employee) or assets by, (b) providing for the rental of real property from, or
(c) otherwise requiring payments to (other than for (i) dividends or
distributions to any shareholder in his or her capacity as such or (ii)
compensation to any officer, director or employee in his or her capacity as
such) such Related Party. Each such transaction shown on Schedule 3.26 is on
terms no less favorable to the Company than could be obtained from an
unaffiliated third party, except as set forth on Schedule 3.26.
3.27 Accounts Receivable. All accounts receivable of the Company that are
-------------------
reflected on the December 26, 1997 Balance Sheet or the Final Closing Balance
Sheet, (collectively, the "Accounts Receivable") represented or will represent
valid obligations arising from sales actually made or services actually
performed in the ordinary course of business. Unless paid prior to the
Effective Date, the Accounts Receivable are or will be as of the Effective Date
current and collectible net of the respective reserves shown on the December 26,
1997 Balance Sheet or the Final Closing Balance Sheet (which reserves are
adequate and calculated consistent with past practice and, in the case of the
reserve as the Effective Date, will not represent a material adverse change in
the composition of such Accounts Receivable in terms
48
<PAGE>
of aging). Subject to such reserves, each of the Accounts Receivable either has
been or will be collected in full, without any set-off. Neither the Shareholders
nor the Company have received notice of any contest, claim, or right of set-off,
other than returns in the ordinary course of business, under any contract with
any obligor of an Accounts Receivable relating to the amount or validity of such
Accounts Receivable. Schedule 3.27 contains a true and complete list of all
Accounts Receivable as of the date of the December 26, 1997 Balance Sheet, which
list sets forth the aging of such Accounts Receivable. Schedule 3.27 contains a
list of all customers who have received extended payment terms (over 30 days)
since January 1, 1997.
3.28 Various Relationships. Except as set forth on Schedule 3.28, neither
---------------------
the Shareholders nor the Company have received notice that any of the Company's
material customers, distributors or suppliers intends to cease retaining,
purchasing from, selling to or dealing with the Company in the matter in which
such transactions have previously occurred or that any such customer,
distributor or supplier intends to alter in any significant respect the amount
of such retention, purchases or sales or the extent of dealings with the
Company. None of the Company's material customers, distributors and suppliers
has, since January 1, 1997, decreased materially its purchases, services or
supplies to the Company.
3.29 Labor Matters. Neither the Company nor the Subsidiary is a party to
-------------
any labor agreement with respect to its employees with any labor organization,
union, group or association and there are no employee unions (nor any other
similar labor or employee organizations). In the past five years, neither the
Company nor the Subsidiary has experienced any attempt by organized labor or its
representatives to make it conform to demands of organized labor relating to its
employees or to enter into a binding agreement with organized
49
<PAGE>
labor that would cover the employees of the Company or the Subsidiary. There is
no labor strike, slow-down or other work stoppage pending or, to the
Shareholders' knowledge, threatened against the Company or the Subsidiary. The
Company and the Subsidiary are in compliance in all material respects with all
applicable laws respecting employment practices, employee health, safety or
welfare, employee documentation, terms and conditions of employment and wages
and hours and is not and has not engaged in any unfair labor practice. There is
no unfair labor practice charge or complaint against the Company or the
Subsidiary pending before the National Labor Relations Board or any other
domestic or foreign governmental agency arising out of the conduct of its
business.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Newco and Investor, jointly and severally, represent and warrant to the
Shareholders that as of the date of this Agreement:
4.01 Organization and Corporate Authority; Binding Obligation. Investor
--------------------------------------------------------
and Newco are each corporations duly organized, validly existing and in good
standing under the laws of their respective states of incorporation, and each of
Newco and Investor has full corporate power and authority to carry on its
business as it is now conducted, and is entitled to own, lease or operate the
properties and assets it now owns, leases or operates. Each of Newco and
Investor is qualified to do business, is in good standing and has all required
and appropriate licenses in each jurisdiction in which its failure to obtain or
maintain such qualification, good standing or licensing (i) would have a
material adverse effect on the financial condition, earnings, liabilities,
operations, operating results, business or assets of Newco or Investor, or (ii)
would result in a material breach of any of the other representations,
50
<PAGE>
warranties or covenants set forth in this Agreement. Each of Newco and Investor
has all requisite corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby. This Agreement and the
Noncompetition Agreement have been duly authorized by all necessary corporate
action and constitute (or upon execution and delivery will constitute) legal,
valid and binding obligations of Newco and Investor, enforceable against each of
them in accordance with their respective terms, except as enforcement may be
limited by equitable principles or by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to creditors' rights generally.
4.02 Agreement not a Breach. The execution of this Agreement and the
----------------------
Noncompetition Agreement by Newco and Investor and the fulfillment, performance
and compliance with the terms and provisions of this Agreement by Newco and
Investor will not (or event which upon provision of notice or lapse of time or
both would become such a default) (i) conflict with or result in a breach of any
provision of Newco's Articles of Incorporation or Bylaws or the Investor's
Certificate of Incorporation or Bylaws; (ii) conflict with, violate or result in
a breach of the terms, conditions or provisions of, or constitute a default or
result in the acceleration of any obligation under, or result in the
cancellation or modification of, or permit termination of, any material
agreement or instrument to which Newco or Investor is a party or by which Newco
or Investor is bound; (iii) accelerate, or constitute an event entitling the
holder of any Indebtedness of Newco or Investor to accelerate the maturity of
any such Indebtedness of Newco or Investor, permit subordination of any
Indebtedness of Newco or Investor to any other Indebtedness of Newco or Investor
to which it was not already subordinated; (iv) conflict with or violate the
provisions of any law or any judgment, decree, order, regulation, arbitration
award or rule of any court or governmental authority or any
51
<PAGE>
covenant or restriction binding upon Newco or Investor, including, without
limitation, the Articles of Incorporation, Certificate of Incorporation or
Bylaws of Newco or Investor; (v) violate or result in the modification,
termination or loss of any permit, license or other authorization applicable to
Newco or Investor; or (vi) result in the creation of any lien, charge or
encumbrance upon any assets of Newco or Investor under any agreement or
instrument to which Newco or Investor is a party or by which Newco or Investor
is bound, unless any such matter set forth in item (i) - (vi) above would not
result in a material adverse effect on the financial condition, earnings,
liabilities, operations, operating results, business or assets of Newco or
Investor.
4.03 Consents and Approvals of Governmental Authorities. Except as set
--------------------------------------------------
forth in Schedule 4.03 hereto, no consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority is required in connection with the execution, delivery and performance
of this Agreement and the Noncompetition Agreement by Newco or Investor and the
consummation by Newco or Investor of the transactions contemplated hereby.
4.04 Brokers Commission or Finder's Fee. Neither Newco or Investor has
----------------------------------
retained any broker or finder or agreed to become obligated to pay any fee or
commission to any broker or finder for or on account of the transactions
contemplated by this Agreement.
4.05 Litigation. There is no pending, or to the knowledge of Newco or
----------
Investor, threatened, claim, suit, arbitration proceeding, governmental
(including, without limitation, foreign) proceeding or investigation or other
proceeding of any character against Newco or Investor or any judgment, decree,
injunction or order of any court or governmental authority against Newco or
Investor that could reasonably be expected to have a material adverse effect
52
<PAGE>
on the financial condition, earnings, liabilities, operations, operating
results, business or assets of Newco or Investor, or prevent, hinder or delay
consummation of the transactions contemplated by this Agreement, declare the
same unlawful, or cause the rescission thereof.
4.06 Consents of Non-Governmental Third Parties. Except as set forth in
------------------------------------------
Schedule 4.06 hereto, no consent, waiver or approval of any non-governmental
third party is necessary for the execution and delivery of this Agreement or the
consummation by Newco or Investor of the transactions contemplated hereby.
4.07 Accredited Investor. Newco and Investor represent and warrant that
-------------------
at the Closing each will be an "Accredited Investor" as such term is defined in
Rule 501 under Regulation D of the 1933 Act (as hereinafter defined).
4.08 Purchase for Investment. Investor acknowledges that it is acquiring
-----------------------
the common stock of the Company and the New Preferred Stock for its own account
and not with a view to, or present intention of, distribution thereof in
violation of the Securities Act of 1933, as amended (the "1933 Act") or any
applicable state securities laws, and the common stock of the Company and the
New Preferred Stock will not be disposed of in contravention of the 1933 Act or
applicable state securities laws. Investor also acknowledges that no public
market now exists for the common stock of the Company or the New Preferred Stock
and that it is unlikely that a public market for such stock will develop.
4.09 Shares Not Registered. Newco and Investor acknowledge that neither
---------------------
the common stock of the Company nor the New Preferred Stock has been registered
under the 1933 Act or any state securities laws and, therefore, cannot be sold,
and must be held
53
<PAGE>
indefinitely, unless subsequently registered under the 1933 Act and state
securities laws or unless an exemption from such registration is available.
4.10 Economic Risk. Newco and Investor acknowledge that their investment
-------------
in the common stock of the Company and the New Preferred Stock involves a high
degree of risk and represent that they are able to bear the economic risk of
such investment for an indefinite period of time.
4.11 Financing. Investor and Newco have sufficient funds available to
---------
them to deliver the Agreed Purchase Price as set forth in Article II at the
Closing and to consummate the transactions contemplated by this Agreement.
ARTICLE V
CERTAIN AGREEMENTS
5.01 Certain Employee Matters.
------------------------
(a) General Employees. Investor agrees that following the
-----------------
Closing it will cause the Company to provide that all employees of the Company
who are employed immediately prior to the Closing will be given full credit for
all accrued vacation and holiday pay and all accumulated sick pay of such
employees provided that nothing in this Agreement shall be deemed to constitute
an agreement to employ any such employee for any length of time.
(b) Incentive Payments. Investor acknowledges that, as an
------------------
incentive to the continued employment and productivity of the Company's
employees through to the Effective Date, the Company has agreed to pay to
substantially all of its employees (each such eligible employee, an "Incentive
Employee") an incentive payment (each an "Incentive
54
<PAGE>
Payment"). The aggregate amount of such Incentive Payments as of the date of
this Agreement is as specified in Exhibit A hereto. The Investor acknowledges
that such Incentive Payments are to be paid at or immediately following the
Effective Date, and, to the extent that, for administrative convenience, such
Incentive Payments are to be paid immediately following the Effective Date as
specified in a schedule (the "Incentive Payment Schedule) that shall be
delivered to the Investor at least five (5) business days prior to the Closing,
Investor hereby agrees to cause the Company to pay such deferred Incentive
Payments within five (5) days following the Effective Date, in all cases subject
to applicable withholding requirements.
5.02 Tax Matters.
-----------
(a) Tax Returns Required to Be Filed Prior to the Effective Date.
------------------------------------------------------------
The Company shall prepare and file or cause to be filed all Tax Returns of the
Company and the Subsidiary that are required to be filed prior to the Effective
Date (determined after giving effect to any applicable extensions of time in
which to make such filings) and shall pay or cause to be paid all Taxes shown or
reported to be due and payable by the Company and the Subsidiary on such Tax
Returns.
(b) Preparation of 1997 Tax Returns Due Following Closing and
---------------------------------------------------------
Payment of Taxes. Prior to the due date applicable thereto, the Company shall
- ----------------
file all Tax Returns required to be filed by the Company and the Subsidiary with
respect to the 1997 calendar year and having a due date (determined after giving
effect to any applicable extensions of required filing dates) following the
Effective Date (the "1997 Tax Returns"). The 1997 Tax Returns for U.S. federal
and state income and franchise Taxes (the "1997 Income Tax Returns") shall be
prepared, by Arthur Andersen under the direction of Lovaas, in
55
<PAGE>
accordance with applicable law and, to the extent not inconsistent with
applicable law, on a basis consistent with the past practices of the Company,
and shall be delivered to the Company at least 30 days prior to the due date
thereof. The Company shall (i) provide Lovaas and Arthur Andersen with such
information and such access to the Company's books and records, and at such
times, as may reasonably be requested by Lovaas or Arthur Andersen for purposes
of preparing and timely filing the 1997 Income Tax Returns, and (ii) file such
1997 Income tax Returns as prepared under the direction of Lovaas, provided,
however, if Investor shall disagree with any item reported or reflected in such
a Tax Return, such dispute shall be resolved as provided for under Section
5.02(g). All 1997 Tax Returns other than the 1997 Income Tax Returns shall be
prepared, under the direction of the Company, by the Company or such Tax Return
preparers as may be selected by the Company, provided, however, that in all
cases such Tax Returns shall be prepared in accordance with the applicable law
and, to the extent not inconsistent with applicable law, on a basis consistent
with the items and positions reflected in the 1997 Income Tax Returns. All such
1997 Tax Returns shall be prepared using the Company's normal tax accounting
methods and elections, and all reasonable costs and expenses incurred in
preparing and filing the 1997 Tax Returns shall be paid by the Company. To the
extent that the Taxes shown or reported on such 1997 Tax Returns do not exceed
the reserves therefor as set forth in the account for accrued taxes payable or
similar account included in the Final Balance Sheet Tax Liabilities and taken
into account in the Working Capital Adjustment under Section 2.12 hereof; the
Investor shall timely pay (or cause the timely payment of) such Taxes; to the
extent that such Taxes exceed such reserves, the Shareholders shall pay such
excess amount to the Company no later than three days prior to the due date
(including extensions) for the filing of the applicable 1997 Tax Returns. Any
refunds of such 1997 Taxes, whether pursuant to an amended return or any Tax
Proceeding, shall be
56
<PAGE>
paid to or for the benefit of the Shareholders. Any additional 1997 Taxes in
excess of the Taxes reflected on the 1997 Tax Returns which at any time are
assessed or imposed upon the Company, whether pursuant to an amended return or
any Tax Proceeding, shall, to the extent they exceed such reserves therefor
included in the Final Balance Sheet Tax Liabilities, be paid by the Shareholders
promptly upon demand therefor by the Investor.
(c) Preparation of 1998 Tax Returns Due Following Closing and
---------------------------------------------------------
Payment of Taxes.
- ----------------
(i) Short Period Returns. The parties acknowledge and agree
--------------------
that the Company shall be required to file a short period U.S. federal income
tax return as an S corporation for the period commencing December 27, 1997, and
ending as of the Effective Date (if an election under Code Section 338(h)(10) is
made) or as of the day immediately preceding the Effective Date (if no such
election under Code Section 338(h)(10) is made). As used herein the term "Short
Period Return" shall refer collectively to such short period S corporation
return and any other short period return (ending as of the Effective Date and
covering Taxes other than the federal Taxes covered by the S corporation short
period return) which the Company or the Subsidiary is required to file with any
Tax authority with respect to the short 1998 period ending on the Effective Date
(or the day immediately preceding the Effective Date, as applicable). The
Company shall file (or shall cause the Subsidiary to file, as applicable) each
such Short Period Return prior to the due date therefor (determined after giving
effect to any applicable extensions of required filing dates). The Short Period
Returns for U.S. federal and state income and franchise Taxes (the "1998 Short
Period Income Tax Returns") shall be prepared by Arthur Andersen under the
direction of Lovaas, in accordance
57
<PAGE>
with applicable law and, to the extent not inconsistent with applicable law, on
a basis consistent with the past practices of the Company, and shall be
delivered to the Company at least 30 days prior to the due date thereof. The
Company shall (i) provide Lovaas and Arthur Andersen with such information and
such access to the Company's books and records, and at such times, as may
reasonably be requested by Lovaas or Arthur Andersen for purposes of preparing
and timely filing the 1997 Short Period Income Tax Returns, and (ii) file such
1998 Short Period Income Tax Returns as prepared under the direction of Lovaas,
provided, however, if Investor shall disagree with any item reported or
reflected in such a Tax Return, such dispute shall be resolved as provided for
under Section 5.02(g). All Short Period Returns other than the 1998 Short Period
Income Tax Returns shall be prepared, under the direction of the Company, by the
Company or such Tax Return preparers as may be selected by the Company,
provided, however, that in all cases such Tax Returns shall be prepared in
accordance with the applicable law and, to the extent not inconsistent with
applicable law, on a basis consistent with the items and positions reflected in
the 1998 Short Period Income Tax Returns. All such Short Period Tax Returns
shall be prepared using the Company's or the Subsidiary's normal tax accounting
methods and elections based on a closing of the Company's or the Subsidiary's
books as of the applicable short period ending date, and all reasonable costs
and expenses incurred in preparing and filing the Short Period Returns shall be
paid by the Company. To the extent that the Taxes shown or reported on such
Short Period Returns do not exceed the reserves therefor as set forth in the
account for accrued taxes payable or similar account included in the Final
Balance Sheet Tax Liabilities and taken into account in the Working Capital
Adjustment under Section 2.12 hereof; the Investor shall timely pay (or cause
the timely payment of) such Taxes; to the extent that such Taxes exceed such
reserves, the Shareholders shall pay such excess amount to the Company no later
than three days prior to the
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due date (including extensions) for the filing of the applicable Short Period
Returns. Any refunds of such Short Period Taxes, whether pursuant to an amended
return or any Tax Proceeding, shall be paid to or for the benefit of the
Shareholders. Any additional Short Period Taxes in excess of the Taxes reflected
on the Short Period Returns which at any time are assessed or imposed upon the
Company, whether pursuant to an amended return or any Tax Proceeding, shall, to
the extent they exceed such reserves therefor included in the Final Balance
Sheet Tax Liabilities, be paid by the Shareholders promptly upon demand therefor
by the Investor.
(ii) Full Year Returns. The parties acknowledge and agree
-----------------
that the Company and the Subsidiary may be required, with respect to certain
Taxes for the 1998 year, to file a full year return (herein a "Full Year
Return") reporting and accounting for such Taxes on an aggregate basis covering
both the 1998 period ending on the Effective Date (the "Pre-Closing Period") and
the 1998 period following the Effective Date (the "Post-Closing Period"). Prior
to the due date (including extensions) for any such Full Year Return, the
Company shall prepare and file (or shall cause the Subsidiary to prepare and
file) such Full Year Return using the Company's normal tax accounting methods
and elections, provided, however, that in all cases such Tax Returns shall be
prepared in accordance with applicable law and, to the extent not inconsistent
with applicable law, on a basis consistent with the items and positions
reflected in the 1998 Short Period Income Tax Returns, and all reasonable costs
and expenses incurred in preparing and filing such Full Year Returns shall be
paid by the Company. The Taxes reportable on such Full Year Returns (herein "FY
Taxes") that are attributable to the Pre-Closing Period shall be determined as
follows:
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(x) in the case of Taxes that are either (1) based upon or
related to net income, or (2) imposed in connection with any sale or
other transfer or assignment of property (real or personal, tangible
or intangible), the FY Taxes attributable to the Pre-Closing Period
shall be deemed equal to the amount which would be payable if the
taxable year or period ended on the Effective Date (except that,
solely for purposes of determining the marginal Tax rate applicable to
net income during such period in a jurisdiction in which such Tax rate
depends upon the level of net income, annualized income may be taken
into account, if appropriate, in order to achieve an equitable sharing
of the FY Taxes); and
(y) in the case of Taxes not described in subparagraph (x) above
that are imposed on a periodic basis and measured by the level of any
item, the FY Taxes attributable to the Pre-Closing Period shall be
deemed to be the amount of such Taxes for the entire period (or, in
the case of such Taxes determined on an arrears basis, the amount of
such Taxes for the immediately preceding period) multiplied by a
fraction the numerator of which is the number of calendar days in the
Straddle Period ending on the Effective Date and the denominator of
which is the number of calendar days in the entire relevant period.
To the extent that FY Taxes allocable to the Pre-Closing
Period do not exceed the reserves therefor as set forth in the account for
accrued taxes payable or similar account included in the Final Balance Sheet Tax
Liabilities and taken into account in the Working Capital Adjustment under
Section 2.12 hereof; the Company shall timely pay such
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Taxes; to the extent that such Pre-Closing Period FY Taxes exceed such reserves,
the Shareholders shall pay such excess amount to the Company no later than three
days prior to the due date (including extensions) for the filing of the
applicable Full Year Return. Any refunds of such FY Taxes attributable to the
Pre-Closing Period, whether pursuant to an amended return or any Tax Proceeding,
shall be paid to or for the benefit of the Shareholders. Any additional FY Taxes
attributable to the Pre-Closing Period which at any time are assessed or imposed
upon or against the Company, whether pursuant to an amended return or any Tax
Proceeding, shall, to the extent they exceed such reserves therefor included in
the Final Balance Sheet Tax Liabilities, be paid by the Shareholders promptly
upon demand therefor by Investor.
(iii) Allocation Conventions. The preparation of Short
----------------------
Period Returns and the allocation of FY Taxes between the Pre-Closing Period and
the Post-Closing Period shall be based on a closing of the Company's and the
Subsidiary's books as of the Effective Date as provided in Section
5.02(c)(ii)(x); provided, however, that exemptions, allowances or deductions
--------- -------
that are calculated on an annual basis (including, but not limited to,
depreciation and amortization deductions) shall be allocated between the period
ending on such date and the period after such date in the proportion which the
number of days in each such period bears to the total number of days in the
applicable annual period; and provided further, if as of the Effective Date the
Company or the Subsidiary is a partner in any partnership which has a Tax year
that does not end as of the Effective Date, any Tax liability attributable to
such partnership's activities shall be allocated among the Pre-Closing Period
and the Post-Closing Period in the same manner based upon the number of days in
each such period.
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(d) Tax Returns for Post-Acquisition Taxable Periods. Investor shall
------------------------------------------------
prepare or cause to be prepared the Tax Returns for Post-Acquisition Taxable
Periods and shall pay or cause to be paid all Taxes shown on such Tax Returns to
be due and payable.
(e) Tax Proceedings.
---------------
(1) Investor shall, promptly upon receipt of notice thereof by
Investor or Company, notify Lovaas in writing of any communication with respect
to any pending or threatened Tax Proceeding in connection with a Pre-Acquisition
Taxable Period, or a Straddle Period or otherwise with respect to a Pre-
Acquisition Tax Liability or a Shareholder Tax Liability (or an issue related
thereto). Investor shall include with such notification a true, correct and
complete copy of any written communication, and an accurate and complete written
summary of any oral communication, so received by Investor or Company. A
failure by Investor to give a timely notice hereunder shall not affect any right
of indemnification that Investor may have under Article VIII hereof except to
the extent that such failure results in the Shareholders becoming liable for the
Tax Liability in question.
(2) Lovaas shall have authority to represent the Shareholders in
any and all Tax Proceedings involving or relating to Pre-Acquisition Taxable
Periods, Straddle Periods (but only to the extent involving or relating to Pre-
Acquisition Tax Liabilities and/or Shareholder Tax Liabilities) or which
otherwise involve or relate to Pre-Acquisition Tax Liabilities and/or
Shareholder Tax Liabilities (all such Tax Proceedings are collectively referred
to herein as "Shareholder Tax Proceedings"). In addition to such right of
participation, at her election, as communicated to Investor in writing within 30
days following her receipt of the applicable notice pursuant to Section
5.02(e)(1) (a "Control Election"), Lovaas shall (A) have overall control of; any
Shareholder Tax Proceeding (but only to the extent involving Pre-
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Acquisition Tax Liabilities and/or Shareholder Tax Liabilities) and (B) have
authority to employ counsel of her choice with respect to such matters;
provided, however, that Investor shall be permitted to participate in any such
-------
Shareholder Tax Proceedings and all hearings and settlement negotiations related
thereto. In any Shareholder Tax Proceeding as to which Lovaas has made a Control
Election hereunder, (i) with respect to any issue or matter in any such Tax
Proceeding which may reasonably be expected to have a material adverse effect on
the Company's liability for Post Acquisition Tax Liabilities, Lovaas shall not
settle or compromise any such issue or matter without the prior written consent
of the Investor, and (ii) the Shareholders shall be liable for any Investor Tax
Liabilities that are being contested in such Shareholder Tax Proceeding;
provided, however, the Shareholders shall not be liable for any Investor Tax
Liability with respect to which Investor refuses or otherwise fails to give its
approval of a settlement or compromise proposed by Lovaas. In the case of any
Shareholder Tax Proceeding as to which Lovaas does not make a Control Election
hereunder, the Company and Investor shall have control over and responsibility
for such Tax Proceeding, provided, however, Lovaas or her designated
representatives shall be permitted to participate in any such Tax Proceeding and
all hearings and settlement negotiations related thereto; and provided further,
with respect to any issue or matter in such Tax Proceeding which may reasonably
be expected to have a material adverse effect on the Shareholders' liability for
Pre-Acquisition Tax Liabilities and/or Shareholder Tax Liabilities (a "Material
Shareholder Tax Issue"), Company and Investor shall not settle or compromise any
such Material Shareholder Tax Issue without the prior written consent of Lovaas.
To the extent that any Shareholder Tax Proceeding described herein involves or
relates to an Investor Tax Liability, the Company shall bear the cost thereof;
and to the extent that such a Tax Proceeding involves or relates to a Pre-
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Acquisition Tax Liability and/or a Shareholder Tax Liability, the Shareholders
shall bear the cost thereof; with a fair and reasonable allocation of costs to
be made in the case of a Tax Proceeding involving or relating to Investor Tax
Liabilities, on the one hand, and Pre-Acquisition Tax Liabilities and/or
Shareholder Tax Liabilities, on the other hand.
(3) Subject to Section 5.02(e)(2), the Investor and/or the
Company, as applicable, shall execute and deliver to Lovaas or any legal counsel
or other tax representative designated by Lovaas any power of attorney
reasonably requested by Lovaas or such legal counsel or other tax representative
in connection with any Tax Proceeding described in this Section 5.02(e).
(f) Cooperation: Maintenance and Retention of Records. Investor
--------------------------------------------------
shall, and shall cause the Company to, provide Lovaas with such assistance and
documents as may be reasonably requested by Lovaas in connection with (i) the
preparation of any Tax Return, (ii) the conduct of any Tax Proceeding, (iii) any
matter relating to Pre-Acquisition Tax Liabilities and (iv) any other matter
that is a subject of this Section 5.02. Investor and the Company shall retain
or cause to be retained all Tax Returns that are the subject of this Section
5.02 and all schedules, workpapers and material records or other documents
relating thereto, until the expiration of the statute of limitations (including
any waivers or extensions thereof) applicable with respect to the taxable years
to which such Tax Returns and other documents relate or until the expiration of
any additional period that Lovaas reasonably requests, in writing, with respect
to specific material records or documents. If Investor or the Company intends
to destroy any material records or documents, it shall provide Lovaas with
reasonable advance notice and the opportunity to copy or take possession of such
records and documents. The parties hereto will notify each other party in
writing of any waivers or extensions of the
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applicable statute of limitations that may affect the period for which the
foregoing records or other documents must be retained.
(g) Disputes. If the parties disagree as to any matter arising
--------
out of this Section 5.02, the parties shall attempt in good faith to resolve
such dispute. If such dispute is not resolved within 15 days, the parties shall
jointly retain the Independent Accounting Firm to resolve the dispute. The fees
of the Independent Accounting Firm shall be borne equally by the parties having
the dispute, and the decision of such Independent Accounting Firm shall be final
and binding on all parties involved. Following the decision of the Independent
Accounting Firm, the parties shall each take or cause to be taken any action
that is necessary or appropriate to implement such decision of the Independent
Accounting Firm, including, without limitation, the prompt payment of Taxes as
directed by the Independent Accounting Firm.
(h) Nonforeign Affidavit. Shareholder shall furnish Investor an
--------------------
affidavit stating, under penalty of perjury, that the number specified therein
is the Shareholders' United States taxpayer identification number and that the
Shareholder is not a foreign person within the meaning of Section 1445(b)(2) of
the Code.
(i) Election Under Section 338(h)(10). Unless prohibited
---------------------------------
under applicable federal Tax law or Regulations, Investor and the Shareholders
hereby agree to join in making an election under Section 338(g) and Section
338(h)(10) of the Code (and/or any comparable election under applicable state
tax law) with respect to the acquisition of the Company by Investor. The
Shareholders and Investor shall cooperate in the making of such election,
including but not limited to executing and delivering such written consents and
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providing such documents and information as may be required for purposes of
making an effective election under Code Section 338(h)(10), including the
completion and execution of Internal Revenue Service Form 8023-A. All costs and
expenses related to making such election, including the preparation and filing
of applicable election forms, shall be paid by the Company, and the Company
shall pay any state income or franchise tax liability imposed on the Company as
a result of such election.
(j) Survival. Notwithstanding any other provision of this
--------
Agreement, the covenants set forth in this Section shall survive until the
expiration of the respective statutes of limitations applicable to the periods
to which the Taxes relate.
5.03 Conduct of Business. Prior to the Effective Date and other than as
-------------------
set forth in Exhibit A, the Shareholders will cause the Company to conduct its
business only in the ordinary course of business and consistent with past
practices. Without limiting the generality of the foregoing, except as
contemplated by this Agreement, or as set forth in Exhibit A or as consented to
or approved in writing and in advance by an authorized officer of Investor, the
Shareholders covenant as follows with respect to the period between the date
hereof and the Effective Date:
(a) The Company will carry on its business in a manner
consistent with prior practice and only in the usual and ordinary course, and
the Company and the Shareholders will use commercially reasonable efforts to
preserve intact the present business organization, goodwill and reputation of
the Company, to keep available the services of its officers and employees and to
preserve the relationships with customers, suppliers, distributors and other
persons having business dealings with the Company;
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(b) The Company will maintain its books, accounts and records
consistent with past practices and policies and in accordance with GAAP. The
Company will not materially change any of the Company's (A) accounting
principles or practices or make any material revaluation of any of the Company's
assets, including without limitation, any material write-offs, increases in any
reserves (including any reserve for taxes payable) or any write-off of the value
of inventory, property, plant, equipment or any other asset or materially
increase or change any assumptions underlying, or methods of calculating, any
bad debt, contingency or other reserves, (B) rebate or discount programs, (C)
collection practices, (D) promotion and/or advertising programs, (E) inventory
policies or practices, or (F) capital expenditure policies or programs;
(c) The Company will not make or adopt any change in its
Articles of Incorporation or Bylaws as in force and effect on the date hereof;
(d) The Company will not issue, redeem or purchase any shares of
capital stock of the Company or issue any options or other rights to purchase
any shares of capital stock of the Company, any securities convertible or
exchangeable for capital stock of the Company, or commit to do any of the
foregoing;
(e) Except as disclosed on Schedule 3.08, the Company will not
enter into or amend any employment contract or agreement with any former,
existing or prospective employee;
(f) The Company will not cancel, without full payment, any note,
loan or other obligation owing to the Company;
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(g) The Company will not increase the compensation payable to or
the benefits afforded any of its employees or former employees, nor shall it
adopt or amend any employee benefit plan or compensation or commission
arrangement, except that compensation of personnel (other than those employees
set forth on Schedule 3.15, except as set forth on Schedule 5.03(g)) may be
increased in the ordinary course consistent with past practice;
(h) The Company will not sell or otherwise dispose of, or enter
into any agreement for the sale, lease or disposition of, or mortgage or
encumber or permit to exist any liens, claims or security interests on, any of
its assets or properties, except for sales of inventory and obsolete equipment
in the ordinary course of business consistent with past practices;
(i) The Company will maintain its existing insurance policies
covering it, unless comparable insurance is substituted therefor, and shall not
take any action to terminate or modify those insurance policies;
(j) The Company will observe and perform, and remain in material
compliance with, its respective obligations in agreements and contracts and not
enter into any agreements or contracts or incur any liabilities, commitments or
obligations which would require payments by the Company of more than $100,000
over any period of twelve months;
(k) The Company will cooperate with Investor and use
commercially reasonable efforts to take, or cause to be taken, all action
reasonably requested by Investor in connection with the financing of the
transactions contemplated by this Agreement, and to treat the transactions
contemplated by this Agreement as a recapitalization for financial reporting
68
<PAGE>
purposes, including, without limitation, to assist Investor with any
presentation to Investor's and Company's accountants, financing sources and any
regulatory authority;
(1) The Company will use commercially reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary to satisfy the conditions set forth herein as soon as
practicable;
(m) The Company will not make any investment in any person or
entity whether by loan or advance, purchase of stock or other securities or
contribution to capital;
(n) The Company will use commercially reasonable efforts to not
take any action that causes any of the representations and warranties made
herein to be inaccurate as of the Effective Date;
(o) The Company will not enter into or commit to enter into any
transaction between the Company, on one hand, and any Related Party, on the
other hand;
(p) The Company will not guaranty the obligations of any third
party (other than the Subsidiary);
(q) The Company will not declare, set aside, pay or make any
dividend, distribution or redemption in respect of shares of the Company's
capital stock;
(r) The Company will not incur any Indebtedness other than (i)
pursuant to its presently existing revolving credit facility or (ii) as
described on Exhibit A;
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<PAGE>
provided, however that any Indebtedness incurred pursuant to subsection (ii)
above will not contain any prepayment restrictions or penalties; and
(s) The Company will not enter into any agreement, plan or
commitment to do any of the foregoing.
5.04 Access to Properties. Between the date hereof and the Effective
--------------------
Date, with reasonable prior notice, the Shareholders will give and will cause
the Company to give to authorized representatives of Investor full access with
the right to conduct inspections, during normal business hours, in such manner
as not to unduly disrupt normal business activities, to any and all premises,
properties, contracts, commitments, books, records and affairs of the Company,
and will cause the officers of the Company to furnish any and all financial,
technical and operating data and other information as Investor shall from time
to time reasonably request.
5.05 Confidentiality and Nonsolicitation. Pending the Closing, Investor
-----------------------------------
will hold in confidence all information obtained from the Shareholders or the
Company (or their officers, directors, employees, agents, advisors or
representatives) in connection with the transactions completed herein and will
use such information only for purposes related to the transactions contemplated
hereby. Investor further agrees that, pending the Closing, it will not disclose
any such information to any third party except upon the prior written consent of
the Shareholders, or except as required by law or except to its advisors and
financing sources who have been informed of the confidentiality of such
information. If the transactions contemplated hereby are not consummated,
Investor will return all such information to the Shareholders and continue to
honor the foregoing confidentiality and non-disclosure covenants for a period of
five years. Such obligation of confidentiality shall not extend to any
information (a) which is
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shown to be or becomes generally known to others engaged in the same trade or
business as the Company (b) previously known to Investor prior to the start of
discussions leading to the execution of this Agreement, (c) obtained by Investor
in good faith from third parties who are not obligated to maintain the
information confidential or (d) that is or becomes public knowledge through no
act or omission by Investor or any of its directors, officers, employees,
professional advisors or other representatives. Furthermore, if the transactions
contemplated hereby are not consummated, Investor agrees that for a period of
three years it will not, nor will it permit its officers, directors, employees,
agents or representatives to, directly or indirectly solicit or attempt to
solicit any of the employees of the Company at the level of manager or above to
leave the Company or to become employees of or consultants to any other person
or entity.
5.06 Exclusive Nature of Agreement. Prior to the Closing, or such earlier
-----------------------------
date on which this Agreement is terminated in accordance with its terms, the
Shareholders, the Company and their officers, employees, agents, representatives
and trustees will not, directly or indirectly, solicit from any person, or
otherwise encourage any person to make, any inquiries or proposals, or furnish
information, relating to the acquisition, in whole or in part, of the assets or
securities of the Company (an "Acquisition Proposal") or engage in any
negotiations or enter into any agreement or understanding with any person (other
than Investor) regarding an Acquisition Proposal. The Shareholders will not
furnish any information concerning the Company to any person other than Investor
for the purpose of, or with the intent of, permitting such person or entity to
evaluate a possible Acquisition Proposal. The Shareholders and/or the Company
will notify the Investor immediately of any Acquisition Proposal and will
disclose
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the terms of the Acquisition Proposal and identity of the party making the
Acquisition Proposal.
5.07 Consummation of Agreement: Cooperation. The parties shall use
---------------------------------------
commercially reasonable efforts to perform and fulfill all obligations on their
respective parts to be performed and fulfilled under this Agreement, and to
cause all the conditions precedent to the consummation of the transactions to be
timely satisfied, to the end that the transactions contemplated by this
Agreement shall be effected substantially in accordance with its terms. The
parties hereto shall cooperate with each other in such actions and in securing
requisite approvals and each party shall deliver such further documents as the
other party may reasonably request as necessary to evidence such transactions.
The execution of this Agreement by the Shareholders shall constitute a unanimous
written consent of the Shareholders approving the principal terms hereof in
accordance with Sections 603 and 1101 of the Corporations Code.
5.08 Maintenance of Corporate Name and Headquarters. Investor hereby
----------------------------------------------
covenants and agrees that for a period expiring on the fifth anniversary of the
Effective Date:
(a) The Company will retain the name "Hudson Respiratory Care
Inc." and will continue to do business under the names "Hudson RCI" and/or
"Hudson Respiratory Care Inc.";
(b) The products and equipment manufactured or distributed by the
Company shall continue to carry the "Hudson RCI" or "Hudson Respiratory Care
Inc." name; and
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(c) The Company's principal executive office and manufacturing
facility shall be located in Temecula, California.
5.09 Maquiladora. No later than immediately prior to the Effective Date,
-----------
Lovaas shall transfer the 21% interest in the Subsidiary that she holds directly
to the Company in consideration of one dollar.
5.10 Conveyance Taxes. The Shareholders agree to assume liability for and
----------------
to hold Investor and the Company harmless against any stock transfer or other
similar taxes incurred as a result of the transactions contemplated hereby.
5.11 Termination of Equity Plan. Prior to the Effective Date, the
--------------------------
Shareholders shall cause the Company to take all actions necessary in order to
terminate its EPP Plan as of and upon payment of all EPP Liabilities on the
Effective Date. The names of and the amounts due to each EPP Participant as a
result of the transactions contemplated by this Agreement are as set forth on
the EPP Schedule. Each EPP Participant shall, upon receipt of the amount due
such EPP Participant as provided in the EPP Schedule, execute a release
acknowledging that the Company has no further obligation to such EPP Participant
under the EPP Plan. In addition, Richard K. Ruiz shall, upon receipt of payment
of the Ruiz Consulting Fee and the amount due him as provided in the EPP
Schedule, execute a release acknowledging that the Company has no further
obligation to him under the Ruiz Consulting Agreement, the EPP Plan or the
Employee & Plan Participation Agreement between the Company and Richard K. Ruiz,
dated July 1, 1995.
5.12 Consents, Etc.
-------------
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(a) As soon as practicable after execution and delivery of this
Agreement, Investor and the Company shall, if necessary and with all costs to be
borne by Investor, file the Notification and Report Form required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and, prior
to the Effective Date, shall make all other filings required under the HSR Act.
Each Shareholder, Investor and the Company covenants to use commercially
reasonable efforts to (i) obtain all consents, approvals and agreements of, and
to give all notices and make all other filings with, any third parties,
including governmental authorities, necessary to authorize, approve or permit
the consummation of the transactions contemplated hereby, and (ii) to cooperate
with one another with respect thereto, including providing any additional
information or other documents requested in connection with obtaining any
necessary approval under the HSR Act. In addition, subject to the terms and
conditions herein provided, each of the parties hereto covenants and agrees to
use his or its commercially reasonable efforts to take, or cause to be taken,
all action or do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to satisfy the conditions applicable to
such party set forth in Article VI or VII.
(b) The Company and the Shareholders will use commercially
reasonable efforts to obtain all waivers, estoppels, non-disturbance agreements,
consents and approvals (including, without limitation, consents required under
any leases and Material Contracts) required for the consummation of the
transactions contemplated hereby. In connection therewith, and in connection
with its negotiations for consents, the Company may not offer or consent to any
modification or amendment of any lease, or other contract, without Investor's
prior written consent. The Company agrees to transmit the consents to the
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appropriate parties for approval promptly after the execution hereof, which
consents shall be subject to the reasonable approval of Investor. The Company
shall keep Investor advised of its progress in obtaining such consents.
(c) In the event Investor desires to make any modifications or
amendments to any of the leases for the Leased Real Property, then at the
request of Investor the Company shall cooperate with Investor and participate in
any negotiations to effectuate the foregoing; provided, however, that achieving
any such modifications or amendments shall not be a condition to Investor's or
Newco's obligations to consummate the transactions contemplated hereby.
(d) Within five (5) business days after the execution hereof, the
Company shall obtain and deliver to Investor (i) copies of any existing title
insurance policies in the possession of the Company or its affiliates with
respect to each of the Fee Real Properties, and (ii) copies of any surveys of
any Fee Real Properties in the possession of the Company or its affiliates. As
promptly as possible after the execution of this Agreement, but in no event
later than twenty-five (25) business days after the execution hereof, the
Company shall obtain for and deliver to Investor (i) a commitment for title
insurance for each of the Fee Real Properties, ALTA 1970 Form "B" (or the
equivalent which is reasonably satisfactory to Investor), issued by Chicago
Title (the "Title Company"), including all schedules and exhibits thereto,
together with true, correct and legible copies of all instruments giving rise to
any exceptions to title to each of the Fee Real Properties (collectively, the
"Title Commitment"), and (ii) a current ALTA survey (the "Survey") of each Fee
Real Property, certified to the Company, Investor's lender or financer, and the
Title Company, in form reasonably acceptable
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to Investor. The cost of each Title Commitment and Survey shall be borne solely
by the Company. Within ten (10) business days after Investor's receipt of the
last of the Title Commitment and Survey, Investor shall give notice to the
Company specifying all matters shown on the Title Commitment or disclosed by the
Survey which (x) are in an amount in excess of $10,000, if monetary, (other than
assessments in connection with property tax bills not yet due and payable) or
(y) materially and adversely affect the use of the property as it is currently
being used, and are reasonably disapproved by Investor (any such item is
referred to herein as a "Disapproved Exception"). The Company shall cure or
remove any Disapproved Exception on or before the Effective Date. With respect
to Fee Real Property, no later than the Effective Date, the Company shall cause
to be delivered to Investor the irrevocable commitment of the Title Company to
issue an extended coverage policy of title insurance (the "Title Policies"),
ALTA 1970 Form "B" (or the equivalent which is reasonably satisfactory to
Investor), insuring that the Company owns fee title to each Fee Real Property.
The cost of such Title Policies shall be borne solely by the Company.
(e) No later than five (5) business days prior to the Closing,
Investor shall deliver to the Shareholders the Investor Transaction Expense
Schedule and the New Debt Schedule.
5.13 Accounting Treatment. The Company shall use commercially reasonable
--------------------
efforts, and take all reasonably necessary steps requested by Investor (and at
Investor's expense), in order to obtain the recording of the Merger as a
recapitalization for financial reporting purposes, including, without
limitation, to assist Investor and its affiliates with any presentation to
Investor's and the Company's accountants or any applicable regulatory authority
with regard to such recording. Furthermore, the Company agrees to deliver to
Investor before
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March 1, 1998, Financial Statements prepared in accordance with Regulation S-X
promulgated under the Securities Act of 1933, as amended, and such Financial
Statements will not differ in any material respect from the Financial Statements
delivered in accordance with Section 3.05 hereof.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF INVESTOR
The obligation of Investor to consummate the transactions contemplated
hereby shall be subject to the satisfaction, on or prior to the Effective Date,
of each of the following conditions any one or more of which may be waived by
Investor:
6.01 Performance of Agreements. The Shareholders and the Company shall
-------------------------
have performed in all material respects their respective obligations and
agreements contained in this Agreement required to be performed prior to the
Closing, and the Shareholders and the Company shall have delivered to Investor a
certificate to such effect.
6.02 Representations and Warranties True. The representations and
-----------------------------------
warranties of the Shareholders contained in this Agreement shall each be true
and correct in all material respects on the date hereof and on the Effective
Date as if made again on such Date, and at the Closing the Shareholders shall
have delivered to Investor certificates to such effect.
6.03 No Pending or Threatened Claim. No condition or restriction of any
------------------------------
governmental or regulatory authority shall be in effect and no claim, action,
suit, investigation or other proceeding shall be pending or threatened before
any court or governmental or regulatory authority that presents a substantial
risk of the restraint or prohibition of the
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transactions contemplated by this Agreement or the obtaining of material damages
or other relief in connection therewith.
6.04 Opinion of the Company's Counsel. Investor shall have been furnished
--------------------------------
at the Closing with an opinion of the Company's counsel, dated the Effective
Date, in form and substance reasonably satisfactory to Investor, to the effect
that:
(a) The Company is a corporation and is duly organized, validly
existing and in good standing under the laws of the State of California.
(b) All corporate actions by the board of directors and the
Shareholders of the Company required to be taken by or on the part of the
Company to authorize the execution, delivery and performance of this Agreement
by the Shareholders and the Company have been duly and properly taken.
(c) This Agreement has been duly authorized, executed and
delivered by the Shareholders and the Company, and constitutes valid and binding
obligations of each of the Shareholders and the Company, enforceable against
each of them, in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally and general principles of equity.
(d) Except as set forth in Schedule 3.04 hereto, the execution
and delivery of this Agreement by the Shareholders and by the Company and the
consummation of the transactions contemplated hereby by the Shareholders and by
the Company do not (i) violate any constitutional or statutory provision or
requirement, or to such counsel's knowledge, violate any material judicial or
administrative order, consent decree, judgment or
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decree applicable to the Shareholders or the Company; (ii) conflict with any
terms, conditions or provisions of the Articles of Incorporation or Bylaws of
the Company or the organizational documents of the Trust; (iii) result in a
material breach of or default under the Material Contracts or (iv) to such
counsel's knowledge, result in the creation of any lien, charge or encumbrance
upon any of the assets or property of the Company under any such Material
Contract, other than such liens, charges or encumbrances which would not have a
Material Adverse Effect.
6.05 No Material Adverse Change. After the date hereof, there shall not
--------------------------
have occurred any event, circumstance or occurrence which could reasonably be
expected to cause a Material Adverse Effect. Investor shall have received a
certificate addressed to it from the Shareholders dated the Effective Date to
the foregoing effect.
6.06 Employee Participation. The employees of the Company shall have
----------------------
invested at least $6.5 million in Investor, of which at least $3 million will
have been contributed by Richard W. Johansen, $1 million will have been
contributed by Lougene Williams and $1 million will have been contributed by Jay
R. Ogram.
6.07 Hart-Scott-Rodino. All applicable requirements under the Hart-Scott-
-----------------
Rodino Antitrust Improvements Act of 1976 and the rules promulgated thereunder
shall have been met, including all applicable waiting periods, and neither the
Department of Justice nor the Federal Trade Commission shall have raised
objections to the transactions contemplated hereby.
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6.08 Agreement Not to Compete. Helen Hudson Lovaas shall have entered
------------------------
into an agreement not to compete substantially in the form attached hereto as
Exhibit E with the Company and Investor.
6.09 Consents. All material consents, approvals and waivers from third
--------
parties and governmental authorities necessary to the transactions as
contemplated hereby shall have been obtained.
6.10 EPP Plan Terminated. The EPP Plan shall have been terminated and the
-------------------
Company shall have no obligation under the EPP Plan to make any payment to
employees or former employees other than with respect to the scheduled EPP
Liabilities.
6.11 Shareholder Agreement. Lovaas shall have entered into a shareholder
---------------------
agreement on substantially the terms set forth in Exhibit F hereto with
Investor.
6.12 Accounting Matters. Investor shall have received Statement of
------------------
Auditing Standards No. 50 letters from Arthur Andersen, LLP and/or Deloitte &
Touche, LLP concurring with the recapitalization treatment of the transactions
contemplated by this Agreement.
6.13 Transactions with Affiliates. The transactions or agreements set
----------------------------
forth on Schedule 6.13 shall have been terminated by the Company or appropriate
notice of termination shall have been given in the manner described in Schedule
6.13.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLER
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The obligations of the Shareholders and the Company to consummate the
transactions contemplated hereby shall be subject to the satisfaction, on or
prior to the Effective Date, of each of the following conditions, any one or
more of which may be waived by Lovaas:
7.01 Performance of Agreements. The Investor shall have performed in all
-------------------------
material respects its obligations and agreements contained in this Agreement
required to be performed prior to the Closing, and Investor shall have delivered
to Lovaas a certificate to such effect.
7.02 Representations and Warranties True. The representations and
-----------------------------------
warranties of Investor contained in this Agreement shall be true and correct in
all material respects on the date hereof and on the Effective Date, as if made
again on such date, and at the Closing Investor shall have delivered to Lovaas a
certificate to such effect.
7.03 Opinion of Investor's Counsel. The Shareholders shall have been
-----------------------------
furnished with an opinion of counsel to Investor, dated the Effective Date, to
the effect that:
(a) Investor is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated.
(b) All corporate actions required to be taken by or on the part
of Investor to authorize the execution, delivery and performance of this
Agreement by Investor have been duly and properly taken.
(c) This Agreement has been duly authorized, executed and
delivered by Investor, and constitutes valid and binding obligations of
Investor, enforceable against it, in accordance with its terms, except as such
enforceability may be limited by
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bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally and general principles of equity.
(d) The execution and delivery of this Agreement by Investor and
the consummation of the transactions contemplated hereby by Investor do not (i)
violate any constitutional or statutory provision or requirement, or to such
counsel's knowledge, violate any material judicial or administrative order,
award, consent decree, judgment or decree applicable to Investor; (ii) conflict
with any terms, conditions or provisions of the Certificate of Incorporation or
Bylaws of Investor; or (iii) to such counsel's knowledge, result in the creation
of any lien, charge or encumbrance upon any of the assets or property of
Investor under any such agreement or instrument, other than such liens, charges
or encumbrances which, separately or in the aggregate, would not have a material
adverse effect on Investor.
7.04 No Pending or Threatened Claim. No condition or restriction of any
------------------------------
governmental or regulatory authority shall be in effect and no claim, action,
suit, investigation or other proceeding shall be pending or threatened before
any court or governmental or regulatory authority that presents a substantial
risk of the restraint or prohibition of the transactions contemplated by this
Agreement or the obtaining of material damages or other relief in connection
therewith.
7.05 Shareholder Agreement. Lovaas shall have entered into a shareholder
---------------------
agreement on substantially the terms set forth on Exhibit F hereto with
Investor.
7.06 Hart-Scott-Rodino. All applicable requirements under the Hart-Scott-
-----------------
Rodino Antitrust Improvements Act of 1976 and the rules promulgated thereunder
shall have been met, including all applicable waiting periods, and neither the
Department of Justice nor the Federal Trade Commission shall have raised
objection to the transactions contemplated hereby.
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ARTICLE VIII
INDEMNIFICATION
8.01 Indemnification by the Shareholders. The Shareholders shall jointly
-----------------------------------
and severally indemnify and hold harmless the Surviving Corporation and its
respective officers, directors, and employees in respect of any and all claims,
actions, suits or other proceedings and any and all losses, costs, expenses,
liabilities, fines, penalties, interest, and damages, whether or not arising out
of any claim, action, suit or other proceeding (and including reasonable counsel
and accountants' fees and expenses and all other reasonable costs and expenses
of investigation, defense or settlement of claims and amounts paid in
settlement) ("Damages") incurred by, imposed on or borne by the Surviving
Corporation or resulting from:
(a) The breach of any of the representations or warranties made
by the Shareholders in this Agreement; or
(b) The breach or the failure of performance by the Shareholders
of any of the covenants that they are to perform hereunder.
Damages shall exclude any amount with respect to which the Surviving
Corporation shall be entitled to receive and shall have received payment under
any insurance policy which provides coverage for the liability to which such
amount relates.
8.02 Indemnification by Investor. Investor shall indemnify and hold
---------------------------
harmless the Shareholders, in respect of any and all Damages incurred by,
imposed on or borne by the Shareholders resulting from:
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<PAGE>
(a) The breach of any of the representations or warranties made
by Investor in this Agreement; or
(b) The breach or the failure of performance by Investor of any
of the covenants that it is to perform hereunder.
8.03 Claims for Indemnification. Whenever any claim shall arise for
--------------------------
indemnification hereunder, the party entitled to indemnification (the
"indemnified party") shall promptly notify the other party or parties (the
"indemnifying party") of the claim and, when known, the facts constituting the
basis for such claim; provided that the indemnified party's failure to give such
notice shall not affect any rights or remedies of an indemnified party hereunder
with respect to indemnification for Damages except to the extent that the
indemnifying party is materially prejudiced thereby. In the event of any claim
for indemnification hereunder resulting from or in connection with any claim or
legal proceedings by a third party, the notice to the indemnifying party shall
specify, if known, the amount or an estimate of the amount of the liability
arising therefrom. The indemnified party shall not settle or compromise any
claim by a third party for which it is entitled to indemnification hereunder,
without the prior written consent of the indemnifying party (which shall not be
unreasonably withheld) unless suit shall have been instituted against it and the
indemnifying party shall not have taken control of such suit after notification
thereof as provided in Section 8.04 of this Agreement.
8.04 Defense by Indemnifying Party. In connection with any claim giving
-----------------------------
rise to indemnity hereunder or resulting from or arising out of any claim or
legal proceeding by a person who is not a party to this Agreement, the
indemnifying party at its sole cost and expense may, upon written notice to the
indemnified party, assume the defense of any such claim or legal proceeding if
it acknowledges to the indemnified party in writing its obligations to
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indemnify the indemnified party with respect to all elements of such claim, and
thereafter diligently conducts the defense thereof with counsel reasonably
acceptable to the indemnifies party. The indemnified party shall be entitled to
participate in (but not control) the defense of any such action, with its
counsel and at its own expense. If the indemnifying party does not assume or
fails to conduct in a diligent manner the defense of any such claim or
litigation resulting therefrom, (i) the indemnified party may defend against
such claim or litigation, in such manner as it may deem appropriate, including,
but not limited to, settling such claim or litigation, after giving notice of
the same to the indemnifying party, on such terms as the indemnified party may
deem appropriate all at the expense of the indemnifying party, who shall
promptly reimburse all expenses incurred by the indemnified party, and (ii) the
indemnifying party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
indemnifying party thereafter seeks to question the manner in which the
indemnified party defended such third party claim or the amount or nature of any
such settlement, the indemnifying party shall have the burden to prove by a
preponderance of the evidence that the indemnified party did not defend or
settle such third party claim in a reasonably prudent manner. Each party agrees
to cooperate fully with the other, such cooperation to include, without
limitation, attendance at depositions and the provision of relevant documents as
may be reasonably requested by the indemnifying party, provided that the
indemnifying party will hold the indemnified party harmless from all of its
expenses, including reasonable attorney's fees, incurred in connection with such
cooperation by the indemnified party. The indemnifying party shall have the
right to elect to settle any such claim or demand, for monetary damages only,
subject to the consent of the indemnified party; provided, however, if the
-----------------
indemnified party fails to give such consent within 20 days of being
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<PAGE>
requested to do so, the indemnified party shall, at its expense, assume the
defense of such claim or demand and regardless of the outcome of such matter,
the indemnifying party's liability hereunder shall be limited to the amount of
any such proposed settlement. In the event the indemnifying party assumes the
defense of a claim or demand, the indemnified party shall have the right to
assume control of the defense of any claim or demand from the indemnifying party
at any time and to elect to settle such claim or demand; provided, however, the
-------- -------
indemnifying party shall have no indemnification obligations with respect to
such claim, demand or settlement except for the costs and expenses of such
indemnifying party incurred prior to the assumption of the defense of the claim
or demand by the indemnified party. Notwithstanding the foregoing, in the event
that the indemnified party reasonably determines in good faith that its interest
with respect to such claim cannot appropriately be represented by the
indemnifying party due to a conflict of interest, such indemnified party shall
have the right to assume control of the defense of, and to compromise or settle,
such claim (exercising reasonable business judgment) at the indemnifying party's
expense; provided; however, that any compromise or settlement shall be subject
to the indemnifying party's consent, which consent shall not be unreasonably
withheld.
8.05 Manner of Indemnification. All indemnification hereunder shall be
-------------------------
effected by payment of cash or delivery of a certified or official bank check to
the indemnified party.
8.06 Limitations on Indemnification. All representations and warranties
------------------------------
made by the parties herein or in any instrument or document furnished in
connection herewith shall survive the Closing and any investigation at any time
made by or on behalf of the parties hereto and (a) the representations and
warranties set forth in Section 3.02 will survive in perpetuity, (b) the
representations and warranties set forth in Sections 3.07 and 3.22 will survive
until the
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expiration of the respective statute of limitations with respect to such matters
and (c) all other representations and warranties set forth herein or in any
instrument or document furnished in connection herewith will expire on the 15
month anniversary of the Effective Date, unless prior to such time a claim
specifying a breach of any such representation or warranty is submitted in
writing to the indemnifying party and identified as a claim for indemnification
pursuant to this Agreement. No claim or action for indemnity pursuant to
Sections 8.01 or 8.02 hereof or otherwise for breach of any representation or
warranty shall be asserted or maintained by any party hereto after the
expiration of such representation or warranty pursuant to the provisions of this
Section except for claims made in writing prior to such expiration and actions
(whether instituted before or after such expiration) based on any claim made in
writing prior to such expiration. All covenants will survive until satisfied in
accordance with their terms. Notwithstanding any provision of this Agreement to
the contrary, (i) the Shareholders shall have no obligation to indemnify any
person entitled to indemnity under Section 8.01 for breach of representations
and warranties (except the representations and warranties set forth in Section
3.07) unless the persons so entitled to indemnity thereunder have suffered
Damages in an aggregate amount in excess of $1 million and then only to the
extent of such excess; (ii) the Shareholders shall have no obligation to
indemnify any person entitled to indemnity under Section 8.01 for breach of the
representations and warranties set forth in Section 3.07 hereof unless the
persons so entitled to indemnity thereunder have suffered Damages in an
aggregate amount in excess of $150,000 and then only to the extent of such
excess; and (iii) except with respect to the representations and warranties set
forth in Section 3.07 hereof, the Shareholders' aggregate liability under
Section 8.01 for breach of representations and warranties shall in no event
exceed $15 million.
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<PAGE>
8.07 Exclusivity of Indemnification. The parties hereto agree that the
------------------------------
indemnification provisions of this Article VIII are intended to provide the
exclusive remedy as to all Damages they may incur arising from or relating to
the transactions contemplated hereby, and each party hereby waives, to the
extent it may do so, any other rights or remedies that may arise under any
applicable statute, rule or regulation; provided, however, that the foregoing
-----------------
shall not be interpreted to limit the types of remedies, including specific
performance or other equitable remedies, which may be sought by an indemnified
person in connection with a breach of any covenant or agreement contained herein
and shall not limit any available remedy for a willful misrepresentation or
breach by another party.
ARTICLE IX
TERMINATION
9.01 Termination. This Agreement may be terminated prior to the Closing
-----------
(a) by the mutual written consent of the parties hereto; (b) by either Investor
or Lovaas, at any time after May 31, 1998 if for any reason the Merger shall not
have been consummated by such date; (c) by Investor if there has been a material
misrepresentation or material breach on the part of the Shareholders in the
representations, warranties and covenants of the Shareholders set forth herein
which, if curable, has not been cured within 10 business days after notice
thereof by Investor; (d) by Lovaas, if there has been a material
misrepresentation or material breach on the part of Investor in the
representations, warranties and covenants of Investor set forth herein which, if
curable, has not been cured within 10 business days after notice thereof by
Lovaas; (e) by Investor upon delivery to Lovaas, of a written notice if any
event occurs which renders impossible of satisfaction one or more of the
conditions to Investor's obligations contained in Article VI hereof and
noncompliance is not waived by Investor; and (f) by Lovaas, upon
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<PAGE>
delivery to Investor of a written notice if any event occurs which renders
impossible of satisfaction one or more conditions to the Shareholders'
obligations contained in Article VII hereof and noncompliance is not waived by
Lovaas. The termination of this Agreement except pursuant to subsection (a)
shall not affect the right of any party to bring an action against another party
for breach of this Agreement.
ARTICLE X
GENERAL PROVISIONS
10.01 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
facsimile) and, unless otherwise expressly provided herein, shall be delivered
during normal business hours by hand, by Federal Express, United Parcel Service
or other reputable overnight commercial delivery service, or by facsimile
notice, confirmation of receipt received, addressed as follows, or to such other
address as may be hereafter notified by the respective parties hereto:
(a) If to Lovaas or the Company, to:
Hudson Respiratory Care Inc.
27711 Diaz Road, P.O. Box 9020
Temecula, California
Attn: Richard W. Johansen
Facsimile Number: (909) 676-1578
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<PAGE>
With a copy to:
Gibson, Dunn & Crutcher LLP
4 Park Plaza
Irvine, California 92614
Attn: Gerard J. Kenny, Esq.
Facsimile Number: (714) 451-4220
and:
Salomon Smith Barney
333 S. Hope Street, Suite 3200
Los Angeles, California 90071
Attn: Mark Davis
Facsimile Number: (213) 253-1808
(b) If to Investor, to:
River Holding Corp.
c/o Freeman Spogli & Co.
11100 Santa Monica Boulevard, Suite 1900
Los Angeles, California 90025
Attn: Charles R. Rullman, Jr.
Facsimile Number: (310) 444-1870
90
<PAGE>
With a copy to:
Riordan & McKinzie
300 South Grand Avenue, 29th Floor
Los Angeles, California 90071
Attn: Richard J. Welch, Esq.
Facsimile Number: (213) 229-8550
10.02 Entire Agreement. This Agreement constitutes the entire
----------------
understanding between the parties with respect to the subject matter hereof;
superseding all negotiations, prior discussions and preliminary agreements.
10.03 Governing Law. This Agreement and the rights and obligations of the
-------------
parties under this Agreement shall be governed by and construed in accordance
with the laws of the State of California, excluding its rules of conflicts of
law.
10.04 Consent to Jurisdiction and Forum Selection. The parties agree that
-------------------------------------------
all actions or proceedings arising in connection with this Agreement shall be
tried and litigated exclusively in the State and Federal courts located in the
County of Orange, State of California. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that specified in
this paragraph. Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar doctrine or to object to venue with
respect to any proceeding brought in accordance with
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this paragraph, and stipulates that the State and Federal courts located in the
County of Orange, State of California shall have in personam jurisdiction and
venue over each of them for the purpose of litigating any dispute, controversy
or proceeding arising out of or related to this Agreement. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this paragraph by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in this Agreement, or in the manner set forth
in Section 10.01 of this Agreement for the giving of notice. Any final judgment
rendered against a party in any action or proceeding shall be conclusive as to
the subject of such final judgment and may be enforced in other jurisdictions in
any manner provided by law.
10.05 Attorneys' Fees. If either party to this Agreement shall bring any
---------------
action, suit, counterclaim or appeal for any relief against the other,
declaratory or otherwise, to enforce the terms hereof or to declare rights
hereunder (collectively, an "Action"), the prevailing party shall be entitled to
recover as part of any such Action its reasonable attorneys' fees and costs,
including any fees and costs incurred in bringing and prosecuting such Action
and/or enforcing any order, judgment, ruling or award granted as part of such
Action. "Prevailing party" within the meaning of this section includes, without
limitation, a party who agrees to dismiss an Action upon the other party's
payment of all or a portion of the sums allegedly due or performance of the
covenants allegedly breached, or who obtains substantially the relief sought by
it.
10.06 Amendment and Waiver. This Agreement may be amended only by a
--------------------
written instrument signed by the parties hereto. No failure to exercise and no
delay in exercising, on the part of any party, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege
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hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law. The failure of any party to
insist upon a strict performance of any of the terms or provisions of this
Agreement, or to exercise any option, right or remedy herein contained, shall
not be construed as a waiver or as a relinquishment for the future of such term,
provision, option, right or remedy, but the same shall continue and remain in
full force and effect. No waiver by any party of any term or provision of this
Agreement shall be deemed to have been made unless expressed in writing and
signed by such party.
10.07 Captions. The captions of the Sections of this Agreement are for
--------
convenience only and shall not be considered or referred to in resolving
questions of construction.
10.08 Counterparts. This Agreement may be executed by one or more of the
------------
parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
10.09 Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder shall be assignable by any party without the written
consent of the others provided that Investor may assign its rights under this
Agreement (i) to a corporation, group or entity that purchases all or
substantially all of the assets or capital stock of the Company or Investor or
that succeeds to the rights of the Company or Investor by operation of law or
(ii) to any lender in connection with any Indebtedness incurred by Investor or
the Company.
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10.10 Severability. Any portion or provision of the Agreement which is
------------
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining portions or
provisions hereof in such jurisdiction or, to the extent permitted by law,
rendering that or any other portion or provision of the Agreement invalid,
illegal or unenforceable in any other jurisdiction.
10.11 Expenses. Except as otherwise expressly provided herein, the
--------
parties shall, if the transactions contemplated hereby are not consummated, each
bear their own legal, accounting, investment banking and other fees and expenses
in connection with this Agreement and the transactions contemplated hereby. If
the transactions contemplated by this Agreement are consummated, the Company
shall pay all expenses of Investor and Newco in connection therewith.
10.12 Schedules. All schedules, exhibits, appendices and documents
---------
referred to in or attached to this Agreement are integral parts of this
Agreement as if fully set forth herein, and all statements appearing therein
shall be deemed disclosed for all purposes and not only in connection with the
specific representation to which they are explicitly referenced.
10.13 Records. After the Closing, Investor shall cause the Company to
-------
keep and preserve all books and records of the Company existing as of the
Closing for a period of at least three years after the Closing. Investor will
cause the Company to afford to the representatives of the Shareholders,
including its counsel and accountants, reasonable access to, and, at the
Shareholders' expense, copies of, the records retained by the Company during
normal business hours after the Effective Date upon reasonable notice for proper
business purposes. Investor and the Company shall also make their respective
officers and employees available to the
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<PAGE>
Shareholders at reasonable times and places after the Closing upon reasonable
notice for proper business purposes.
10.14 Further Assurances. From time to time after the Effective Date, at
------------------
Investor's request and without further consideration, the Shareholders shall
execute and deliver to Investor such documents and take such other action as
Investor may reasonably request in order to consummate more effectively the
transactions contemplated hereby and to carry out the intent of this Agreement.
From time to time after the Effective Date, at the request of the Shareholders
and without further consideration, the Investor shall execute and deliver to the
Shareholders such documents and take such other action as the Shareholders may
reasonably request in order to consummate more effectively the Merger and to
carry out the intent of this Agreement.
10.15 Publicity. The parties shall cooperate with each other in the
---------
development and distribution of all news releases and other public disclosures
relating to the transactions contemplated hereby. None of the parties shall
issue or make, or cause to have issued or made, any press release or
announcement concerning the transactions contemplated hereby without the advance
approval in writing of the form and substance thereof by the other party, unless
otherwise required by applicable law.
10.16 Definition of Knowledge. For purposes of this Agreement, whenever a
-----------------------
statement is qualified by "to the Shareholders' knowledge," "to the knowledge of
the Shareholders" or words of similar import, it is intended to indicate that
none of Lovaas, Richard W. Johansen, Lougene Williams or Jay R. Ogram have
actual knowledge of the inaccuracy of such statement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
River Holding Corp. (the "Investor")
By: /s/ Charles P. Rullman
-----------------------------
Name: Charles P. Rullman, Jr.
Title: President
By: /s/ Jon D. Ralph
-----------------------------
Name: Jon D. Ralph
Title: Vice President and Secretary
River Acquisition Corp. ("Newco")
By: /s/ Charles P. Rullman
-----------------------------
Name: Charles P. Rullman, Jr.
Title: President
By: /s/ Jon D. Ralph
------------------------------
Name: Jon D. Ralph
Title: Vice President and Secretary
<PAGE>
Title: Vice President and Secretary
Hudson Respiratory Care Inc. (the "Company")
By: /s/ Richard W. Johansen
--------------------------------
Name: Richard W. Johansen
Title: President and Chief Executive Officer
By: /s/ Jay R. Ogram
--------------------------------
Name: Jay R. Ogram
Title: Chief Financial Officer
Helen Lovaas Separate Property Trust
U/D/T dated 7/17/97
By: /s/ Helen Lovaas
--------------------------------
Helen Lovaas, Trustee
Helen Lovaas Trust No. 1
U/D/T dated 11/10/97
By: /s/ Helen Lovaas
--------------------------------
Helen Lovaas, Trustee
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF DETERMINATION
OF
HUDSON RESPIRATORY CARE INC.
Richard W. Johansen and Jay R. Ogram hereby certify as follows:
1. They are the President and Chief Financial Officer, respectively, of
Hudson Respiratory Care Inc., a California corporation (the "Company").
2. The number of shares of 11 1/2% Senior Redeemable PIK Preferred Stock
Due 2010, $.01 par value, of the Company is 600,000 shares, none of which has
been issued.
3. The number of shares of 11 1/2% Series B Senior Redeemable PIK
Preferred Stock Due 2010, $.01 par value, of the Company is 600,000 shares, none
of which has been issued.
4. The Board of Directors of the Company has duly adopted the following
resolution:
"WHEREAS, the Articles of Incorporation of the Company authorize the Board
of Directors to determine the designations and powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation, the dividend rate,
conversion rights, redemption price and liquidation preference, of any series of
Preferred Stock, and to fix the number of shares constituting any such series,
and to increase or decrease the number of shares of any such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
establish two series of Preferred Stock as follows:
(a) The designation of such series of Preferred Stock are (i) the 11
1/2% Senior Redeemable PIK Preferred Stock Due 2010, $.01 par value, of the
Company (the "Initial Company Preferred Stock"), and the number of shares of
such Initial Company Preferred Stock is 600,000, and (ii) the 11 1/2% Series B
Senior Redeemable PIK Preferred Stock Due 2010, $.01 par value, of the Company
(the "Series B Stock"), and the number of shares of such Series B Stock is
600,000. The Initial Company Preferred Stock and the Series B Stock are referred
to as the "Company Preferred Stock." The liquidation preference of the Company
Preferred Stock shall be $100 per share (the "Liquidation Preference").
<PAGE>
2
The designations and powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, including without limitation, the dividend rate,
conversion rights, redemption price and liquidation preference, granted to and
imposed upon the Company Preferred Stock and the holders thereof (the "Holders")
shall be as set forth below.
(b) Ranking. The Initial Company Preferred Stock and the Series B
--------
Stock will each rank on a parity with the other in all respects. The Company
Preferred Stock will, with respect to dividend rights and rights on liquidation,
winding up and dissolution, rank (i) senior to all classes of common stock of
the Company and to each other class of Capital Stock and to each other series of
Preferred Stock established hereafter by the Board of Directors the terms of
which do not expressly provide that it ranks senior to, or on a parity with, the
Company Preferred Stock as to dividend rights and rights on liquidation,
winding-up and dissolution of the Company (collectively referred to, together
with common stock of the Company, as "Junior Stock") and (ii) on a parity with
each other class of Capital Stock or series of Preferred Stock established
hereafter by the Board of Directors, the terms of which expressly provide that
such series will rank on a parity with the Company Preferred Stock as to
dividend rights and rights on liquidation, winding-up and dissolution
(collectively referred to as "Parity Stock").
The Company Preferred Stock and the Company's 11 1/2% Senior PIK
Preferred Stock due 2010, $.01 par value (the "Senior PIK Preferred Stock"),
will each rank on a parity with the other in all respects.
(c) Dividends. (i) Holders of the outstanding shares of Company
----------
Preferred Stock will be entitled to receive, when, as and if declared by the
Board of Directors of the Company, out of funds legally available therefor,
cumulative preferential dividends on each share of the Company Preferred Stock
at a rate per annum equal to 11 1/2% of the Liquidation Preference of such
share, payable semi-annually in arrears (each such semi-annual period being
herein called a "Dividend Period") in the manner set forth below. In addition
to the dividends described in the preceding sentence, holders of outstanding
shares of Company Preferred Stock will be entitled to additional dividends (the
"Additional Dividends"), when, as and if declared by the Board of Directors of
the Company, out of funds legally available therefor, with respect to the shares
of Company Preferred Stock, which Additional Dividends shall accrue as follows
if any of the following events occur (each such event in clauses (A), (B), (C),
and (D) below being herein called a "Registration Default"): (A) if on or prior
to
<PAGE>
3
June 6, 1998, neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement has been filed with the Securities and Exchange
Commission (the "SEC"); (B) if on or prior to September 5, 1998, neither the
Exchange Offer Registration Statement nor the Shelf Registration Statement has
been declared effective by the SEC; (C) if on or prior to October 5, 1998,
neither the Registered Exchange Offer has been consummated nor the Shelf
Registration Statement has been declared effective; or (D) after either the
Exchange Offer Registration Statement or the Shelf Registration Statement has
been declared effective, such Registration Statement thereafter ceases to be
effective or usable (in each case except as permitted below) in connection with
resales of the Company Preferred Stock in accordance with and during the periods
specified herein.
Additional Dividends shall accrue on the shares of Company Preferred
Stock from and including the date on which any such Registration Default shall
occur, to but excluding the date on which all such Registration Defaults have
been cured. Such Additional Dividends will accrue at a rate of 0.25% per annum
during the 90-day period immediately following the occurrence of such
Registration Default and shall increase by 0.25% per annum at the end of each
subsequent 90-day period, but in no event shall the amount of such Additional
Dividends exceed 1.00% per annum.
A Registration Default referred to in clause (C) of this paragraph
(c)(i) shall be deemed not to have occurred and be continuing in relation to a
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to the Registration Statement to incorporate annual audited financial
information with respect to the Company where such post-effective amendment is
not yet effective and needs to be declared effective to permit Holders to use
the related prospectus or (y) other material events with respect to the Company
that would need to be described in the Registration Statement or the related
prospectus and (ii) in the case of clause (y), the Company proceeds promptly and
in good faith to amend or supplement the Registration Statement and related
prospectus to describe such events unless the Company has determined in good
faith that there are material legal or commercial impediments in doing so;
provided, however, that in any case if such Registration Default occurs for a
- -------- -------
continuous period in excess of 45 days, Additional Dividends shall be payable in
accordance with the immediately preceding paragraphs of this paragraph (c)(i)
from the day such Registration Default initially occurs to but excluding the
date on which such Registration Default is cured and provided, further, that not
-------- -------
more than one Registration Default shall be deemed to
<PAGE>
4
have occurred pursuant to clause (y) of this paragraph during any 365-day
period.
Additional Dividends will not accrue with respect to a Registration
Default referred to in clause (D) of this paragraph (c)(i) occurring solely as a
result of the determination by the SEC that an Exchange Offer Registration
Statement filed prior to the issuance of the Initial Company Preferred Stock may
not register Company Preferred Stock if (x) the Company, within 30 days of the
issuance of the Initial Company Preferred Stock, files an additional Exchange
Offer Registration Statement (the "Supplemental Exchange Offer Registration
Statement") with the SEC, (y) on or prior to the 90th day following the issuance
of the Initial Company Preferred Stock the Supplemental Exchange Offer
Registration Statement or an additional Shelf Registration Statement (the
"Supplemental Shelf Registration Statement") has been declared effective by the
SEC and (z) on or prior to the 120th day following the issuance of the Initial
Company Preferred Stock the Registered Exchange Offer has been consummated or
the Supplemental Shelf Registration Statement has been declared effective.
Any amounts of Additional Dividends due pursuant to clauses (A), (B),
(C) or (D) of this paragraph (c)(i) or pursuant to the proviso contained in the
preceding sentence will be payable on the regular dividend payment dates with
respect to the Company Preferred Stock and on the same terms and conditions and
subject to the same limitations as pertain at such time for the payment of
regular dividends. The amount of Additional Dividends will be determined by
multiplying the applicable Additional Dividends rate by the aggregate
Liquidation Preference of the outstanding shares of Company Preferred Stock,
multiplied by a fraction, the numerator of which is the number of days such
Additional Dividend rate was applicable during such period (determined on the
basis of a 360-day year comprised of twelve 30-day months), and the denominator
of which is 360.
All dividends on the Company Preferred Stock, including Additional
Dividends, to the extent accrued, shall be cumulative, whether or not the
Company has earnings or profits, whether or not there are funds legally
available for the payments of such dividends and whether or not dividends are
declared, on a daily basis from the Issue Date or, in the case of additional
shares of Company Preferred Stock issued in payment of a dividend, from the date
of issuance of such additional shares of Company Preferred Stock, and shall be
payable semi-annually in arrears on each April 15 and October 15 (each, a
"Dividend Payment Date"), commencing on October 15, 1998, to holders of record
on the April 1 and October 1 immediately preceding the relevant Dividend Payment
Date. Any dividend on the Company Preferred Stock payable pursuant to this
paragraph (c)(i) on
<PAGE>
5
or prior to April 15, 2003 shall be, at the option of the Company, payable (1)
in cash or (2) through the issuance of a number of additional shares (including
fractional shares) of Company Preferred Stock (the "Additional Shares") equal to
the dividend amount divided by the Liquidation Preference of such Additional
Shares. With respect to dividends payable after April 15, 2003, all dividends
shall be payable solely in cash.
(ii) All dividends paid with respect to shares of the Company
Preferred Stock pursuant to this paragraph (c) shall be paid pro rata to the
Holders entitled thereto.
(iii) No dividend whatsoever may be declared or paid upon, or any sum
set apart for the payment of dividends upon, any outstanding share of the
Company Preferred Stock with respect to any Dividend Period unless all dividends
for all preceding Dividend Periods have been declared and paid or declared and,
if payable in cash, a sufficient sum in cash set apart for the payment of such
dividend, upon all outstanding shares of Company Preferred Stock.
(iv) No full dividends may be declared or paid or funds set apart for
the payment of dividends by the Company on any Parity Stock for any period
unless full cumulative dividends in respect of each Dividend Period ending on or
before such period shall have been or contemporaneously are declared and paid in
full or declared and, if payable in cash, a sufficient sum in cash set apart for
such payment on the Company Preferred Stock. If full dividends are not so paid,
the Company Preferred Stock will share dividends pro rata with the Parity Stock.
(v) The Company will not (A) declare, pay or set apart funds for the
payment of any dividend or other distribution with respect to any Junior Stock
or (B) repurchase, redeem or otherwise retire any Junior Stock or Parity Stock,
nor may funds be set apart for payment with respect thereto, unless all accrued
and unpaid dividends with respect to the Company Preferred Stock at the time
such dividends are payable have been paid or funds have been set apart for
payment of such dividends, if payable in cash. As used herein, the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock.
(vi) Dividends on account of arrears for any past Dividend Period and
dividends in connection with any optional redemption or any mandatory repurchase
may be declared and paid at any time, without reference to any regular Dividend
Payment Date, to holders of record on such date, not more than 45 days prior to
the payment thereof, as may be fixed by the Board of Directors of the Company.
<PAGE>
6
(vii) Dividends payable on the Company Preferred Stock for any period
other than a Dividend Period shall be computed on the basis of a 360-day year
comprised of twelve 30-day months and the actual number of days elapsed in the
period for which payable and will be deemed to accrue on a daily basis.
Dividends payable on the Company Preferred Stock for a full Dividend Period will
be computed by dividing the per annum dividend rate by two.
(d) Liquidation Preference. (i) Upon any voluntary or involuntary
-----------------------
liquidation, dissolution or winding-up of the Company, each Holder of the
Company Preferred Stock will be entitled to be paid, out of the assets of the
Company available for distribution to its stockholders, an amount equal to the
Liquidation Preference per share of Company Preferred Stock held by such Holder,
plus, without duplication, an amount in cash equal to all accumulated and unpaid
dividends (whether or not declared and including Additional Dividends, if any)
thereon to the date fixed for liquidation, dissolution or winding-up (including,
without duplication, an amount equal to a prorated dividend for the period from
the last Dividend Payment Date to the date fixed for liquidation, dissolution or
winding up that would have been payable had the Company Preferred Stock been the
subject of an Optional Redemption on such date) before any distribution is made
on any Junior Stock, including, without limitation, common stock of the Company.
If, upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, the amounts payable with respect to the holders of the Company
Preferred Stock and all Parity Stock are not paid in full, the holders of the
Company Preferred Stock and the Parity Stock will share equally and ratably (in
proportion to the full liquidation preference and accumulated and unpaid
dividends that would be payable on such shares of the Company Preferred Stock
and the Parity Stock, respectively, if all amounts payable thereon had been paid
in full) in any distribution of assets of the Company to which each is entitled.
After payment of the full amount of the Liquidation Preference of the
outstanding shares of Company Preferred Stock (plus all accumulated and unpaid
dividends), the holders of shares of Company Preferred Stock will not be
entitled to any further participation in any distribution of assets of the
Company.
(ii) For the purposes of this paragraph (d), neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with or into one or more
other entities shall be deemed to be a liquidation, dissolution or winding-up of
the Company.
<PAGE>
7
(e) Redemption. (i) Optional Redemption. (A) Except as set forth
----------- --------------------
in clause (B) below, the Company Preferred Stock shall not be redeemable at the
option of the Company prior to April 15, 2003. On or after April 15, 2003, each
share of the Company Preferred Stock may be redeemed at any time or from time to
time, in whole or in part, at the option of the Company, at the redemption
prices (expressed as a percentage of the Liquidation Preference of such share)
set forth below, plus, without duplication, an amount in cash equal to all
accrued and unpaid dividends to the date fixed for redemption (an "Optional
Redemption Date") (including, without duplication, an amount in cash equal to a
prorated dividend for the period from the Dividend Payment Date immediately
prior to the Optional Redemption Date) (the "Optional Redemption Price"), if
redeemed during the 12-month period beginning April 15 of each of the years set
forth below:
<TABLE>
<CAPTION>
YEAR IN WHICH
REDEMPTION OCCURS PERCENTAGE
----------------- ----------
<S> <C>
2003 . . . . . . . . . . . . . . . . . . . . 105.750%
2004 . . . . . . . . . . . . . . . . . . . . 104.600
2005 . . . . . . . . . . . . . . . . . . . . 103.450
2006 . . . . . . . . . . . . . . . . . . . . 102.300
2007 . . . . . . . . . . . . . . . . . . . . 101.150
2008 and thereafter . . . . . . . . . . . . . 100.000
</TABLE>
(B) At any time prior to April 15, 2001, the Company may redeem at
its option (i) up to 50% or (ii) all but not less than all of the outstanding
shares of Company Preferred Stock with the net proceeds of any Public Equity
Offering by the Company at a redemption price (expressed as a percentage of the
Liquidation Preference per share thereof) of 111.5% plus accumulated and unpaid
dividends (including, without duplication, an amount in cash equal to a prorated
dividend for any partial dividend period). Any such redemption shall be made
upon consummation of such Public Equity Offering upon not less than 30 nor more
than 60 days' notice.
(C) In the event of a redemption of only a portion of the then
outstanding shares of Company Preferred Stock, the Company shall effect such
redemption on a pro rata basis, except that the Company may redeem all of the
shares held by Holders of fewer than 100 shares (or all of the shares held by
Holders who would hold less than 100 shares as a result of such redemption), as
may be determined by the Company.
(ii) Mandatory Redemption. Each share of the Company Preferred Stock
---------------------
(if not earlier redeemed) shall be subject to mandatory redemption in whole (to
the extent of lawfully available funds therefor) on April 15, 2010 (the
"Mandatory Redemption Date") at a price equal to 100% of the Liquidation
Preference of such share, plus an amount equal
<PAGE>
8
to all accrued and unpaid dividends thereon (including, without duplication, an
amount equal to a prorated dividend thereon from the immediately preceding
Dividend Payment Date to the Mandatory Redemption Date), if any, to the
Mandatory Redemption Date (the "Mandatory Redemption Price").
(iii) Procedure for Redemption. (A) On and after an Optional
-------------------------
Redemption Date or the Mandatory Redemption Date, as the case may be (the
"Redemption Date"), unless the Company defaults in the payment of the applicable
redemption price, dividends will cease to accumulate on shares of Company
Preferred Stock called for redemption and all rights of Holders of such shares
will terminate except for the right to receive the Optional Redemption Price or
the Mandatory Redemption Price, as the case may be, without interest; provided,
--------
however, that if a notice of redemption shall have been given as provided in
- -------
subparagraph (iii)(B) and the funds necessary for redemption (including an
amount in respect of all dividends that will accrue to the Redemption Date)
shall have been segregated and irrevocably set apart by the Company, in trust
for the benefit of the Holders of the shares called for redemption, then
dividends shall cease to accumulate on the Redemption Date on the shares to be
redeemed and, at the close of business on the day on which such funds are
segregated and set apart, the Holders of the shares to be redeemed shall, with
respect to the shares to be redeemed, cease to be shareholders of the Company
and shall be entitled only to receive the Optional Redemption Price or the
Mandatory Redemption Price, as the case may be, for such shares without interest
from the Redemption Date.
(B) With respect to a redemption pursuant to paragraph (e)(i) or
(e)(ii), the Company will send a written notice of redemption by first class
mail to each holder of record of shares of Company Preferred Stock at its
registered address, not fewer than 30 days nor more than 60 days prior to the
Redemption Date (the "Redemption Notice") and notice, if mailed in the manner
herein provided, shall conclusively be presumed to have been given, whether or
not the Holder receives such notice; provided, however, that no failure to give
-------- -------
such notice nor any deficiency therein shall affect the validity of the
procedure for the redemption of any shares of Company Preferred Stock to be
redeemed except as to the Holder or Holders to whom the Company has failed to
give said notice or except as to the Holder or Holders whose notice was
defective. The Redemption Notice shall state:
(1) whether the redemption is pursuant to paragraph (e)(i) or (e)(ii)
hereof;
(2) the Optional Redemption Price or the Mandatory Redemption Price,
as the case may be;
<PAGE>
9
(3) whether all or less than all the outstanding shares of Company
Preferred Stock are to be redeemed and the total number of shares of
Company Preferred Stock being redeemed;
(4) the Redemption Date;
(5) that the Holder is to surrender to the Company, in the manner, at
the place or places and at the price designated, his certificate or
certificates representing the shares of Company Preferred Stock to be
redeemed; and
(6) that dividends on the shares of the Company Preferred Stock to be
redeemed shall cease to accumulate on such Redemption Date unless the
Company defaults in the payment of the Optional Redemption Price or the
Mandatory Redemption Price, as the case may be to the Holders of the
Company Preferred Stock who have duly surrendered their certificates for
redemption in accordance with clause (C) below on or before the Redemption
Date.
(C) Each Holder of Company Preferred Stock shall surrender the
certificate or certificates representing such shares of Company Preferred Stock
to the Company, duly endorsed (or otherwise in proper form for transfer, as
determined by the Company), in the manner and at the place designated in the
Redemption Notice, and on the Redemption Date the full Optional Redemption Price
or Mandatory Redemption Price, as the case may be, for such shares shall be
payable in cash to the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
canceled and retired. In the event that less than all of the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(f) Voting Rights. (i) The Holders of Company Preferred Stock,
--------------
except as otherwise required under California law or as set forth in paragraphs
(ii) and (iii) below, shall not be entitled to vote on any matter required or
permitted to be voted upon by the shareholders of the Company.
(ii) (A) If (1) dividends on the Company Preferred Stock are in
arrears and unpaid and, in the case of dividends payable after April 15, 2003,
are not paid in cash for six or more Dividend Periods (whether or not
consecutive) (a "Dividend Default"); (2) the Company fails for any reason to
redeem the Company Preferred Stock on April 15, 2010, or fails to otherwise
discharge any redemption obligation with respect to the Company Preferred Stock;
(3) the Company fails to make an offer to redeem all
<PAGE>
10
of the outstanding shares of the Company Preferred Stock following a Change of
Control (whether or not the Company is permitted to do so by the terms of the
Indenture, the New Credit Facility or any other obligation of the Company); (4)
a breach or violation of any of the provisions set forth under paragraph (l)
(Certain Additional Provisions) occurs and, the breach or violation continues
for a period of 30 days or more after the Company receives notice thereof
specifying the default from the Holders of at least 25% of the shares of the
Company Preferred Stock then outstanding; or (5) the Company fails to pay at
final maturity (giving effect to any applicable grace period) the principal
amount of any Debt of the Company or any Subsidiary of the Company or the stated
maturity of any such Debt of the Company or any Subsidiary of the Company is
accelerated because of a default and the total amount of such Debt unpaid or
accelerated exceeds $7.5 million, then, subject to paragraph (f)(ii)(E), the
Holders of the then outstanding shares of Company Preferred Stock (together with
the holders of any other series of Preferred Stock upon which like rights have
been conferred and are exercisable), voting together as a class, shall have the
right and power to elect two directors to the Board of Directors of the Company
and the common stock of the Company ("Common Stock") shall have the right to
elect the remaining directors. Each such event described in clauses (1), (2),
(3), (4) or (5) above is a "Voting Rights Triggering Event".
(B) The voting rights set forth in paragraph (f)(ii)(A) above will
continue until such time as (x) in the case of a Dividend Default, all dividends
in arrears on the Company Preferred Stock are paid in full in cash and (y) in
all other cases, any failure, breach or default giving rise to such Voting
Rights Triggering Event is remedied or waived by the Holders of at least a
majority of the shares of Company Preferred Stock then outstanding, at which
time the exclusive right to elect directors shall revert to the Common Stock,
subject to renewal of the voting right of the Company Preferred Stock under
paragraph (f)(ii)(A) from time to time. At any time after the right to elect
two directors is vested in the Company Preferred Stock, and at any time after
the exclusive right to elect directors shall revert to the Common Stock, the
holders of 25% or more of the outstanding shares of Company Preferred Stock (or
the holders of 25% of the shares of any other series of Preferred Stock then
outstanding upon which like rights have been conferred and are exercisable) or
25% or more of the outstanding Common Stock, as the case may be, have a right to
call a special meeting of shareholders for the purpose of electing all of the
members of the Board of Directors, such right to be exercisable by delivering a
request in writing for the calling of the special meeting to the president or
secretary, or to the chairman of the board or a vice-president if there be such;
provided, however,
- -------- -------
<PAGE>
11
that no such special meeting shall be called if the next annual meeting of
shareholders of the Company is to be held within 60 days after the voting power
to elect directors shall have become vested, in which case such meeting shall be
deemed to have been called for such next annual meeting. The officer receiving
the request shall forthwith cause notice to be given to the shareholders
entitled to vote that a meeting will be held at a time requested by the person
or persons calling the meeting, not less than 35 nor more than 60 days after the
receipt of the request. If the notice is not given within 20 days after receipt
of the request, the shareholders calling the meeting shall have the rights
accorded to them pursuant to subdivision (c) of Section 601 of the California
Corporations Code. In lieu of electing directors at a meeting of the
shareholders in accordance with the foregoing, the holders of Common Stock and
Company Preferred Stock (together with the holders of any other series of
Preferred Stock upon which like rights have been conferred and are exercisable,
if any), voting as separate classes, may, pursuant to Section 603 of the
Corporations Code of the State of California elect such directors by unanimous
written consent. Upon the election of directors by the Company Preferred Stock
(together with the holders of any other series of Preferred Stock upon which
like rights have been conferred and are exercisable, if any) at a meeting of
shareholders (or by written consent), the terms of all persons who were
directors immediately prior thereto shall terminate and the directors elected by
the Company Preferred Stock (together with the holders of any other series of
Preferred Stock upon which like rights have been conferred and are exercisable,
if any) together with those elected at such meeting (or by written consent) by
the Common Stock shall constitute the directors of the Company until the next
annual meeting, unless the terms of such directors shall terminate earlier in
accordance with the immediately following sentence. Upon the election of
directors by the Common Stock at a meeting of shareholders (or by written
consent) after the exclusive right to elect directors has reverted to the Common
Stock, the terms of all persons who were directors immediately prior thereto
shall terminate and the directors elected by the Common Stock at such meeting
(or by written consent) shall constitute the directors of the Company until the
next annual meeting, unless earlier removed in accordance with this paragraph
(f)(ii)(B).
(C) At any meeting held for the purposes of electing directors at
which the Holders of Company Preferred Stock (together with the holders of any
other series of Preferred Stock upon which like rights have been conferred and
are exercisable) shall have the right, voting together as a single class, to
elect directors as aforesaid, the presence in person or by proxy of the holders
of at least a majority in voting power of the outstanding shares of
<PAGE>
12
Company Preferred Stock (and such Preferred Stock) shall be required to
constitute a quorum thereof.
(D) Any vacancy occurring in the office of a director elected by the
Holders of Company Preferred Stock (and such Preferred Stock) may be filled by
the remaining director elected by the Holders of Company Preferred Stock (and
such Preferred Stock) unless and until such vacancy shall be filled by the
Holders of Company Preferred Stock (and such Preferred Stock) at a meeting of
shareholders held in accordance with paragraph (f)(ii)(B). In lieu of electing
a director at a meeting of the shareholders in accordance with the foregoing, a
majority of the outstanding shares of Company Preferred Stock (together with the
holders of any other series of Preferred Stock upon which like rights have been
conferred and are exercisable, if any), voting together as a single class, may,
pursuant to Sections 305(b) and 603 of the Corporations Code of the State of
California, elect such director by written consent.
(E) In the event that an event occurs at any time which results in
the holders of any Parity Stock having voting rights to elect directors to the
Board of Directors, Holders of Company Preferred Stock shall, whether or not
such event otherwise constitutes a Voting Rights Triggering Event pursuant to
paragraph (f)(ii)(A), have the voting rights set forth in paragraphs (f)(ii)(A)
and (f)(ii)(B), and such event shall be deemed (for purposes of this paragraph
(f) only) to constitute a Voting Rights Triggering Event. In addition, in the
event that during a time in which directors elected by the Holders of Company
Preferred Stock pursuant to this paragraph (f)(ii) are serving on the Board of
Directors ("Previously-Elected Directors") an event occurs which results in
holders of Preferred Stock having voting rights to elect (voting together with
the Holders of Company Preferred Stock) at least two directors to the Board of
Directors, the Holders of Company Preferred Stock shall vote together, as a
single class, with the holders of such Preferred Stock to elect such new
directors, and upon the election of the new directors the term of office of the
Previously-Elected Directors shall (unless such Previously-Elected Directors are
elected as new directors) automatically terminate.
(iii) (A) So long as any shares of Company Preferred Stock are
outstanding, the Company will not authorize, create or increase the authorized
amount of any class or series of Capital Stock or Preferred Stock, the terms of
which expressly provide that such class or series will rank senior to the
Company Preferred Stock as to dividend rights and rights upon liquidation,
winding-up and dissolution of the Company (collectively referred to as "Senior
Stock") or Parity Stock without the affirmative vote or consent of Holders of at
least two-thirds of the shares
<PAGE>
13
of Company Preferred Stock then outstanding, voting or consenting, as the case
may be, as one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting.
(B) So long as any shares of the Company Preferred Stock are
outstanding, the Company will not amend this Certificate of Determination so as
to affect adversely the specified rights, preferences, privileges or voting
rights of Holders of shares of Company Preferred Stock or to authorize the
issuance of any additional shares of the Company Preferred Stock (except to
authorize the issuance of additional shares of Company Preferred Stock to be
paid as dividends on the Company Preferred Stock, for which no consent shall be
necessary) without the affirmative vote or consent of Holders of at least a
majority of the issued and then outstanding shares of Company Preferred Stock,
voting or consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or special
meeting; provided that this paragraph shall not prohibit the merger of the
--------
Company and a Wholly Owned Subsidiary of Holding or the Company incorporated in
another state of the United States solely for the purpose of reincorporating the
Company to the extent that the surviving corporation issues to Holding shares of
a series of Preferred Stock having an aggregate liquidation preference equal to
the Liquidation Preference of the Company Preferred Stock outstanding
immediately prior to such merger and terms and provisions substantially similar
to those of the Company Preferred Stock.
(C) Except as required under California law or as set forth in
paragraph (f)(iii)(A) or (B) above, (x) the creation, authorization or issuance
of any shares of any Junior Stock, Parity Stock or Senior Stock, including the
designation of a series thereof within the existing class of Company Preferred
Stock, or (y) the increase or decrease in the amount of authorized Capital Stock
of any class, including any Company Preferred Stock, shall not require the
consent of Holders of Company Preferred Stock and shall not be deemed to affect
adversely the rights, preferences, privileges or voting rights of shares of the
Company Preferred Stock.
(iv) In any case in which the Holders of Company Preferred Stock
shall be entitled to vote pursuant to this paragraph (f) or pursuant to law,
each Holder of the Company Preferred Stock entitled to vote with respect to such
matters shall be entitled to one vote for each share of Company Preferred Stock
held.
(g) Redemption. (A) The Company may, at its option, redeem the
-----------
Company Preferred Stock, in whole but not
<PAGE>
14
in part (including in conjunction with, and after giving effect to, a redemption
of up to 50% of the outstanding shares of the Company Preferred Stock with the
proceeds of a Public Equity Offering by the Company pursuant to clause (B) of
paragraph (e)(i) above), at any time, for Company Exchange Debentures; provided,
--------
however, that (i) on the date of such redemption there are no accumulated and
- -------
unpaid dividends on the Company Preferred Stock (including the dividend payable
on such date) that are not paid contemporaneously with such redemption or other
contractual impediments to such redemption; (ii) such redemption is permitted
under applicable law; (iii) immediately after giving effect to such redemption,
no Default (as defined in the Company Exchange Indenture) or Voting Rights
Triggering Event, as applicable, shall have occurred and be continuing; and (iv)
the Company shall have delivered to the Trustee under the Company Exchange
Indenture an opinion of counsel with respect to the due authorization and
issuance of the Company Exchange Debentures.
(B) Upon any redemption of Company Preferred Stock for Company
Exchange Debentures pursuant to this paragraph (g), each Holder of Company
Preferred Stock will be entitled to receive, subject to the second succeeding
sentence, $1.00 principal amount of Company Exchange Debentures for each $1.00
Liquidation Preference of Company Preferred Stock so redeemed, and an amount in
cash equal to a prorated dividend for any partial dividend period. The Company
Exchange Debentures will be issued in registered form without coupons. Company
Exchange Debentures issued upon redemption of the Company Preferred Stock will
be issued in principal amounts of $1,000 and integral multiples thereof to the
extent possible, and will also be issued in principal amounts less than $1,000
so that each Holder of Company Preferred Stock will receive certificates
representing the entire amount of Company Exchange Debentures to which such
Holder's shares of Company Preferred Stock entitle such Holder; provided,
--------
however, that the Company may pay cash in lieu of issuing a Company Exchange
- -------
Debenture in a principal amount less than $1,000.
(ii) Procedures. (A) The Company will send a written notice of
-----------
redemption (the "Redemption Notice") by first-class mail to each Holder of
record of shares of Company Preferred Stock not fewer than 30 days nor more than
60 days before the date fixed for any redemption (the "Redemption Date") at its
registered address and notice, if mailed in the manner herein provided, shall
conclusively be presumed to have been given, whether or not the Holder receives
such notice; provided, however, that no failure to give such notice nor any
-------- -------
deficiency therein shall affect the validity of the procedure for the redemption
of any shares of Company Preferred Stock to be redeemed except as to the Holder
or Holders to whom the Company has failed to give
<PAGE>
15
said notice or except as to the Holder or Holders whose notice was defective;
provided further that, in the event of any redemption which is intended to occur
- ----------------
in conjunction with a Public Equity Offering by the Company, (i) the Company may
provide for a Redemption Date which relates to the consummation of such Public
Equity Offering and (ii) the Company shall have the right to revoke such written
notice in the event that such related Public Equity Offering is terminated by
sending by first-class mail a subsequent written notice to such Holders within
two Business Days following such termination.
The Redemption Notice shall state:
(1) the Redemption Date;
(2) that the Holder is to surrender to the Company, in the manner and
at the place or places designated, his certificate or certificates
representing the shares of Company Preferred Stock to be redeemed;
(3) that dividends on the shares of Company Preferred Stock to be
redeemed shall cease to accrue on such Redemption Date whether or not
certificates representing shares of Company Preferred Stock are surrendered
for redemption on such Redemption Date unless the Company shall default in
the delivery of the Company Exchange Debentures to Holders of the Company
Preferred Stock who have duly surrendered their certificates for redemption
in accordance with clause (g)(ii)(C) on or before the Redemption Date; and
(4) that interest on the Company Exchange Debentures shall accrue from
the Redemption Date whether or not certificates for shares of Company
Preferred Stock are surrendered for redemption on such Redemption Date.
(B) On and after the Redemption Date, dividends will cease to accrue
on the outstanding shares of Company Preferred Stock, and all rights of the
Holders of Company Preferred Stock (except the right to receive the Company
Exchange Debentures, an amount in cash, to the extent applicable, equal to the
accumulated and unpaid dividends to the Redemption Date and, if the Company so
elects, cash in lieu of any Company Exchange Debenture that is in a principal
amount that is not an integral multiple of $1,000 or in lieu of any fractional
share of Company Preferred Stock) will terminate. Subject to clause (g)(ii)(D)
below, from and after the Redemption Date, the person entitled to receive the
Company Exchange Debentures issuable upon such redemption will be treated for
all purposes as the registered holder of such Company Exchange Debentures.
<PAGE>
16
(C) On or before the Redemption Date, each Holder of the Company
Preferred Stock shall surrender the certificate or certificates representing
such shares of Company Preferred Stock, in the manner and at the place
designated in the Redemption Notice. Upon surrender in accordance with the
Redemption Notice of the certificates representing any shares of Company
Preferred Stock so redeemed, duly endorsed (or otherwise in proper form for
transfer, as determined by the Company), such shares shall be redeemed by the
Company for Company Exchange Debentures received by the Company in accordance
with clause g(i)(B). Subject to clause (g)(ii)(D) below, the Company shall pay
interest, as applicable, on the Company Exchange Debentures at the rate and on
the dates specified therein from the Redemption Date.
(D) Anything contained herein to the contrary notwithstanding, no
Holder of Company Preferred Stock will be entitled to receive any payment of
interest on Company Exchange Debentures or exercise any other right or privilege
in respect thereof, until such Holder has surrendered the certificate or
certificates evidencing such Holder's Company Preferred Stock in accordance with
clause (g)(ii)(C). The Company shall pay all interest which would have accrued
on a Holder's Company Exchange Debentures without additional interest, had such
Holder surrendered the certificate or certificates evidencing such Holder's
Company Preferred Stock on the Redemption Date at the time such certificate or
certificates are duly surrendered.
(iii) No Redemption in Certain Cases. Notwithstanding the foregoing
-------------------------------
provisions of this paragraph (g), the Company shall not be entitled to redeem
the Company Preferred Stock for Company Exchange Debentures if such redemption,
or any term or provision of the Company Exchange Indenture or the Company
Exchange Debentures, or the performance of the Company's obligations under the
Company Exchange Indenture or the Company Exchange Debentures, shall violate or
conflict with any applicable law or agreement or instrument then binding on the
Company or if, at the time of such redemption, the Company is insolvent or would
be rendered insolvent by such redemption.
(iv) Redemption of Initial Company Preferred Stock for Series B
----------------------------------------------------------
Stock. The Series B Stock will be issued by the Company only in connection with
- ------
a redemption offer, on a share for share basis, for the Initial Company
Preferred Stock as required pursuant to the Registration Agreement. Each share
of Series B Stock issued upon redemption of a share of Initial Company Preferred
Stock will be deemed to have the same Liquidation Preference and accrued and
unpaid dividends as the share of Initial Company Preferred Stock so redeemed.
<PAGE>
17
(h) Redemption at the Option of Holders Upon a Change of Control.
-------------------------------------------------------------
(i) Upon the occurrence of a Change of Control (the date of such occurrence
being the "Change of Control Date"), each Holder of Company Preferred Stock
shall have the right to require the Company to redeem all or any part of such
Holder's Company Preferred Stock pursuant to the offer described in paragraph
(h)(ii) below (the "Change of Control Offer") at a cash redemption price (the
"Change of Control Redemption Price") equal to 101% of the Liquidation
Preference thereof, plus payment in cash of accrued and unpaid dividends
thereon, if any, to the redemption date (including an amount in cash equal to a
prorated dividend for any partial dividend period).
(ii) Within 30 days following the date on which the Company knows or
reasonably should have known a Change of Control has occurred, the Company shall
(a) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (b) send, by first-class mail, with a copy to the transfer agent, to each
Holder of Company Preferred Stock, at such Holder's address appearing in the
security register, a notice stating: (A) that a Change of Control has occurred
and a Change of Control Offer is being made pursuant to this paragraph (h) and
that all Company Preferred Stock timely tendered will be accepted for payment;
(B) the Change of Control Redemption Price and the redemption date (the "Change
of Control Redemption Date"), which shall be, subject to any contrary
requirements of applicable law, a Business Day no earlier than 30 days nor later
than 60 days from the date such notice is mailed; (C) the circumstances and
relevant facts regarding the Change of Control (including information with
respect to pro forma historical income, cash flow and capitalization after
giving effect to the Change of Control); (D) that any shares of Company
Preferred Stock not tendered will continue to accrue dividends; (E) that, unless
the Company defaults in making payment therefor, any share of Company Preferred
Stock accepted for payment pursuant to the Change of Control Offer shall cease
to accrue dividends after the Change of Control Redemption Date; (F) that
Holders electing to have any shares of Company Preferred Stock redeemed pursuant
to a Change of Control Offer will be required to surrender stock certificates
representing such shares of Company Preferred Stock, properly endorsed for
transfer, together with such other customary documents as the Company and the
Transfer Agent may reasonably request to the Transfer Agent and registrar for
the Company Preferred Stock at the address specified in the notice prior to the
close of business on the Business Day prior to the Change of Control Redemption
Date; (G) that Holders will be entitled to withdraw their election if the
Company receives, not later than five Business Days prior to the Change of
Control Redemption Date, a telegram, telex, facsimile transmission or letter
<PAGE>
18
setting forth the name of the Holder, the number of shares of Company Preferred
Stock the Holder delivered for redemption and a statement that such Holder is
withdrawing his election to have such shares of Company Preferred Stock
redemption; and (H) that Holders whose shares of Company Preferred Stock are
redeemed only in part will be issued a new certificate representing the
unredeemed shares of Company Preferred Stock.
(iii) 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 redemption of Company Preferred Stock
pursuant to a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Certificate of
Determination, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under this
Certificate of Determination by virtue of such compliance.
(iv) On the Change of Control Redemption Date the Company shall (A)
accept for payment the shares of Company Preferred Stock validly duly tendered
pursuant to the Change of Control Offer, (B) pay to the Holders of shares so
accepted the redemption price therefor in cash and (C) cancel each surrendered
certificate and retire the shares represented thereby. Unless the Company
defaults in the payment for the shares of Company Preferred Stock duly tendered
pursuant to the Change of Control Offer, dividends will cease to accrue with
respect to the shares of Company Preferred Stock tendered and all rights of
Holders of such tendered shares will terminate, except for the right to receive
payment therefor, on the Change of Control Redemption Date.
(v) To accept the Change of Control Offer, the Holder of a share of
Company Preferred Stock shall deliver, on or before the 10th day prior to the
Change of Control Redemption Date, written notice to the Company (or an agent
designated by the Company for such purpose) of such Holder's acceptance,
together with certificates evidencing the shares of Company Preferred Stock with
respect to which the Change of Control Offer is being accepted, duly endorsed
for transfer.
(i) Conversion or Exchange. The Holders of shares of Company
-----------------------
Preferred Stock shall not have any rights hereunder to convert such shares into
or exchange such shares for shares of any other class or classes or of any other
series of any class or classes of Capital Stock of the Company.
<PAGE>
19
(j) Reissuance of the Company Preferred Stock. Shares of Company
------------------------------------------
Preferred Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed, shall not be reissued as shares of Company
Preferred Stock and shall (upon compliance with any applicable provisions of the
laws of California) have the status of authorized and unissued shares of
Preferred Stock undesignated as to series and may be redesignated and reissued
as part of any series of Preferred Stock; provided, however, that so long as any
-------- -------
shares of Company Preferred Stock are outstanding, any issuance of such shares
must be in compliance with the terms hereof.
(k) Business Day. If any payment or redemption shall be required by
-------------
the terms hereof to be made on a day that is not a Business Day, such payment or
redemption shall be made on the immediately succeeding Business Day.
(l) Certain Additional Provisions. The sole remedy to Holders of
------------------------------
Company Preferred Stock in the event that any of the following conditions shall
occur, and the sole consequence of any such occurrence, shall be the voting
rights described in paragraph (f)(ii).
(i) SEC Reports. Notwithstanding that the Company may not be subject
------------
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall file with the SEC and provide the Holders and, upon request,
security analysts of prospective holders of the Company Preferred Stock with
such annual reports and such information, documents and other reports as are
specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S.
corporation subject to such Sections, such information, documents and other
reports to be so filed and provided at the times specified for the filing of
such information, documents and reports under such Sections; provided, however,
-------- -------
that the Company shall not be so obligated to file such information, documents
and reports with the SEC if the SEC does not permit such filings. The Company
shall file with the SEC and provide Holders and, upon request, security analysts
of prospective holders of the Company Preferred Stock with the information,
documents and reports described herein whether or not the Exchange Offer
Registration Statement has been filed or declared effective.
(ii) Limitation on Debt. The Company shall not, and shall not permit
-------------------
any Restricted Subsidiary to, Incur, directly or indirectly, any Debt unless,
after giving pro forma effect to the application of the proceeds thereof, no
Voting Rights Triggering Event would occur as a consequence of such Incurrence
or be continuing following such Incurrence and either (a) after giving effect to
the Incurrence of such Debt and the application of the proceeds
<PAGE>
20
thereof, the Consolidated Interest Coverage Ratio would be greater than 1.75 to
1.00 if such Debt is Incurred from the Issue Date through April 15, 2000, and
2.00 to 1.00 if such Debt is Incurred thereafter or (b) such Debt is Permitted
Debt.
(iii) Limitation on Restricted Payments. The Company shall not make,
----------------------------------
and shall not permit any Restricted Subsidiary to make, directly or indirectly,
any Restricted Payment if at the time of, and after giving pro forma effect to,
such proposed Restricted Payment,
(a) a Voting Rights Triggering Event shall have occurred and be
continuing,
(b) the Company could not Incur at least $1.00 of additional Debt
pursuant to clause (a) of paragraph (l)(ii) above or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of
any Restricted Payment, if made other than in cash, to be based upon Fair
Market Value) would exceed an amount equal to the sum of:
(i) 50% of the aggregate amount of Consolidated Net Income
accrued during the period (treated as one accounting period) from the
beginning of the fiscal quarter during which the Issue Date occurs to
the end of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or if the aggregate
amount of Consolidated Net Income for such period shall be a deficit,
minus 100% of such deficit),
(ii) Capital Stock Sale Proceeds,
(iii) the amount by which Debt of the Company Incurred after the
Issue Date is reduced on the Company's balance sheet upon the
conversion or exchange (other than by the Company or a Subsidiary of
the Company) subsequent to the Issue Date of any Debt for Parity Stock
or Junior Stock (other than Disqualified Stock) of the Company (less
the amount of any cash or other Property distributed by the Company or
any Restricted Subsidiary upon such conversion or exchange), and
(iv) an amount equal to the sum of (A) the net reduction in
Investments in any Person other than the Company or a Restricted
Subsidiary resulting from dividends, repayments of loans or
<PAGE>
21
advances or other transfers of Property, in each case to the Company
or any Restricted Subsidiary from such Person, to the extent such
dividends, repayments or transfers do not increase the amount of
Permitted Investments permitted to be made pursuant to clause (i) of
the definition thereof and (B) the portion (proportionate to the
Company's equity interest in such Unrestricted Subsidiary) of the Fair
Market Value of the net assets of an Unrestricted Subsidiary at the
time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not
-------- -------
exceed, in the case of any Person, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company
or any Restricted Subsidiary in such Person, and
(v) $7.5 million.
Notwithstanding the foregoing limitation, the Company may:
(a) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with this covenant; provided, however, that at the
-------- -------
time of such payment of such dividend, no other Voting Rights Triggering
Event shall have occurred and be continuing (or result therefrom); provided
--------
further, however, that such dividend shall be included in the calculation
------- -------
of the amount of Restricted Payments;
(b) purchase, repurchase, redeem, legally defease, acquire or retire
for value Capital Stock of the Company in exchange for, or in an amount not
in excess of the proceeds of the substantially concurrent sale of, Parity
Stock or Junior Stock of the Company (other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary of the Company or
an employee stock ownership plan or trust established by the Company or any
of its Subsidiaries for the benefit of their employees); provided, however,
-------- -------
that (i) such purchase, repurchase, redemption, legal defeasance,
acquisition or retirement shall be excluded in the calculation of the
amount of Restricted Payments and (ii) the Capital Stock Sale Proceeds from
such exchange or sale shall be excluded from the calculation pursuant to
clause (c)(ii) above;
(c) purchase, repurchase, redeem, legally defease, acquire or retire
for value shares of, or options to purchase shares of, common stock of the
Company or Holding from employees or former employees of the
<PAGE>
22
Company, Holding or any of their Subsidiaries (or their estates or
beneficiaries thereof) upon death, disability, retirement or termination
pursuant to the terms of the agreements (including employment agreements)
or plans (or amendments thereto) approved by the Board of Directors under
which such individuals purchase or sell, or are granted the option to
purchase or sell, shares of such common stock (or pay dividends or make
loans to Holding for such purpose); provided, however, that (i) the
-------- -------
aggregate amount of such purchases, repurchases, redemptions, defeasances,
acquisitions or retirements shall not exceed $1.0 million in any year or
$5.0 million during the term of the Company Preferred Stock, except that
(x) such amounts shall be increased by the aggregate net amount of cash
received by the Company after the Issue Date from the sale of such shares
to, or the exercise of options to purchase such shares by, employees of
Holding, the Company or any of their Subsidiaries and (y) the Company may
forgive or return Employee Notes without regard to the limitation set forth
in clause (c)(i) above and such forgiveness or return shall not be treated
as a Restricted Payment for purpose of determining compliance with such
clause (c)(i) and (ii) such purchases, repurchases, defeasances,
acquisitions or retirements (but not forgiveness or return of Employee
Notes) shall be included in the calculation of the amount of Restricted
Payments; and
(d) make payments to Helen Hudson Lovaas pursuant to the Merger
Agreement in an aggregate amount not to exceed $1.1 million in any fiscal
year or $3.3 million during the term of the Company Preferred Stock (plus,
in each case, interest due on the unpaid portion of such required payments
in accordance with the Merger Agreement); provided, however, that such
-------- -------
payments shall be excluded in the calculation of the amount of Restricted
Payments.
(iv) Limitation on Issuance or Sale of Capital Stock of Restricted
-------------------------------------------------------------
Subsidiaries. The Company shall not (a) sell, pledge, hypothecate or otherwise
- -------------
dispose of any shares of Capital Stock of a Restricted Subsidiary or (b) permit
any Restricted Subsidiary to, directly or indirectly, issue or sell or otherwise
dispose of any shares of its Capital Stock, other than (i) directors' qualifying
shares, (ii) to the Company or a Wholly Owned Subsidiary or (iii) the
disposition of 100% of the Capital Stock of a Restricted Subsidiary; provided
--------
that (x) the Company receives consideration at the time of such disposition at
least equal to the Fair Market Value of such Restricted Subsidiary, (y) at least
75% of the consideration paid to the Company in connection with such disposition
is in the
<PAGE>
23
form of cash or cash equivalents or the assumption by the purchaser of
liabilities of the Company or any Restricted Subsidiary (other than liabilities
that are by their terms subordinated to the Company Preferred Stock) as a result
of which the Company and the Restricted Subsidiaries are no longer obligated
with respect to such liabilities, and (z) the Net Available Cash received by the
Company from such disposition is applied within twelve months from the date of
the receipt of such Net Available Cash to prepay, repay, legally defease or
purchase Debt of the Company or any Restricted Subsidiary (excluding, in any
such case, Disqualified Stock and Debt owed to the Company or an Affiliate of
the Company) or to reinvest in Additional Assets (including by means of an
Investment in Additional Assets by the Company or a Restricted Subsidiary with
Net Available Cash received by the Company).
(v) Limitation on Restrictions on Distributions from Restricted
-----------------------------------------------------------
Subsidiaries. The Company shall not, and shall not permit any Restricted
- -------------
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist any consensual restriction on the right of any Restricted Subsidiary to
(a) pay dividends, in cash or otherwise, or make any other distributions on or
in respect of its Capital Stock, or pay any Debt or other obligation owed, to
the Company or any other Restricted Subsidiary (except, with respect to
restrictions on dividends of non-cash Property, as permitted pursuant to clause
(ii) of the next sentence), (b) make any loans or advances to the Company or any
other Restricted Subsidiary or (c) transfer any of its Property to the Company
or any other Restricted Subsidiary. The foregoing limitations will not apply (i)
with respect to clauses (a), (b) and (c), to restrictions (A) in effect on the
Issue Date, (B) pursuant to the Credit Facility, (C) relating to Debt of a
Restricted Subsidiary and existing at the time it became a Restricted Subsidiary
if such restriction was not created in connection with or in anticipation of the
transaction or series of transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the Company or (D)
which result from the Refinancing of Debt Incurred pursuant to an agreement
referred to in clause (i)(A) or (B) above or in clause (ii)(A) or (B) below,
provided such restriction is no less favorable to the holders of the Company
- --------
Preferred Stock than those under the agreement evidencing the Debt so
Refinanced, and (ii) with respect to clause (c) only, to restrictions (A)
encumbering Property at the time such Property was acquired by the Company or
any Restricted Subsidiary, so long as such restriction relates solely to the
Property so acquired and was not created in connection with or in anticipation
of such acquisition, (B) resulting from customary provisions restricting
subletting or assignment of leases or customary provisions in other agreements
that restrict assignment of such
<PAGE>
24
agreements or rights thereunder or (C) customary restrictions contained in asset
sale agreements limiting the transfer of such Property pending the closing of
such sale.
(vi) Limitation on Transactions with Affiliates. The Company shall
-------------------------------------------
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
conduct any business or enter into or suffer to exist any transaction or series
of transactions (including the purchase, sale, transfer, assignment, lease,
conveyance or exchange of any Property or the rendering of any service) with, or
for the benefit of, any Affiliate of the Company (an "Affiliate Transaction"),
unless (a) the terms of such Affiliate Transaction are (i) set forth in writing,
(ii) in the interest of the Company or such Restricted Subsidiary, as the case
may be, and (iii) no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained in a
comparable arm's-length transaction with a Person that is not an Affiliate of
the Company, (b) if such Affiliate Transaction involves aggregate payments or
value in excess of $2.5 million, the Board of Directors (including a majority of
the disinterested members of the Board of Directors, if any) approves such
Affiliate Transaction and, in its good faith judgment, believes that such
Affiliate Transaction complies with clauses (a) (ii) and (iii) of this paragraph
as evidenced by a Board Resolution promptly delivered to the Transfer Agent and
(c) if such Affiliate Transaction involves aggregate payments or value in excess
of $5.0 million, the Company obtains a written opinion from an Independent
Appraiser to the effect that the consideration to be paid or received in
connection with such Affiliate Transaction is fair, from a financial point of
view, to the Company or such Restricted Subsidiary, as the case may be.
Notwithstanding the foregoing limitation, the Company or any Restricted
Subsidiary may enter into or suffer to exist the following:
(i) any transaction or series of transactions between the Company and
one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business; provided that no more than
--------
5% of the total voting power of the Voting Stock (on a fully diluted basis)
of any such Restricted Subsidiary is owned by an Affiliate of the Company
(other than a Restricted Subsidiary);
(ii) any Restricted Payment permitted to be made pursuant to paragraph
(l)(iii) above;.
(iii) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and
<PAGE>
25
employees of the Company or any of the Restricted Subsidiaries, so long as
the Board of Directors in good faith shall have approved the terms thereof
and deemed the services theretofore or thereafter to be performed for such
compensation to be fair consideration therefor;
(iv) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or such
Restricted Subsidiary, as the case may be; provided that such loans and
--------
advances do not exceed $1.0 million in the aggregate at any one time
outstanding;
(v) the payment of fees and expenses in connection with the
Recapitalization pursuant to written agreements in effect on the Issue
Date;
(vi) the sale of common stock of the Company for cash; provided, that
--------
the Company may receive Employee Notes in an aggregate principal amount not
in excess of $1.0 million at any one time outstanding;
(vii) the payment of dividends in kind in respect of (i) the Mirror
Preferred Stock or (ii) any other Preferred Stock issued in compliance with
this covenant; and
(viii) a proportionate split of, or a common stock dividend payable
on, the common stock of the Company.
(vii) Designation of Restricted and Unrestricted Subsidiaries. The
--------------------------------------------------------
Board of Directors may designate any Subsidiary of the Company (other than any
Subsidiary of the Company designated as a Restricted Subsidiary under the
Indenture governing the Notes) to be an Unrestricted Subsidiary if (a) the
Subsidiary to be so designated does not own any Capital Stock or Debt of, or own
or hold any Lien on any Property of, the Company or any other Restricted
Subsidiary, (b) the Subsidiary to be so designated is not obligated under any
Debt, Lien or other obligation that, if in default, would result (with the
passage of time or notice or otherwise) in a default on any Debt of the Company
or of any Restricted Subsidiary and (c) either (i) the Subsidiary to be so
designated has total assets of $1,000 or less or (ii) such designation is
effective immediately upon such entity becoming a Subsidiary of the Company.
Unless so designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of the Company will be classified as a Restricted Subsidiary;
provided, however, that such Subsidiary shall not be designated a Restricted
- -------- -------
Subsidiary and shall be automatically classified as an Unrestricted Subsidiary
if either of the requirements set forth in clauses (x) and (y) of the
immediately following paragraph
<PAGE>
26
will not be satisfied after giving pro forma effect to such classification.
Except as provided in the first sentence of this paragraph, no Restricted
Subsidiary may be redesignated as an Unrestricted Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, (x) the Company could Incur at least $1.00 of additional Debt
pursuant to clause (a) of paragraph (l)(ii) above and (y) no Voting Rights
Triffering Event shall have occurred and be continuing or would result
therefrom.
Any such designation or redesignation by the Board of Directors will
be evidenced to the Transfer Agent by filing with the Transfer Agent a Board
Resolution giving effect to such designation or redesignation and an Officers'
Certificate (a) certifying that such designation or redesignation complies with
the foregoing provisions and (b) giving the effective date of such designation
or redesignation, such filing with the Transfer Agent to occur within 45 days
after the end of the fiscal quarter of the Company in which such designation or
redesignation is made (or, in the case of a designation or redesignation made
during the last fiscal quarter of the Company's fiscal year, within 90 days
after the end of such fiscal year).
(viii) Merger, Consolidation and Sale of Property. The Company shall
-------------------------------------------
not merge, consolidate or amalgamate with or into any other Person (other than a
merger of a Wholly Owned Subsidiary into the Company) or sell, transfer, assign,
lease, convey or otherwise dispose of all or substantially all its Property in
any one transaction or series of transactions unless: (a) the Company shall be
the surviving Person (the "Surviving Person") or the Surviving Person (if other
than the Company) formed by such merger, consolidation or amalgamation or to
which such sale, transfer, assignment, lease, conveyance or disposition is made
shall be a corporation organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia; (b) the
Surviving Person (if other than the Company) expressly assumes all obligations
of the Company under the Company Preferred Stock and this Certificate of
Determination; (c) in the case of a sale, transfer, assignment, lease,
conveyance or other disposition of all or substantially all the Property of the
Company, such Property shall have been transferred as an entirety or virtually
as an entirety to one Person; (d) immediately before and after giving effect to
such transaction or series of transactions on a pro forma basis (and treating,
for purposes of this clause (d) and clauses (e) and (f) below, any Debt which
becomes, or is anticipated to become, an obligation of the Surviving Person or
any Restricted Subsidiary as a result of such transaction or series of
<PAGE>
27
transactions as having been Incurred by the Surviving Person or such Restricted
Subsidiary at the time of such transaction or series of transactions), no Voting
Rights Triggering Event shall have occurred and be continuing; (e) immediately
after giving effect to such transaction or series of transactions on a pro forma
basis, the Company or the Surviving Person, as the case may be, would be able to
Incur at least $1.00 of additional Debt under clause (a) of the first paragraph
of covenant (l)(iv) above, determining compliance thereunder for this purpose
based upon the Consolidated Interest Expense, Consolidated Net Income and EBITDA
of the Company or the Surviving Person, as the case may be, and its Restricted
Subsidiaries; provided, however, that this clause (e) shall not apply to a
-------- -------
merger between the Company and a Wholly Owned Subsidiary of the Company solely
for the purpose of reincorporating the Company in another state of the United
States so long as the total amount of Debt of the Company and its Restricted
Subsidiaries is not increased as a result thereof; and (f) the Company shall
deliver, or cause to be delivered, to the Transfer Agent, in form and substance
reasonably satisfactory to the Transfer Agent, an Officers' Certificate and an
Opinion of Counsel, each stating that such transaction complies with this
covenant and that all conditions precedent herein provided for relating to such
transaction have been satisfied.
(m) Certificates. (i) Form and Dating. The Company Preferred Stock
------------- ----------------
and the Transfer Agent's Countersignature shall be substantially in the form of
Exhibit A, which is hereby incorporated in and expressly made a part of this
Certificate of Determination. The Company Stock certificate may have notations,
legends or endorsements required by law, stock exchange rules, agreements to
which the Company is subject, if any, or usage (provided that any such notation,
legend or endorsement is in a form acceptable to the Company). Each Company
Preferred Stock certificate shall be dated the date of its countersignature.
The terms of the Company Preferred Stock certificate set forth in Exhibit A are
part of the terms of this Certificate of Determination. Notwithstanding any of
the provisions of this paragraph (m) to the contrary, the rights, preferences,
privileges and restrictions of each share of Company Preferred Stock shall be
equal in all respects to each other share of Company Preferred Stock, except
with respect to restrictions and other matters that may be imposed by applicable
federal securities laws.
(A) Global Company Preferred Stock. Rule 144A Company Preferred
-------------------------------
Stock shall be issued initially in the form of one or more permanent global
securities in definitive, fully registered form (collectively, the "Rule 144A
Global Company Preferred Stock") and Regulation S Company Preferred Stock shall,
to the extent required pursuant to paragraph (C)(3)(ii)(B) of Rule 903 under
<PAGE>
28
Regulation S under the Securities Act, be issued initially in the form of one or
more temporary global securities (collectively, the "Temporary Regulation S
Global Company Preferred Stock"), and, to the extent permitted pursuant to
paragraph (C)(3)(ii)(B) of such Rule 903, shall be issued initially in the form
of one or more permanent global securities in definitive, fully registered form
(collectively, the "Permanent Regulation S Global Company Preferred Stock"), in
each case without coupons with the global securities legend and restricted
securities legend set forth in Exhibit A hereto, which shall be deposited on
behalf of the purchasers of the Initial Company Preferred Stock represented
thereby with the Transfer Agent, at its New York office, as custodian for DTC
(or with such other custodian as DTC may direct), and registered in the name of
DTC or a nominee of DTC, duly executed by the Company and countersigned by the
Transfer Agent as hereinafter provided. Beneficial ownership interests in
Temporary Regulation S Global Company Preferred Stock will not be exchangeable
for interests in the Rule 144A Global Company Preferred Stock, the Permanent
Regulation S Global Company Preferred Stock, or any other security without a
legend containing restrictions on transfer until the expiration of the
Restricted Period and then only upon certification in form reasonably
satisfactory to the Transfer Agent that beneficial ownership interests in such
Temporary Regulation S Global Company Preferred Stock are owned either by non-
U.S. persons or U.S. persons who purchased such interests in a transaction that
did not require registration under the Securities Act. The Rule 144A Global
Company Preferred Stock, Temporary Regulation S Global Company Preferred Stock
and Permanent Regulation S Global Company Preferred Stock are collectively
referred to herein as "Global Company Preferred Stock." Subject to the terms
hereof and to the requirements of applicable law, the number of shares of
Company Preferred Stock represented by Global Company Preferred Stock may from
time to time be increased or decreased by adjustments made on the records of the
Transfer Agent and DTC or its nominee as hereinafter provided. The Transfer
Agent shall have no obligation or duty to monitor, determine or inquire as to
compliance with any restrictions on transfer imposed under this Certificate of
Determination or under applicable law with respect to any transfer of any
interest in the Company Preferred Stock (including any transfers between or
among DTC participants, members or beneficial owners in any Global Company
Preferred Stock) other than to require delivery of such certificates and other
documentation or evidence as are expressly required by the terms of this
Certificate of Determination, and to examine the same to determine substantial
compliance as to form with the express requirements hereof.
(B) Book-Entry Provisions. In the event Global Company Preferred
----------------------
Stock is deposited with or on behalf of
<PAGE>
29
DTC, the Company shall execute and the Transfer Agent shall countersign and
deliver initially one or more Global Company Preferred Stock certificates that
(a) shall be registered in the name of DTC for such Global Company Preferred
Stock or the nominee of DTC and (b) shall be delivered by the Transfer Agent to
DTC or pursuant to DTC's instructions or held by the Transfer Agent as custodian
for DTC.
Members of, or participants in, DTC ("Agent Members") shall have no
rights under this Certificate of Determination with respect to any Global
Company Preferred Stock held on their behalf by DTC or by the Transfer Agent as
the custodian of DTC or under such Global Company Preferred Stock, and DTC may
be treated by the Company, the Transfer Agent and any agent of the Company or
the Transfer Agent as the absolute owner of such Global Company Preferred Stock
for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Transfer Agent or any agent of the Company or the
Transfer Agent from giving effect to any written certification, proxy or other
authorization furnished by DTC or impair, as between DTC and its Agent Members,
the operation of customary practices of DTC governing the exercise of the rights
of a holder of a beneficial interest in any Global Company Preferred Stock.
(C) Definitive Securities. Except as provided by applicable law or
----------------------
as provided in this paragraph (m)(i) or in paragraph (m)(iii), owners of
beneficial interests in Global Company Preferred Stock will not be entitled to
receive physical delivery of certificated Company Preferred Stock.
(ii) Execution and Countersignature. Two Officers shall sign the
-------------------------------
certificates representing the Company Preferred Stock for the Company by manual
or facsimile signature. The Company's seal shall be impressed, affixed,
imprinted or reproduced on the Company Preferred Stock and may be in facsimile
form.
If an Officer whose signature is on certificates representing the
Company Preferred Stock no longer holds that office at the time the Transfer
Agent countersigns the Company Preferred Stock evidenced thereby, the shares of
Company Preferred Stock evidenced thereby shall be valid nevertheless.
A certificate representing the Company Preferred Stock shall not be
valid until an authorized signatory of the Transfer Agent manually countersigns
the Company Preferred Stock. The signature shall be conclusive evidence that
the Company Preferred Stock has been countersigned under this Certificate of
Determination.
<PAGE>
30
The Transfer Agent shall countersign and deliver a number of shares of
Initial Company Preferred Stock and Series B Stock equal to the aggregate number
of shares of Holding Preferred Stock for which such Company Preferred Stock is
exchanged for issue only in a Registered Exchange Offer pursuant to the
Registration Agreement, in each case upon a written order of the Company signed
by two Officers or by an Officer and either an Assistant Treasurer or an
Assistant Secretary of the Company. In addition, the Transfer Agent shall
countersign and deliver, from time to time, Additional Shares for original issue
upon order of the Company signed by two Officers or by an Officer or either an
Assistant Treasurer or Assistant Secretary of the Company. Such orders shall
specify the number of shares of the Company Preferred Stock to be countersigned
and the date on which the original issue of Company Preferred Stock is to be
countersigned and whether the Company Preferred Stock is to be Initial Company
Preferred Stock or Series B Stock.
The Transfer Agent may appoint an countersigning agent reasonably
acceptable to the Company to countersign the Company Preferred Stock. Unless
limited by the terms of such appointment, a countersigning agent may countersign
the Company Preferred Stock whenever the Transfer Agent may do so. Each
reference in this Certificate of Determination to countersign by the Transfer
Agent includes countersign by such agent. An countersigning agent has the same
rights as the Transfer Agent or agent for service of notices and demands.
(iii) Transfer and Exchange. (A) Transfer and Exchange of
---------------------- ------------------------
Definitive Company Preferred Stock. When Definitive Company Preferred Stock is
- -----------------------------------
presented to the Transfer Agent with a request to register the transfer of such
Definitive Company Preferred Stock or to exchange such Definitive Company
Preferred Stock for an equal number of shares of Definitive Company Preferred
Stock of other authorized denominations, the Transfer Agent shall register the
transfer or make the exchange as requested if its reasonable requirements for
such transaction are met; provided, however, that the Definitive Company
-------- -------
Preferred Stock surrendered for transfer or exchange:
(1) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Transfer
Agent, duly executed by the Holder thereof or its attorney duly authorized
in writing; and
(2) is being transferred or exchanged pursuant to an effective
registration statement under the Securities Act or pursuant to clause (I)
or (II) below,
<PAGE>
31
and are accompanied by the following additional information and documents,
as applicable:
(I) if such Definitive Company Preferred Stock is being delivered
to the Transfer Agent by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to that
effect in substantially the form of Exhibit B hereto; or
(II) if such Definitive Company Preferred Stock is being
transferred to the Company or to a "qualified institutional buyer"
("QIB") in accordance with Rule 144A under the Securities Act or
pursuant to an exemption from registration in accordance with Rule 144
or Regulation S under the Securities Act, a certification to that
effect (in substantially the form of Exhibit B hereto).
(B) Restrictions on Transfer of Definitive Company Preferred Stock
--------------------------------------------------------------
for a Beneficial Interest in Global Company Preferred Stock. Definitive Company
- ------------------------------------------------------------
Preferred Stock may not be exchanged for a beneficial interest in Global Company
Preferred Stock except upon satisfaction of the requirements set forth below.
Upon receipt by the Transfer Agent of Definitive Company Preferred Stock, duly
endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Transfer Agent, together with:
(1) certification that such Definitive Company Preferred Stock is
being transferred (A) to a QIB in accordance with Rule 144A, (B) to an
institution that is an "accredited investor" as defined in Rule 501(a)(1),
(2), (3) or (7) of Regulation D under the Securities Act that has furnished
to the Transfer Agent a signed letter in the form of Exhibit B hereto 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
(2) written instructions directing the Transfer Agent to make, or to
direct DTC to make, an adjustment on its books and records with respect to
such Global Company Preferred Stock to reflect an increase in the number of
shares of Company Preferred Stock represented by the Global Company
Preferred Stock,
then the Transfer Agent shall cancel such Definitive Company Preferred Stock and
cause, or direct DTC to cause, in accordance with the standing instructions and
procedures existing between DTC and the Transfer Agent, the number of shares of
Company Preferred Stock represented by the Global Company Preferred Stock to be
increased accordingly. If no Global Company Preferred Stock is then
outstanding, the
<PAGE>
32
Company shall issue and the Transfer Agent shall countersign, upon written order
of the Company in the form of an Officers' Certificate, a new Global Company
Preferred Stock representing the appropriate number of shares.
(C) Transfer and Exchange of Interests in Global Company Preferred
--------------------------------------------------------------
Stock. The transfer and exchange of beneficial interests in Global Company
- ------
Preferred Stock or beneficial interests therein shall be effected through DTC,
in accordance with this Certificate of Determination (including applicable
restrictions on transfer set forth herein, if any) and the procedures of DTC
therefor.
(D) Transfer of a Beneficial Interest in Temporary Regulation S
-----------------------------------------------------------
Global Company Preferred Stock for interests in other Company Preferred Stock.
- ------------------------------------------------------------------------------
During the Restricted Period, beneficial ownership interests in
Temporary Regulation S Global Company Preferred Stock (if any) may not be
exchanged for interests in any other Global Company Preferred Stock or
Definitive Company Preferred Stock. Thereafter, such beneficial ownership
interests may be so exchanged only upon delivery to the Company and the Transfer
Agent of a certificate in form and substance satisfactory to them certifying
that the beneficial owner of the Temporary Regulation S Global Company Preferred
Stock is either a non-U.S. person or a U.S. person who purchased such beneficial
ownership interests in a transaction that did not require registration under the
Securities Act, as provided in paragraph (C)(3)(ii)(B) of Rule 903 under
Regulation S under the Securities Act.
(E) (i) Restrictions on Transfer and Exchange of Global Company
-------------------------------------------------------
Preferred Stock. Notwithstanding any other provisions of this Certificate of
- ----------------
Determination, Global Company Preferred Stock may not be transferred as a whole
except by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC or by DTC or any such nominee to a successor depository or a
nominee of such successor depository.
(ii) Restrictions on Transfer of Temporary Regulation S Global
---------------------------------------------------------
Company Preferred Stock Interests. During the Restricted Period, beneficial
- ----------------------------------
ownership interests in Temporary Regulation S Global Company Preferred Stock may
only be sold, pledged or transferred through Euroclear or Cedel in accordance
with the Applicable Procedures and only (i) to the Company, (ii) so long as such
security is eligible for resale pursuant to Rule 144A under the Securities Act
("Rule 144A"), to a person whom the selling Holder reasonably believes is a
"qualified institutional buyer" ("QIB") as defined in Rule 144A that purchases
for its own account or for the account of a QIB to whom notice
<PAGE>
33
is given that the resale, pledge or transfer is being made in reliance on Rule
144A, (iii) in an offshore transaction in accordance with Regulation S, (iv)
pursuant to an exemption from registration under the Securities Act provided by
Rule 144 (if applicable) under the Securities Act, or (v) 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. During the Restricted Period, interests in the Temporary Regulation S
Global Company Preferred Stock may not be transferred to institutions that are
"Accredited Investors" (but not QIBs) as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
(F) Countersignature of Definitive Company Preferred Stock. If at
-------------------------------------------------------
any time:
(1) DTC notifies the Company that DTC is unwilling or unable to
continue as depository for the Global Company Preferred Stock and a
successor depository for the Global Company Preferred Stock is not
appointed by the Company within 90 days after delivery of such notice;
(2) DTC ceases to be a clearing agency registered under the Exchange
Act;
(3) The Company, in its sole discretion, notifies the Transfer Agent
in writing that it elects to cause the issuance of Definitive Company
Preferred Stock under this Certificate of Determination,
then the Company will execute, and the Transfer Agent, upon receipt of a written
order of the Company signed by two Officers or by an Officer and either an
Assistant Treasurer or an Assistant Secretary of the Company requesting the
countersign and delivery of Definitive Company Preferred Stock to the persons
designated by the Company, will countersign and deliver Definitive Company
Preferred Stock equal to the number of shares of Company Preferred Stock
represented by the Global Company Preferred Stock, in exchange for such Global
Company Preferred Stock. Definitive Company Preferred Stock issued in exchange
for a beneficial interest in a Global Company Preferred Stock shall be
registered in such names and in such authorized denominations as DTC, pursuant
to instructions from its direct or indirect participants or otherwise, shall
instruct the Transfer Agent. The Transfer Agent shall mail or deliver such
Definitive Company Preferred Stock to the persons in whose names such Company
Preferred Stock are so registered in accordance with the instructions of DTC.
(G) Legend. (1) Except as permitted by the following paragraph (2),
-------
each certificate evidencing the
<PAGE>
34
Global Company Preferred Stock and the Definitive Company Preferred Stock (and
all Company Preferred Stock issued in exchange therefor or substitution thereof)
shall bear a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY MAY NOT
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND
ANNIVERSARY OF THE ISSUANCE HEREOF (OR OF A PREDECESSOR SECURITY HERETO) OR
(Y) BY ANY HOLDER THAT WAS AN AFFILIATE OF THE ISSUER AT ANY TIME DURING
THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER
THAN (1) TO THE ISSUER, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF
TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION
IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY
THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE
REVERSE OF THIS SECURITY) PROVIDED THAT A CERTIFICATE WHICH MAY BE OBTAINED
FROM THE ISSUER IS DELIVERED BY CERTAIN TRANSFEREES TO THE ISSUER, (4) TO
AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE
BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE
OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES
AND NOT FOR DISTRIBUTION, AND A CERTIFICATE WHICH MAY BE OBTAINED FROM THE
ISSUER OR THE TRANSFER AGENT IS DELIVERED BY THE TRANSFEREE TO THE ISSUER
AND THE TRANSFER AGENT (PROVIDED THAT CERTAIN HOLDERS MAY NOT TRANSFER THIS
SECURITY PURSUANT TO THIS CLAUSE (4) PRIOR TO THE EXPIRATION OF THE "40 DAY
RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE 903(C)(3) OF REGULATION S
UNDER THE SECURITIES ACT)), (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE
SECURITIES ACT, OR (6) 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. AN INSTITUTIONAL
ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES IT WILL FURNISH TO THE
ISSUER AND THE TRANSFER AGENT SUCH CERTIFICATES AND OTHER
<PAGE>
35
INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY
IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER
HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT
OF THE ISSUER THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A OR (2) PURCHASING FROM A PERSON NOT PARTICIPATING IN
THE INITIAL DISTRIBUTION OF THIS SECURITY (OR ANY PREDECESSOR SECURITY), IT
IS AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(A)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING
THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A
NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN
ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF RULE 902 UNDER)
REGULATION S UNDER THE SECURITIES ACT."
(2) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by Global Company
Preferred Stock) pursuant to Rule 144 under the Securities Act or an effective
registration statement under the Securities Act:
(I) in the case of any Transfer Restricted Security that is a
Definitive Company Preferred Stock, the Transfer Agent shall permit
the Holder thereof to exchange such Transfer Restricted Security for a
Definitive Company Preferred Stock that does not bear the legend set
forth above and rescind any restriction on the transfer of such
Transfer Restricted Security; and
(II) in the case of any Transfer Restricted Security that is
represented by a Global Company Preferred Stock, the Transfer Agent
shall permit the Holder thereof to exchange such Transfer Restricted
Security for interests in an Unrestricted Global Preferred Stock
Security that does not bear the legend set forth above and rescind any
restriction on the transfer of such Transfer Restricted Security, if
the Holder's request for such exchange was made in reliance on Rule
144 and the Holder certifies to that effect in writing to the Transfer
Agent (such certification to be in the form and substance satisfactory
to the Transfer Agent).
(3) In the case of any Restricted or Unrestricted Global Security
that represents the Initial Company Preferred Stock, the Transfer Agent shall
permit the Holder thereof to exchange such Restricted or Unrestricted Global
Security for a new global security representing Series B Stock that does not
bear the legend set forth above.
<PAGE>
36
(H) Cancelation or Adjustment of Global Company Preferred Stock. At
------------------------------------------------------------
such time as all beneficial interests in Global Company Preferred Stock have
either been exchanged for Definitive Company Preferred Stock, redeemed,
repurchased or canceled, such Global Company Preferred Stock shall be returned
to DTC for cancelation or retained and canceled by the Transfer Agent. At any
time prior to such cancelation, if any beneficial interest in Global Company
Preferred Stock is exchanged for Definitive Company Preferred Stock, redeemed,
repurchased or canceled, the number of shares of Company Preferred Stock
represented by such Global Company Preferred Stock shall be reduced and an
adjustment shall be made on the books and records of the Transfer Agent with
respect to such Global Company Preferred Stock, by the Transfer Agent or DTC, to
reflect such reduction.
(I) Obligations with Respect to Transfers and Exchanges of Company
--------------------------------------------------------------
Preferred Stock. (1) To permit registrations of transfers and exchanges, the
- ----------------
Company shall execute and the Transfer Agent shall countersign Definitive
Company Preferred Stock and Global Company Preferred Stock as required pursuant
to the provisions of this paragraph (iii).
(2) All Definitive Company Preferred Stock and Global Company
Preferred Stock issued upon any registration of transfer or exchange of
Definitive Company Preferred Stock or Global Company Preferred Stock shall
be the valid obligations of the Company, entitled to the same benefits
under this Certificate of Determination as the Definitive Company Preferred
Stock or Global Company Preferred Stock surrendered upon such registration
of transfer or exchange.
(3) Prior to due presentment for registration of transfer of any
shares of Company Preferred Stock, the Transfer Agent and the Company may
deem and treat the person in whose name such shares of Company Preferred
Stock are registered as the absolute owner of such Company Preferred Stock
and neither the Transfer Agent nor the Company shall be affected by notice
to the contrary.
(4) No service charge shall be made to a Holder for any registration
of transfer or exchange upon surrender of any Company Preferred Stock
Certificate at the office of the Transfer Agent maintained for that
purpose. However, the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Company
Preferred Stock Certificates.
<PAGE>
37
(5) Upon any sale or transfer of shares of Company Preferred Stock
(including any Company Preferred Stock represented by a Global Company
Preferred Stock Certificate) pursuant to an effective registration
statement under the Securities Act, pursuant to Rule 144 under the
Securities Act or pursuant to an opinion of counsel reasonably satisfactory
to the Company that no legend is required:
(A) in the case of any Definitive Company Preferred Stock, the
Transfer Agent shall permit the Holder thereof to exchange such
Company Preferred Stock for Definitive Company Preferred Stock
that does not bear the legend set forth in paragraph (iii)(G)
above and rescind any restriction on the transfer of such Company
Preferred Stock; and
(B) in the case of any Global Company Preferred Stock, such Company
Preferred Stock shall not be required to bear the legend set
forth in paragraph (m)(iii)(G) above but shall continue to be
subject to the provisions of paragraph (m)(iii)(D) hereof.
(iv) Replacement Certificates. If a mutilated Company Preferred
-------------------------
Stock certificate is surrendered to the Transfer Agent or if the Holder of a
Company Preferred Stock certificate claims that the Company Preferred Stock
certificate has been lost, destroyed or wrongfully taken, the Company shall
issue and the Transfer Agent shall countersign a replacement Company Preferred
Stock certificate if the reasonable requirements of the Transfer Agent, the
Company and of Section 8-405 of the Uniform Commercial Code as in effect in the
State of New York are met. If required by the Transfer Agent or the Company,
such Holder shall furnish an indemnity bond sufficient in the judgment of the
Company and the Transfer Agent to protect the Company and the Transfer Agent
from any loss which either of them may suffer if a Company Preferred Stock
certificate is replaced. The Company and the Transfer Agent may charge the
Holder for their expenses in replacing a Company Preferred Stock certificate.
(v) Temporary Certificates. Until definitive Company Preferred Stock
-----------------------
certificates are ready for delivery, the Company may prepare and the Transfer
Agent shall countersign temporary the Company Preferred Stock certificates.
Temporary the Company Preferred Stock certificates shall be substantially in the
form of definitive Company Preferred Stock certificates but may have variations
that the Company considers appropriate for temporary Company Preferred Stock
certificates. Without unreasonable delay, the Company shall prepare and the
<PAGE>
38
Transfer Agent shall countersign definitive Company Preferred Stock certificates
and deliver them in exchange for temporary Company Preferred Stock certificates.
(vi) Cancelation. (A) In the event the Company shall purchase or
------------
otherwise acquire Definitive Company Preferred Stock, the same shall thereupon
be delivered to the Transfer Agent for cancelation.
(B) At such time as all beneficial interests in Global Company
Preferred Stock have been exchanged for Definitive Company Preferred Stock,
redeemed, repurchased or canceled, such Global Company Preferred Stock shall
thereupon be delivered to the Transfer Agent for cancelation.
(C) The Transfer Agent and no one else shall cancel and, subject to
the record retention requirements under the Exchange Act, destroy all Company
Preferred Stock certificates surrendered for transfer, exchange, replacement or
cancelation and deliver a certificate of such destruction to the Company unless
the Company directs the Transfer Agent to deliver canceled Company Preferred
Stock certificates to the Company. The Company may not issue new Company
Preferred Stock certificates to replace Company Preferred Stock certificates to
the extent they evidence Company Preferred Stock which the Company has purchased
or otherwise acquired.
(n) Additional Rights of Holders. In addition to the rights provided
-----------------------------
to Holders under this Certificate of Determination, Holders shall have the
rights set forth in the Registration Agreement.
(o) Certain Definitions. As used in this Certificate of
--------------------
Determination, the following terms shall have the following meanings (and (1)
terms defined in the singular have comparable meanings when used in the plural
and vice versa, (2) "including" means including without limitation, (3) "or" is
not exclusive and (4) an accounting term not otherwise defined has the meaning
assigned to it in accordance with United States generally accepted accounting
principles as in effect on the Issue Date and all accounting calculations will
be determined in accordance with such principles), unless the content otherwise
requires:
"Additional Assets" means (a) any Property (other than cash, cash
equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in a Related Business; or (b) Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary from any Person other than
an Affiliate of the Company; provided, however, that, in the
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<PAGE>
39
case of clause (b), such Restricted Subsidiary is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means (a) any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person or (b) any other Person who is a
director or officer of (i) such specified Person, (ii) any Subsidiary of such
specified Person or (iii) any Person described in clause (a) above. For the
purposes of this definition, "control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of the covenant described under
paragraph (l)(vi) only, "Affiliate" shall also mean any beneficial owner of
shares representing 5% or more of the total voting power of the Voting Stock (on
a fully diluted basis) of the Company or of rights or warrants to purchase such
Voting Stock (whether or not currently exercisable) and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"Asset Sale" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (a) any
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares) or (b) any other assets of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the Company or such
Restricted Subsidiary (other than, in the case of clauses (a) and (b) above, (i)
any disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) any disposition
effected in compliance with the first paragraph of the covenant described under
paragraph (l)(viii), (iii) any Sale and Leaseback Transaction completed within
180 days following the original acquisition of the subject assets where such
Sale and Leaseback Transaction represents the intended financing of Property
acquired after the Issue Date and (iv) any disposition or series of related
dispositions of assets having a Fair Market Value and sale price of less than
$500,000).
"Attributable Debt" in respect of a Sale and Leaseback Transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental
<PAGE>
40
payments during the remaining term of the lease included in such Sale and
Leaseback Transaction (including any period for which such lease has been
extended or may, at the option of the lessor, be extended).
"Average Life" means, as of any date of determination, with respect to
any Debt or Preferred Stock, the quotient obtained by dividing (a) the sum of
the product of the numbers of years (rounded to the nearest one twelfth of one
year) from the date of determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by (b) the sum of
all such payments.
"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 each day which is not a Legal Holiday.
"Capital Lease Obligations" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Capital Stock" means, with respect to any Person, any shares or other
equivalents (however designated) of corporate stock, partnership interests or
any other participations, rights, warrants, options or other interests in the
nature of an equity interest in such Person, including Preferred Stock, but
excluding any debt security convertible or exchangeable into such equity
interest.
"Capital Stock Sale Proceeds" means the aggregate cash proceeds
received by the Company from the issuance or sale (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 for the benefit of their employees) by the
Company of any class of its Parity Stock and Junior Stock (other than
Disqualified Stock) after the Issue Date, net of attorneys' fees, accountants'
fees, underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees actually incurred in connection with such
issuance or sale and net of taxes paid or payable as a result thereof.
<PAGE>
41
"Change of Control" means the occurrence of any of the following
events:
(a) prior to the first Public Equity Offering, the Permitted Holders
cease to be the "beneficial owners" (as defined in Rule 13d-3 under the
Exchange Act, except that a Person will be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of a majority of the voting power of the
Voting Stock of the Company, whether as a result of the issuance of
securities of the Company, any merger, consolidation, liquidation or
dissolution of the Company, any direct or indirect transfer of securities
by the Permitted Holders or otherwise (for purposes of this clause (a), the
Permitted Holders will be deemed to beneficially own any Voting Stock of a
corporation (the "specified corporation") held by any other corporation
(the "parent corporation") so long as the Permitted Holders beneficially
own, directly or indirectly, in the aggregate a majority of the voting
power of the Voting Stock of such parent corporation); or
(b) after the first Public Equity Offering, any "Person" or "group"
(as such terms are used in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provisions to either of the foregoing), including any
group acting for the purpose of acquiring, holding, voting or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act,
other than any one or more of the Permitted Holders, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except
that a Person will be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of 35% or more of the voting power of the Voting Stock of the
Company; provided, however, that the Permitted Holders are the "beneficial
-------- -------
owners" (as defined in Rule 13d-3 under the Exchange Act, except that a
Person will be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, in
the aggregate of a lesser percentage of the total voting power of all
classes of the Voting Stock of the Company than such other Person or group
(for purposes of this clause (b), such Person or group shall be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation so long as such Person or group
<PAGE>
42
beneficially owns, directly or indirectly, in the aggregate a majority of
the voting power of the Voting Stock of such parent corporation); or
(c) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Subsidiary or one or more Permitted Holders)
shall have occurred, or the Company merges, consolidates or amalgamates
with or into any other Person (other than one or more Permitted Holders) or
any other Person (other than one or more Permitted Holders) merges,
consolidates or amalgamates with or into the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is reclassified into or exchanged for cash, securities or other
Property, other than any such transaction where (i) the outstanding Voting
Stock of the Company is reclassified into or exchanged for Voting Stock of
the surviving corporation and (ii) the holders of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving corporation
immediately after such transaction and in substantially the same proportion
as before the transaction; or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election or appointment by such Board or whose
nomination for election by the shareholders of the Company was approved by
a vote of 66% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the members of the Board of Directors then in office; or
(e) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Exchange Debentures" means the 11 1/2% Subordinated Exchange
Debentures due 2010 of the Company, issuable upon redemption of the Company
Preferred Stock.
<PAGE>
43
"Company Exchange Indenture" means the Exchange Indenture dated as of
April 7, 1998 between the Company and the United States Trust Company of New
York, as Trustee, governing the Company Exchange Debentures.
"Consolidated Interest Coverage Ratio" means, as of any date of
determination, the ratio of (a) the aggregate amount of EBITDA for the most
recent four consecutive fiscal quarters ending at least 45 days prior to such
determination date to (b) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (i) if the Company or any Restricted
-------- -------
Subsidiary has Incurred any Debt since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate the
Consolidated Interest Coverage Ratio is an Incurrence of Debt, or both,
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Debt as if such Debt had been Incurred on
the first day of such period and the discharge of any other Debt repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new Debt
as if such discharge had occurred on the first day of such period, (ii) if since
the beginning of such period the Company or any Restricted Subsidiary shall have
repaid, repurchased, legally defeased or otherwise discharged any Debt with
Capital Stock Sale Proceeds, Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to such discharge as if
such discharge had occurred on the first day of such period, (iii) if since the
beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Sale or if the transaction giving rise to the need to calculate
the Consolidated Interest Coverage Ratio is an Asset Sale, or both, EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the Property which is the subject of such Asset Sale
for such period, or increased by an amount equal to the EBITDA (if negative)
directly attributable thereto for such period, in either case as if such Asset
Sale had occurred on the first day of such period and Consolidated Interest
Expense for such period shall be reduced by an amount equal to the Consolidated
Interest Expense directly attributable to any Debt of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in connection
with such Asset Sale, as if such Asset Sale had occurred on the first day of
such period (or, if the Capital Stock of any Restricted Subsidiary is sold, by
an amount equal to the Consolidated Interest Expense for such period directly
attributable to the Debt of such Restricted Subsidiary to the extent the Company
and its continuing Restricted Subsidiaries are no longer liable for such Debt
after such sale), (iv) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or
<PAGE>
44
otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person which becomes a Restricted Subsidiary) or an acquisition of Property,
including any acquisition of Property occurring in connection with a transaction
causing a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Debt) as if such Investment or
acquisition occurred on the first day of such period and (v) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset Sale, Investment
or acquisition of Property that would have required an adjustment pursuant to
clause (iii) or (iv) above if made by the Company or a Restricted Subsidiary
during such period, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto as if such Asset Sale,
Investment or acquisition occurred on the first day of such period. For purposes
of this definition, pro forma calculations shall be determined in good faith by
a responsible financial or accounting Officer of the Company and as further
contemplated by the definition of the term "pro forma". If any Debt bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Debt shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Debt if such Interest
Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent Incurred by the Company or its Restricted Subsidiaries, (a) interest
expense attributable to capital leases, (b) amortization of debt discount and
debt issuance cost, including commitment fees, other than with respect to Debt
Incurred in connection with the Recapitalization, (c) capitalized interest, (d)
non-cash interest expenses, (e) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (f) net costs associated with Hedging Obligations (including
amortization of fees), (g) Disqualified Dividends other than Disqualified
Dividends paid with shares of Parity Stock or Junior Stock of the Company which
is not Disqualified Stock, (h) Preferred Stock dividends in respect of all
Preferred Stock of Restricted Subsidiaries held by Persons other than the
Company or a Wholly Owned Subsidiary, (i) interest Incurred in connection with
Investments in discontinued operations, (j) interest accruing on any Debt
<PAGE>
45
of any other Person to the extent such Debt is Guaranteed by the Company or any
Restricted Subsidiary and (k) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Debt Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss)
of the Company and its consolidated Subsidiaries; provided, however, that there
-------- -------
shall not be included in such Consolidated Net Income (a) any net income (loss)
of any Person (other than the Company) if such Person is not a Restricted
Subsidiary, except that (i) subject to the exclusion contained in clause (d)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (c) below) and (ii) the Company's equity in a
net loss of any such Person other than an Unrestricted Subsidiary for such
period shall be included in determining such Consolidated Net Income, (b) for
the purposes of paragraph (l)(iii) only, any net income (loss) of any Person
acquired by the Company or any of its consolidated Subsidiaries in a pooling of
interests transaction for any period prior to the date of such acquisition, (c)
any net income (but not loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions, directly or indirectly, to the
Company, except that subject to the exclusion contained in clause (d) below, the
Company's equity in the net income of any such Restricted Subsidiary for such
period shall be included in such Consolidated Net Income up to the aggregate
amount of cash distributed by such Restricted Subsidiary during such period to
the Company or another Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to another Restricted
Subsidiary, to the limitation contained in this clause), (d) any gain (or, for
purposes of paragraphs (l)(ii) and (l)(viii) only, loss) realized upon the sale
or other disposition of any Property of the Company or any of its consolidated
Subsidiaries (including pursuant to any Sale and Leaseback Transaction) which is
not sold or otherwise disposed of in the ordinary course of business, provided,
--------
that any tax benefit or tax liability resulting therefrom shall be excluded in
such Consolidated Net Income, (e) any extraordinary gain or loss, provided, that
--------
any tax benefit or tax liability resulting therefrom shall be excluded in such
Consolidated Net Income, (f) the cumulative effect of a
<PAGE>
46
change in accounting principles and (g) (i) any non-cash compensation expense
realized for grants of performance shares, stock options or other stock awards
to officers, directors and employees of the Company or any Restricted Subsidiary
or (ii) compensation expense realized with respect to periods prior to Issue
Date in respect of payments under the Company's 1994 Amended and Restated Equity
Participation Plan or compensation expense, to the extent accrued in 1998,
related to contingent payments to existing managers of the Company pursuant to
the Merger Agreement in an aggregate amount not in excess of $2.4 million.
Notwithstanding the foregoing, for the purposes of paragraph (l)(iii) 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 clause (c)(iv) thereof.
"Credit Facility" means, with respect to the Company or any Restricted
Subsidiary, one or more debt or commercial paper facilities with banks or other
institutional lenders (including the New Credit Facility) providing for
revolving credit loans, term loans, receivables or inventory financing
(including through the sale of receivables or inventory to such lenders or to
special purpose, bankruptcy remote entities formed to borrow from such lenders
against such receivables or inventory) or trade letters of credit, in each case
together with any amendments, supplements, modifications (including by any
extension of the maturity thereof), refinancings or replacements thereof by a
lender or syndicate of lenders in one or more successive transactions (including
any such transaction that changes the amount available thereunder, replaces such
agreement or document, or provides for other agents or lenders).
"Currency Exchange Protection Agreement" means, in respect of a
Person, any foreign exchange contract, currency swap agreement, currency option
or other similar agreement or arrangement designed to protect such Person
against fluctuations in currency exchange rates.
"Debt" means, with respect to any Person on any date of determination
(without duplication), (a) the principal of and premium (if any) in respect of
(i) debt of such Person for money borrowed and (ii) debt evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (b) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale and Leaseback Transactions
entered into by such Person; (c) all
<PAGE>
47
obligations of such Person issued or assumed as the deferred purchase price of
Property, all conditional sale obligations of such Person and all obligations of
such Person under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business); (d) all obligations of such
Person for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction (other than obligations with respect to
letters of credit securing obligations (other than obligations described in (a)
through (c) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the third Business
Day following receipt by such Person of a demand for reimbursement following
payment on the letter of credit); (e) the amount of all obligations of such
Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of such Person, any
Preferred Stock (but excluding, in each case, any accrued dividends); (f) all
obligations of the type referred to in clauses (a) through (e) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee; (g) all obligations
of the type referred to in clauses (a) through (t) of other Persons secured by
any Lien on any Property of such Person (whether or not such obligation is
assumed by such Person), the amount of such obligation being deemed to be the
lesser of the value of such Property or the amount of the obligation so secured;
and (h) to the extent not otherwise included in this definition, Hedging
Obligations of such Person. The amount of Debt of any Person at any date shall
be the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date; provided that the amount outstanding at any time of any Debt issued with
--------
original issue discount is the face amount of such Debt less the remaining
unamortized portion of the original issue discount of such Debt at such time as
determined in accordance with GAAP.
"Disqualified Dividends" means, for any dividend with respect to
Disqualified Stock, the quotient of the dividend divided by the difference
between one and the maximum statutory federal income tax rate (expressed as a
decimal number between 1 and 0) then applicable to the issuer of such
Disqualified Stock.
"Disqualified Stock" means, with respect to any Person, Redeemable
Stock of such Person as to which (i) the maturity, (ii) mandatory redemption or
(iii) redemption, repurchase, conversion or exchange at the option of the
<PAGE>
48
holder thereof occurs, or may occur, on or prior to the first anniversary of the
Stated Maturity of the Company Preferred Stock; provided, however, that
-------- -------
Redeemable Stock of such Person that would not otherwise be characterized as
Disqualified Stock under this definition shall not constitute Disqualified Stock
(a) if such Redeemable Stock is convertible or exchangeable into Debt or
Disqualified Stock solely at the option of the issuer thereof or (b) solely as a
result of provisions thereof giving holders thereof the right to require such
Person to repurchase or redeem such Redeemable Stock upon the occurrence of a
"change of control" occurring prior to the first anniversary of the Stated
Maturity of the Company Preferred Stock, if (x) such repurchase obligation may
not be triggered in respect of such Redeemable Stock unless a corresponding
obligation also arises with respect to the Company Preferred Stock and (y) no
such repurchase or redemption is permitted to be consummated unless and until
such Person shall have satisfied all repurchase or redemption obligations with
respect to any required purchase offer made with respect to the Company
Preferred Stock.
"EBITDA" means, for any period, an amount equal to, for the Company
and its consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net
Income for such period, plus the following to the extent reducing Consolidated
Net Income for such period: (i) the provision for taxes based on income or
profits or utilized in computing net loss, (ii) Consolidated Interest Expense,
(iii) depreciation, (iv) amortization expense and (v) any other non-cash items
(other than any such non-cash item to the extent that it represents an accrual
of or reserve for cash expenditures in any future period), minus (b) all non-
cash items increasing Consolidated Net Income for such period (other than any
such non-cash item to the extent that it will result in the receipt of cash
payments in any future period). Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
of, a Restricted Subsidiary 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 Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its shareholders.
"Employee Notes" means promissory notes of employees of Holding, the
Company or any of their Subsidiaries payable to the Company or Holding and
received
<PAGE>
49
in connection with the substantially concurrent purchase of common stock of the
Company or Holding by such employees.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exchange Offer Registration Statement" means a registration statement
of the Company on an appropriate form under the Securities Act with respect to
the Registered Exchange Offer, all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Fair Market Value" means, with respect to any Property, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided, (a) if such Property has a Fair Market
Value equal to or less than $2.5 million, by any Officer of the Company or (b)
if such Property has a Fair Market Value in excess of $2.5 million, by a
majority of the Board of Directors and evidenced by a Board Resolution, dated
within 30 days of the relevant transaction, delivered to the Transfer Agent.
"GAAP" means United States generally accepted accounting principles as
in effect on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such other
entity as approved by a significant segment of the accounting profession and (d)
the rules and regulations of the SEC governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered
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50
into for the purpose of assuring in any other manner the obligee against loss in
respect thereof (in whole or in part); provided, however, that the term
-------- -------
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement
or any other similar agreement or arrangement.
"Holder" means the person in whose name a share of Company Preferred
Stock is registered on the Transfer Agent's books.
"Holding" means River Holding Corp., the corporate parent of the
Company, and any successor thereto.
"IAI" means an institution that is an "accredited investor" as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Incur" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by merger, conversion, exchange or otherwise),
extend, assume, Guarantee or become liable in respect of such Debt or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Debt or obligation on the balance sheet of such Person (and "Incurrence"
and "Incurred" shall have meanings correlative to the foregoing); provided,
--------
however, that a change in GAAP that results in an obligation of such Person that
- -------
exists at such time, and is not theretofore classified as Debt, becoming Debt
shall not be deemed an Incurrence of such Debt; provided further, however, that
----------------
solely for purposes of determining compliance with paragraph (l)(ii),
amortization of debt discount shall not be deemed to be the Incurrence of Debt,
provided that in the case of Debt sold at a discount, the amount of such Debt
- --------
Incurred shall at all times be the aggregate principal amount at Stated
Maturity.
"Indenture" means the Indenture dated as of the Issue Date among
Holding, the Company and the United States Trust Company of New York, as
Trustee, governing the Notes.
"Independent Appraiser" means an investment banking firm of national
standing or any third party appraiser of national standing, provided that such
--------
firm or appraiser is not an Affiliate of the Company.
"Industrias Hudson" means Industrias Hudson S.A. de C.V.
<PAGE>
51
"Interest Rate Agreement" means, for any Person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect against fluctuations in interest
rates.
"Investment" by any Person means any direct or indirect loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidence of Debt issued by, any other Person. For purposes
of paragraphs (l)(iii) and (l)(vii) and the definition of "Restricted Payment",
"Investment" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of any
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 (a) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (b) 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. In determining
the amount of any Investment made by transfer of any Property other than cash,
such Property shall be valued at its Fair Market Value at the time of such
Investment.
"Issue Date" means April 7, 1998.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the City of New York and Los
Angeles.
"Lien" means, with respect to any Property of any Person, any mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any Capital
Lease Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
<PAGE>
52
"Merger Agreement" means the Amended and Restated Merger Agreement
between Holding, River Acquisition Corp., the Company and shareholders of the
Company dated as of March 15, 1998, as in effect on the Issue Date.
"Mirror Preferred Stock" means the 11 1/2% Senior PIK Preferred Stock
due 2010 of the Company.
"Moody's" means Moody's Investors Service, Inc. or any successor to
the rating agency business thereof.
"Net Available Cash" from any Asset Sale or other transaction subject
to paragraph (l)(iv) means cash payments received therefrom (including any cash
payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Debt or other obligations relating to the Property that is
the subject of such transaction or received in any other noncash form), in each
case net of (a) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, provincial, foreign
and local taxes required to be accrued as a liability under GAAP, as a
consequence of such transaction, (b) all payments made on any Debt which is
secured by any Property subject to such transaction, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such Property, or which must by its terms, or in order to obtain a necessary
consent to such transaction, or by applicable law, be repaid out of the proceeds
from such transaction, (c) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures as a result
of such transaction and (d) the deduction of appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the Property disposed in such transaction and retained by the Company or
any Restricted Subsidiary after such transaction.
"New Credit Facility" means the credit facilities made available
pursuant to the Senior Secured Credit Agreement dated as of the Issue Date among
the Company, Holding, the lenders party thereto, Salomon Smith Barney Inc, as
Arranger, Advisor and Syndication Agent and Bankers Trust Company, as
Administrative Agent.
"Notes" means the 9 1/8% Senior Subordinated Notes due 2008 of the
Company.
"Officer" means the Chief Executive Officer, the President, the Chief
Financial Officer or any Executive Vice President of the Company.
<PAGE>
53
"Officers' Certificate" means a certificate signed by two Officers of
the Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Transfer Agent.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Transfer Agent. The counsel may be an employee of or counsel
to the Company.
"Permitted Debt" means:
(a) Debt of the Company evidenced by the Notes and of Subsidiary
Guarantors evidenced by Subsidiary Guaranties;
(b) (i) Debt under the Credit Facility; provided that the aggregate
--------
principal amount of all such Debt under the Credit Facility comprised of
(A) term loans at any one time outstanding shall not exceed $40.0 million
minus all principal amounts repaid in respect of such term loans and (B)
revolving credit loans and obligations at any one time outstanding shall
not exceed the greater of (x) $60.0 million and (y) the sum of the amounts
equal to (1) 60% of the net book value of the inventory of the Company and
the Restricted Subsidiaries and (2) 85% of the net book value of the
accounts receivable of the Company and the Restricted Subsidiaries, in each
case as of the most recent fiscal quarter ending at least 45 days prior to
the date of determination and (ii) Guarantees of Debt under the Credit
Facility;
(c) Debt in respect of Capital Lease Obligations and Purchase Money
Debt, provided that (i) the aggregate principal amount of such Debt does
--------
not exceed the Fair Market Value (on the date of the Incurrence thereof) of
the Property acquired, constructed or leased (including costs of
installation, taxes and delivery charges with respect to such acquisition,
construction or lease) and (ii) the aggregate principal amount of all Debt
Incurred and then outstanding pursuant to this clause (c) (together with
all Permitted Refinancing Debt Incurred in respect of Debt previously
Incurred pursuant to this clause (c) and then outstanding) does not exceed
$15.0 million;
(d) Debt of the Company owing to and held by any Wholly Owned
Subsidiary and Debt of a Wholly Owned Subsidiary owing to and held by the
Company or any Wholly Owned Subsidiary; provided, however, that any
-------- -------
subsequent issue or transfer of Capital Stock or other event that results
in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary
or any subsequent transfer of any such Debt (except to the
<PAGE>
54
Company or a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Debt by the issuer thereof;
(e) Debt of a Wholly Owned Subsidiary Incurred and outstanding on or
prior to the date on which such Wholly Owned Restricted Subsidiary was
acquired by the Company or otherwise became a Restricted Subsidiary (other
than Debt Incurred as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of transactions pursuant to which such Wholly Owned Restricted
Subsidiary became a Subsidiary of the Company or was otherwise acquired by
the Company); provided that at the time such Wholly Owned Restricted
--------
Subsidiary was acquired by the Company or otherwise became a Restricted
Subsidiary and after giving pro forma effect to the Incurrence of such
Debt, the Company would have been able to Incur $1.00 of additional Debt
pursuant to clause (a) of paragraph (l)(ii);
(f) Debt under Interest Rate Agreements entered into by the Company or
a Restricted Subsidiary for the purpose of limiting interest rate risk in
the ordinary course of the financial management of the Company or such
Restricted Subsidiary and not for speculative purposes, provided that the
--------
obligations under such agreements are directly related to payment
obligations on Debt otherwise permitted by the terms of paragraph (l)(ii);
(g) Debt under Currency Exchange Protection Agreements entered into by
the Company or a Restricted Subsidiary for the purpose of limiting currency
exchange rate risks directly related to transactions entered into by the
Company or such Restricted Subsidiary in the ordinary course of business
and not for speculative purposes;
(h) Debt in connection with one or more standby letters of credit or
performance bonds issued for the account of the Company or any Restricted
Subsidiary in the ordinary course of business or pursuant to self-insurance
obligations and not in connection with the borrowing of money or the
obtaining of advances;
(i) Debt outstanding on the Issue Date not otherwise described in
clauses (a) through (h) above;
(j) Debt not otherwise described in clauses (a) through (i) above and
clause (1) below in an aggregate principal amount outstanding at any one
time not to exceed $15.0 million;
<PAGE>
55
(k) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause (a) of paragraph (l)(ii) and clauses (a), (c), (e) and
(i) above, subject, in the case of clause (c) above, to the limitations set
forth in the proviso thereto; and
(l) Debt of the Company under the Company Exchange Debentures.
"Permitted Holders" means Helen Hudson Lovaas, any member of the
senior management of the Company or Holding on the Issue Date and Freeman Spogli
& Co. Incorporated or any successor entity thereof controlled by the principals
of Freeman Spogli & Co. Incorporated or any entity controlled by, or under
common control with, Freeman Spogli & Co. Incorporated.
"Permitted Investment" means any Investment by the Company or a
Restricted Subsidiary in (a) any Restricted Subsidiary or any Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided
--------
that the primary business of such Restricted Subsidiary is a Related Business;
(b) any Person if as a result of such Investment such Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
Property to, the Company or a Restricted Subsidiary; provided that such Person's
--------
primary business is a Related Business; (c) Temporary Cash Investments; (d)
receivables owing to the Company or a Restricted Subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade terms
-------- -------
may include such concessionary trade terms as the Company or such Restricted
Subsidiary deems reasonable under the circumstances; (e) payroll, travel and
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (f) (i) loans and advances to employees made
in the ordinary course of business consistent with past practices of the Company
or such Restricted Subsidiary, as the case may be; provided that such loans and
--------
advances do not exceed $1.0 million at any one time outstanding and (ii) loans
and advances to, or the receipt of Employee Notes from, employees of Holding,
the Company or any of their Subsidiaries made or received in connection with the
substantially concurrent purchase of common stock of the Company or Holding by
such employees; provided that the aggregate principal amount of such loans,
-------- ----
advances and notes payable shall not exceed $1.0 million at any one time
outstanding; (g) stock, obligations or other securities received in settlement
of debts created in the ordinary course of business and owing to the Company or
a Restricted Subsidiary or in satisfaction of judgments; (h) any Person to the
extent such Investment represents the
<PAGE>
56
non-cash portion of the consideration received in connection with a disposition
of assets; and (i) Investments in Persons engaged in a Related Business not to
exceed $10.0 million at any one time outstanding (it being agreed that an
Investment shall cease to be outstanding to the extent of dividends, repayments
of loans or advances or other transfers of Property received by the Company or
any Restricted Subsidiary from such Persons, provided that such amounts do not
--------
increase the amount of Restricted Payments which the Company and the Restricted
Subsidiaries may make pursuant to clause (c)(iv)(A) of paragraph (l)(iii)).
"Permitted Refinancing Debt" means any Debt that Refinances any other
Debt, including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance costs,
related to such Refinancing, (b) the Average Life of such Debt is equal to or
greater than the Average Life of the Debt being Refinanced and (c) the Stated
Maturity of such Debt is no earlier than the Stated Maturity of the Debt being
Refinanced; provided, however, that Permitted Refinancing Debt shall not include
-------- -------
(x) Debt of a Subsidiary that Refinances Debt of the Company or (y) Debt of the
Company or a Restricted Subsidiary that Refinances Debt of an Unrestricted
Subsidiary.
"Person" means any individual, corporation, company (including any
limited liability company), partnership, joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
the payment of dividends, or as to the distribution of assets upon any voluntary
or involuntary liquidation or dissolution of such Person, over shares of any
other class of Capital Stock issued by such Person.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation
<PAGE>
57
with the independent certified public accountants of the Company, as the case
may be.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including Capital Stock in, and other securities of, any
other Person.
"Public Equity Offering" means an underwritten public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Purchase Money Debt" means Debt (a) consisting of the deferred
purchase price of property, conditional sale obligations, obligations under any
title retention agreement, other purchase money obligations and obligations in
respect of industrial revenue bonds, in each case where the maturity of such
Debt does not exceed the anticipated useful life of the asset being financed,
and (b) Incurred to finance the acquisition or construction by the Company or a
Restricted Subsidiary of such asset, including remodeling thereof and additions
and improvements thereto; provided, however, that such Debt is Incurred within
-------- -------
180 days after such acquisition of such asset by the Company or a Restricted
Subsidiary or completion of such construction, remodeling, addition or
improvement, as the case may be.
"Redeemable Stock" means, with respect to any Person, any Capital
Stock that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable, in either case at the option of the
holder thereof) or otherwise (a) matures or is mandatorily redeemable pursuant
to a sinking fund obligation or otherwise, (b) is or may become redeemable or
repurchaseable at the option of the holder thereof, in whole or in part, or (c)
is convertible or exchangeable, in either case at the option of the holder
thereof, for Debt or Disqualified Stock.
"Refinance" means, in respect of any Debt, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other Debt,
in exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
"Registered Exchange Offer" means the proposed offer to the Holders to
issue and deliver to such Holders, upon redemption of the Initial Company
Preferred Stock a like liquidation preference of Series B Stock.
<PAGE>
58
"Registration Agreement" means the Registration Agreement, dated April
7, 1998, among the Company, Holding and Salomon Brothers Inc and BT Alex. Brown
Incorporated.
"Regulation S Company Preferred Stock" means all Initial Company
Preferred Stock offered and sold outside the United States in reliance on
Regulation S under the Securities Act.
"Related Business" means any business that is related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Restricted Payment" means (a) any dividend or distribution (whether
made in cash, securities or other Property) declared or paid on or with respect
to any shares of Parity Stock or Junior Stock of the Company or any Capital
Stock of any Restricted Subsidiary (including any payment in connection with any
merger or consolidation with or into the Company or any Restricted Subsidiary),
except for any dividend or distribution which is made solely to the Company or a
Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly Owned
Subsidiary, to the other shareholders of such Restricted Subsidiary on a pro
rata basis or on a basis that results in the receipt by the Company or a
Restricted Subsidiary of dividends or distributions of greater value than it
would receive on a pro rata basis) or any dividend or distribution payable
solely in shares of Junior Stock (other than Disqualified Stock) of the Company;
(b) the purchase, repurchase, redemption, acquisition or retirement for value of
any Parity Stock or Junior Stock of the Company or any Affiliate of the Company
(other than from the Company or any Capital Stock of any Restricted Subsidiary)
or any securities exchangeable for or convertible into any such Parity Stock,
Junior Stock or Capital Stock, including the exercise of any option to exchange
any Parity Stock, Junior Stock or Capital Stock (other than for or into Capital
Stock of the Company that is not Disqualified Stock); or (c) any Investment
(other than Permitted Investments) in any Person.
"Restricted Subsidiary" means (a) any Subsidiary of the Company unless
such Subsidiary shall have been designated an Unrestricted Subsidiary as
permitted or required pursuant to paragraph (l)(vii) and (b) an Unrestricted
Subsidiary which is redesignated as a Restricted Subsidiary as permitted
pursuant to paragraph (l)(vii).
"Rule 144A Company Preferred Stock" means the Initial Company
Preferred Stock issued in reliance on Rule 144A under the Securities Act.
<PAGE>
59
"S&P" means Standard & Poor's Ratings Service or any successor to the
rating agency business thereof.
"Sale and Leaseback Transaction" means any arrangement relating to
Property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such Property to another Person and the Company or a
Restricted Subsidiary leases it from such Person.
"Securities Act" means the Securities Act of 1933.
"Shelf Registration Statement" means a "shelf" registration statement
of the Company pursuant to the provisions of the Registration Agreement which
covers the Initial Company Preferred Stock and the Series B Stock on an
appropriate form under Rule 415 under the Securities Act, or any similar rule
that may be adopted by the SEC, all amendments and supplements to such
Registration Statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"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).
"Subsidiary" means, in respect of any Person, any corporation,
company, association, partnership, joint venture or other business entity of
which more than 50% of the total voting power of shares of Capital Stock or
other interests (including partnership interests) entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled directly or
indirectly, by (a) such Person, (b) such Person and one or more Subsidiaries of
such Person or (c) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Subsidiary of the Company that
becomes a Subsidiary Guarantor pursuant to the terms of the Notes.
"Subsidiary Guaranty" means a Guarantee of the Notes on the terms set
forth in the Indenture by a Subsidiary Guarantor of the Company's obligations
with respect to the Notes.
<PAGE>
60
"Temporary Cash Investments" means any of the following: (a)
Investments in U.S. Government Obligations; (b) Investments in time deposit
accounts, certificates of deposit and money market deposits maturing within 90
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 or any state thereof
having capital, surplus and undivided profits aggregating in excess of $500
million and whose long-term debt is rate "A-3" or "A-" or higher according to
Moody's or S&P (or such similar equivalent rating by at least one "nationally
recognized statistical rating organization" (as defined in Rule 436 under the
Securities Act)); (c) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clause (a) entered into
with a bank meeting the qualifications described in clause (b) above; (d)
Investments in commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America with a
rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's or "A-" (or higher) according to S&P (or such
similar equivalent rating by at least one "nationally recognized statistical
rating organization" (as defined in Rule 436 under the Securities Act)); (e)
direct obligations (or certificates representing an ownership interest in such
obligations) of any state of the United States of America (including any agency
or instrumentality thereof) for the payment of which the full faith and credit
of such state is pledged and which are not callable or redeemable at the
issuer's option, provided that (i) the long-term debt of such state is rated "A-
--------
3" or "A-1" or higher according to Moody's or S&P (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)) and (ii) such obligations
mature within 180 days of the date of acquisition thereof; and (f) investments
in money market funds which invest substantially all their assets in securities
of the types described in clauses (a) through (e) above.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company in
existence on the Issue Date that is not a Restricted Subsidiary; (b) any
Subsidiary of an Unrestricted Subsidiary; and (c) any Subsidiary of the Company
that is designated after the Issue Date as an Unrestricted Subsidiary as
permitted or required pursuant to paragraph (l)(vii) and not thereafter
redesignated as a Restricted Subsidiary as permitted pursuant thereto.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of
<PAGE>
61
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary
all the Voting Stock of which (except directors' qualifying shares) is at such
time owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.
5. The foregoing Certificate of Determination has been duly approved by
the required vote of holders of the Company's Senior PIK Preferred Stock
(pursuant to the voting rights of such stock set forth in the Amended and
Restated Certificate of Determination for that series). The Company has
outstanding 300,000 shares of Senior PIK Preferred Stock. The vote required to
approve this Certificate of Determination was more than two-thirds of the
outstanding Senior PIK Preferred Stock, and the number of shares voting in favor
of this Certificate of Determination equaled or exceeded the vote required.
<PAGE>
62
The undersigned each further declares under penalty of perjury under the
laws of the State of California that the matters set forth in this certificate
are true and correct of his own knowledge and that this certificate has been
executed on April 8, 1998 in Temecula, California.
/s/ Richard W. Johansen
------------------------------
Richard W. Johansen, President
/s/ Jay R. Ogram
------------------------------
Jay R. Ogram, Chief Financial Officer
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF DETERMINATION
OF
HUDSON RESPIRATORY CARE INC.
Richard W. Johansen and Jay R. Ogram hereby certify as follows:
1. They are the President and Chief Financial Officer, respectively, of
Hudson Respiratory Care Inc., a California corporation (the "Company").
2. The Certificate of Determination of the Company determining the
designations and powers, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions of the
Company's 11 1/2% Senior PIK Preferred Stock due 2010, $.01 par value, is
amended and restated to read as follows:
"WHEREAS, the Articles of Incorporation of the Company authorize the Board
of Directors to determine the designations and powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation, the dividend rate,
conversion rights, redemption price and liquidation preference, of any series of
Preferred Stock, and to fix the number of shares constituting any such series,
and to increase or decrease the number of shares of any such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
establish a series of Preferred Stock as follows:
(a) The designation of such series of Preferred Stock is the 11 1/2%
Senior PIK Preferred Stock due 2010, $.01 par value, (the "Senior PIK Preferred
Stock"), and the number of shares of such Senior PIK Preferred Stock is 600,000.
The liquidation preference of the Senior PIK Preferred Stock shall be $100 per
share (the "Liquidation Preference").
(b) The designations and powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation, the dividend rate,
conversion rights, redemption price and liquidation preference, granted
<PAGE>
2
to and imposed upon the Senior PIK Preferred Stock and the holders thereof (the
"Holders") shall be as set forth below.
(c) Ranking. The Senior PIK Preferred Stock will, with respect to
--------
dividend rights and rights on liquidation, winding up and dissolution, rank (i)
senior to common stock of the Company and to each other series of Preferred
Stock established hereafter by the Board of Directors the terms of which do not
expressly provide that it ranks senior to, or on a parity with, the Senior PIK
Preferred Stock as to dividend rights and rights on liquidation, winding-up and
dissolution of the Company (collectively referred to, together with common stock
of the Company, as "Junior Stock") and (ii) on a parity with each other series
of Preferred Stock established hereafter by the Board of Directors, the terms of
which expressly provide that such series will rank on a parity with the Senior
PIK Preferred Stock as to dividend rights and rights on liquidation, winding-up
and dissolution (collectively referred to as "Parity Stock").
(d) Dividends. (i) Holders of the outstanding shares of Senior PIK
----------
Preferred Stock will be entitled to receive, when, as and if declared by the
Board of Directors of the Company, out of funds legally available therefor,
cumulative preferential dividends on each share of the Senior PIK Preferred
Stock at a rate per annum equal to 11 1/2% of the Liquidation Preference of such
share, payable semi-annually in arrears (each such semi-annual period being
herein called a "Dividend Period") in the manner set forth below. In addition
to the dividends described in the preceding sentence, holders of outstanding
shares of Senior PIK Preferred Stock will be entitled to additional dividends
(the "Additional Dividends"), when, as and if declared by the Board of Directors
of the Company, out of funds legally available therefor, with respect to the
shares of Senior PIK Preferred Stock, which Additional Dividends shall accrue as
follows if any of the following events occur (each such event in clauses (A),
(B), (C), and (D) below being herein called a "Registration Default"): (A) if
on or prior to June 6, 1998, neither the Exchange Offer Registration Statement
nor the Shelf Registration Statement has been filed with the Securities and
Exchange Commission (the "SEC"); (B) if on or prior to September 5, 1998,
neither the Exchange Offer Registration Statement nor the Shelf Registration
Statement has been declared effective by the SEC; (C) if on or prior to October
5, 1998, neither the Registered Exchange Offer has been consummated nor the
Shelf Registration Statement has been declared effective; or (D) after either
the Exchange Offer Registration Statement or the Shelf Registration Statement
has been declared
<PAGE>
3
effective, such Registration Statement thereafter ceases to be effective or
usable (in each case except as permitted below) in connection with resales of
Holding Preferred Stock in accordance with and during the periods specified
herein.
Additional Dividends shall accrue on the shares of Senior PIK
Preferred Stock from and including the date on which any such Registration
Default shall occur, to but excluding the date on which all such Registration
Defaults have been cured. Such Additional Dividends will accrue at a rate of
0.25% per annum during the 90-day period immediately following the occurrence of
such Registration Default and shall increase by 0.25% per annum at the end of
each subsequent 90-day period, but in no event shall the amount of such
Additional Dividends exceed 1.00% per annum.
A Registration Default referred to in clause (C) of this paragraph
(d)(i) shall be deemed not to have occurred and be continuing in relation to a
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to the Registration Statement to incorporate annual audited financial
information with respect to Holding, where such post-effective amendment is not
yet effective and needs to be declared effective to permit holders of Holding
Preferred Stock to use the related prospectus or (y) other material events with
respect to Holding that would need to be described in the Registration Statement
or the related prospectus and (ii) in the case of clause (y), Holding proceeds
promptly and in good faith to amend or supplement the Registration Statement and
related prospectus to describe such events unless Holding has determined in good
faith that there are material legal or commercial impediments in doing so;
provided, however, that in any case if such Registration Default occurs for a
- -------- -------
continuous period in excess of 45 days, Additional Dividends shall be payable in
accordance with the immediately preceding paragraphs of this paragraph (d)(i)
from the day such Registration Default initially occurs to but excluding the
date on which such Registration Default is cured and provided, further, that not
-------- -------
more than one Registration Default shall be deemed to have occurred pursuant to
clause (y) of this paragraph during any 365-day period.
Any amounts of Additional Dividends due pursuant to clauses (A), (B),
(C) or (D) of this paragraph (d)(i) or pursuant to the proviso contained in the
preceding sentence will be payable on the regular dividend payment dates with
respect to the Senior PIK Preferred Stock and on the same terms and conditions
and subject to the same limitations as pertain at such time for the payment of
regular dividends.
<PAGE>
4
The amount of Additional Dividends will be determined by multiplying the
applicable Additional Dividends rate by the aggregate Liquidation Preference of
the outstanding shares of Senior PIK Preferred Stock, multiplied by a fraction,
the numerator of which is the number of days such Additional Dividend rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months), and the denominator of which is 360.
All dividends on the Senior PIK Preferred Stock, including Additional
Dividends, to the extent accrued, shall be cumulative, whether or not the
Company has earnings or profits, whether or not there are funds legally
available for the payments of such dividends and whether or not dividends are
declared, on a daily basis from the Issue Date or, in the case of additional
shares of Senior PIK Preferred Stock issued in payment of a dividend, from the
date of issuance of such additional shares of Senior PIK Preferred Stock, and
shall be payable semi-annually in arrears on each April 15 and October 15 (each,
a "Dividend Payment Date"), commencing on October 15, 1998, to holders of record
on the April 1 and October 1 immediately preceding the relevant Dividend Payment
Date. Any dividend on the Senior PIK Preferred Stock payable pursuant to this
paragraph (d)(i) on or prior to April 15, 2003 shall be, at the option of the
Company, payable (1) in cash or (2) through the issuance of a number of
additional shares (including fractional shares) of Senior PIK Preferred Stock
(the "Additional Shares") equal to the dividend amount divided by the
Liquidation Preference of such Additional Shares. With respect to dividends
payable after April 15, 2003, all dividends shall be payable solely in cash.
(ii) All dividends paid with respect to shares of the Senior PIK
Preferred Stock pursuant to this paragraph (d) shall be paid pro rata to the
Holders entitled thereto.
(iii) No dividend whatsoever may be declared or paid upon, or any sum
set apart for the payment of dividends upon, any outstanding share of the Senior
PIK Preferred Stock with respect to any Dividend Period unless all dividends for
all preceding Dividend Periods have been declared and paid or declared and, if
payable in cash, a sufficient sum in cash set apart for the payment of such
dividend, upon all outstanding shares of Senior PIK Preferred Stock.
(iv) No full dividends may be declared or paid or funds set apart
for the payment of dividends by the Company on any Parity Stock for any period
unless full cumulative
<PAGE>
5
dividends in respect of each Dividend Period ending on or before such period
shall have been or contemporaneously are declared and paid in full or declared
and, if payable in cash, a sufficient sum in cash set apart for such payment on
the Senior PIK Preferred Stock. If full dividends are not so paid, the Senior
PIK Preferred Stock will share dividends pro rata with the Parity Stock.
(v) The Company will not (A) declare, pay or set apart funds for
the payment of any dividend or other distribution with respect to any Junior
Stock or (B) repurchase, redeem or otherwise retire any Junior Stock or Parity
Stock, nor may funds be set apart for payment with respect thereto, unless all
accrued and unpaid dividends with respect to the Senior PIK Preferred Stock at
the time such dividends are payable have been paid or funds have been set apart
for payment of such dividends, if payable in cash. As used herein, the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock.
(vi) Dividends on account of arrears for any past Dividend Period
and dividends in connection with any optional redemption or any mandatory
repurchase may be declared and paid at any time, without reference to any
regular Dividend Payment Date, to holders of record on such date, not more than
45 days prior to the payment thereof, as may be fixed by the Board of Directors
of the Company.
(vii) Dividends payable on the Senior PIK Preferred Stock for any
period other than a Dividend Period shall be computed on the basis of a 360-day
year comprised of twelve 30-day months and the actual number of days elapsed in
the period for which payable and will be deemed to accrue on a daily basis.
Dividends payable on the Senior PIK Preferred Stock for a full Dividend Period
will be computed by dividing the per annum dividend rate by two.
(e) Liquidation Preference. (i) Upon any voluntary or involuntary
-----------------------
liquidation, dissolution or winding-up of the Company, each Holder of Senior PIK
Preferred Stock will be entitled to be paid, out of the assets of the Company
available for distribution to its shareholders, an amount equal to the
Liquidation Preference per share of Senior PIK Preferred Stock held by such
Holder, plus, without duplication, an amount in cash equal to all accumulated
and unpaid dividends (whether or not declared and including Additional
Dividends, if any) thereon to the date fixed for liquidation, dissolution or
winding-up (including, without duplication, an amount equal to a prorated
dividend for the period from the last Dividend
<PAGE>
6
Payment Date to the date fixed for liquidation, dissolution or winding up that
would have been payable had the Senior PIK Preferred Stock been the subject of
an Optional Redemption on such date) before any distribution is made on any
Junior Stock, including, without limitation, common stock of the Company. If,
upon any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the amounts payable with respect to the holders of the Senior PIK
Preferred Stock and all Parity Stock are not paid in full, the holders of the
Senior PIK Preferred Stock and the Parity Stock will share equally and ratably
(in proportion to the full liquidation preference and accumulated and unpaid
dividends that would be payable on such shares of Senior PIK Preferred Stock and
the Parity Stock, respectively, if all amounts payable thereon had been paid in
full) in any distribution of assets of the Company to which each is entitled.
After payment of the full amount of the Liquidation Preference of the
outstanding shares of Senior PIK Preferred Stock (plus all accumulated and
unpaid dividends), the holders of shares of Senior PIK Preferred Stock will not
be entitled to any further participation in any distribution of assets of the
Company.
(ii) For the purposes of this paragraph (e), neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with or into one or more
other entities shall be deemed to be a liquidation, dissolution or winding-up of
the Company.
(f) Redemption. (i) Optional Redemption. (A) Except as set forth in
---------- -------------------
clause (B) below, the Senior PIK Preferred Stock shall not be redeemable at the
option of the Company prior to April 15, 2003. On or after April 15, 2003, each
share of the Senior PIK Preferred Stock may be redeemed at any time or from time
to time, in whole or in part, at the option of the Company, at the redemption
prices (expressed as a percentage of the Liquidation Preference of such share)
set forth below, plus, without duplication, an amount in cash equal to all
accrued and unpaid dividends to the date fixed for redemption (an "Optional
Redemption Date") (including, without duplication, an amount in cash equal to a
prorated dividend for the period from the Dividend Payment Date immediately
prior to the Optional Redemption Date) (the "Optional Redemption Price"), if
redeemed during the 12-month period beginning April 15 of each of the years set
forth below:
<TABLE>
<CAPTION>
YEAR IN WHICH
REDEMPTION OCCURS PERCENTAGE
--------------------- -----------
<S> <C>
2003................................. 105.750%
</TABLE>
<PAGE>
7
<TABLE>
<CAPTION>
YEAR IN WHICH
REDEMPTION OCCURS PERCENTAGE
----------------- ----------
<S>................................... <C>
2005.................................. 103.450
2006.................................. 102.300
2007.................................. 101.150
2008 and thereafter................... 100.000
</TABLE>
(B) At any time prior to April 15, 2001, the Company may redeem at
its option (i) up to 50% or (ii) all but not less than all of the outstanding
shares of Senior PIK Preferred Stock with the net proceeds of any Public Equity
Offering by the Company at a redemption price (expressed as a percentage of the
Liquidation Preference per share thereof) of 111.5% plus accumulated and unpaid
dividends (including, without duplication, an amount in cash equal to a prorated
dividend for any partial dividend period). Any such redemption shall be made
upon consummation of such Public Equity Offering upon not less than 30 nor more
than 60 days' notice.
(C) In the event of a redemption of only a portion of the then
outstanding shares of Senior PIK Preferred Stock, the Company shall effect such
redemption on a pro rata basis, except that the Company may redeem all of the
shares held by Holders of fewer than 100 shares (or all of the shares held by
Holders who would hold less than 100 shares as a result of such redemption), as
may be determined by the Company.
(ii) Mandatory Redemption. Each share of the Senior PIK Preferred
---------------------
Stock (if not earlier redeemed or exchanged) shall be subject to mandatory
redemption in whole (to the extent of lawfully available funds therefor) on
April 15, 2010 (the "Mandatory Redemption Date") at a price equal to 100% of the
Liquidation Preference of such share, plus an amount equal to all accrued and
unpaid dividends thereon (including, without duplication, an amount equal to a
prorated dividend thereon from the immediately preceding Dividend Payment Date
to the Mandatory Redemption Date), if any, to the Mandatory Redemption Date (the
"Mandatory Redemption Price").
(iii) Procedure for Redemption. (A) On and after an Optional
-------------------------
Redemption Date or the Mandatory Redemption Date, as the case may be (the
"Redemption Date"), unless the Company defaults in the payment of the applicable
redemption price, dividends will cease to accumulate on shares of Senior PIK
Preferred Stock called for redemption and all rights of Holders of such shares
will terminate except for the right to receive the Optional Redemption Price or
the Mandatory Redemption Price, as the case may be, without
<PAGE>
8
interest; provided, however, that if a notice of redemption shall have been
-------- -------
given as provided in subparagraph (iii)(B) and the funds necessary for
redemption (including an amount in respect of all dividends that will accrue to
the Redemption Date) shall have been segregated and irrevocably set apart by the
Company, in trust for the benefit of the Holders of the shares called for
redemption, then dividends shall cease to accumulate on the Redemption Date on
the shares to be redeemed and, at the close of business on the day on which such
funds are segregated and set apart, the Holders of the shares to be redeemed
shall, with respect to the shares to be redeemed, cease to be shareholders of
the Company and shall be entitled only to receive the Optional Redemption Price
or the Mandatory Redemption Price, as the case may be, for such shares without
interest from the Redemption Date.
(B) In connection with any redemption pursuant to this paragraph (f),
the Company will send a written notice of redemption by first class mail to each
holder of record of shares of Senior PIK Preferred Stock at its registered
address, not fewer than 30 days nor more than 60 days prior to the Redemption
Date (the "Redemption Notice"), and notice, if mailed in the manner herein
provided, shall conclusively be presumed to have been given, whether or not the
Holder receives such notice; provided, however, that no failure to give such
-------- -------
notice nor any deficiency therein shall affect the validity of the procedure for
the redemption of any shares of Senior PIK Preferred Stock to be redeemed except
as to the Holder or Holders to whom the Company has failed to give said notice
or except as to the Holder or Holders whose notice was defective. The
Redemption Notice shall state:
(1) whether the redemption is pursuant to paragraph (f)(i) or (f)(ii)
hereof;
(2) the Optional Redemption Price the Mandatory Redemption Price, as
the case may be;
(3) whether all or less than all the outstanding shares of Senior PIK
Preferred Stock are to be redeemed and the total number of shares of Senior
PIK Preferred Stock being redeemed;
(4) the Redemption Date;
(5) that the Holder is to surrender to the Company, in the manner, at
the place or places and at the price designated, his certificate or
certificates
<PAGE>
9
representing the shares of Senior PIK Preferred Stock to be redeemed; and
(6) that dividends on the shares of the Senior PIK Preferred Stock to
be redeemed shall cease to accumulate on such Redemption Date unless the
Company defaults in the payment of the Optional Redemption Price the
Mandatory Redemption Price, as the case may be, to the Holders of the
Senior PIK Preferred Stock who have duly surrendered their certificates for
redemption in accordance with clause (C) below on or before the Redemption
Date.
(C) Each Holder of Senior PIK Preferred Stock shall surrender the
certificate or certificates representing such shares of Senior PIK Preferred
Stock to the Company, duly endorsed (or otherwise in proper form for transfer,
as determined by the Company), in the manner and at the place designated in the
Redemption Notice, and on the Redemption Date the full Optional Redemption Price
or Mandatory Redemption Price, as the case may be, for such shares shall be
payable in cash to the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
canceled and retired. In the event that less than all of the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(g) Voting Rights. (i) The Holders of Senior PIK Preferred Stock, in
-------------
addition to any other voting rights required under California law, shall be
entitled, subject to paragraph (g)(ii)(A), to cast a one-half vote per share on
matters required or permitted to be voted upon by the shareholders of the
Company, and the Senior PIK Preferred Stock shall vote together with the
Company's common stock ("Common Stock") as a single class on all such matters.
Further, the Holders of the Senior PIK Preferred Stock, voting as a separate
class, shall have the voting rights set forth in paragraph (g)(ii).
(ii) (A) If (1) dividends on the Senior PIK Preferred Stock are in
arrears and unpaid and, in the case of dividends payable after April 15, 2003,
are not paid in cash for six or more Dividend Periods (whether or not
consecutive) (a "Dividend Default"); (2) the Company fails for any reason to
redeem the Senior PIK Preferred Stock on April 15, 2010, or fails to otherwise
discharge any redemption obligation with respect to the Senior PIK Preferred
Stock; (3) the Company fails to make an offer to redeem all of the outstanding
shares of Senior PIK Preferred Stock following a Change of Control (whether or
not the
<PAGE>
10
Company is permitted to do so by the terms of the Indenture, the New
Credit Facility or any other obligation of the Company); (4) a breach or
violation of any of the provisions set forth under paragraph (l) (Certain
Additional Provisions) occurs and, the breach or violation continues for a
period of 30 days or more after the Company receives notice thereof specifying
the default from the Holders of at least 25% of the shares of Senior PIK
Preferred Stock then outstanding; or (5) the Company fails to pay at final
maturity (giving effect to any applicable grace period) the principal amount of
any Debt of the Company or any Subsidiary of Holding or the stated maturity of
any such Debt of the Company or any Subsidiary of Holding is accelerated because
of a default and the total amount of such Debt unpaid or accelerated exceeds
$7.5 million, then, subject to paragraph (g)(ii)(E), the Holders of the then
outstanding shares of Senior PIK Preferred Stock (together with the holders of
any other series of Preferred Stock upon which like rights have been conferred
and are exercisable), voting together as a class, shall have the right and power
to elect two directors to the Board of Directors of the Company and the Common
Stock shall have the right to elect the remaining directors; provided, that,
--------
notwithstanding the provisions of paragraph (g)(i) to the contrary, so long as
a Voting Rights Triggering Event shall have occurred and be continuing, the
Holders of Senior PIK Preferred Stock shall not be entitled to cast any votes
per share of Senior PIK Preferred Stock with the Common Stock as a single class
in connection with such election of directors. Each such event described in
clauses (1), (2), (3), (4) or (5) above is a "Voting Rights Triggering Event".
(B) The voting rights set forth in paragraph (g)(ii)(A) above will
continue until such time as (x) in the case of a Dividend Default, all dividends
in arrears on the Senior PIK Preferred Stock are paid in full in cash and (y) in
all other cases, any failure, breach or default giving rise to such Voting
Rights Triggering Event is remedied or waived by the Holders of at least a
majority of the shares of Senior PIK Preferred Stock then outstanding, at which
time the exclusive right to elect directors shall revert to the Common Stock and
the Senior PIK Preferred Stock, which shall vote together as a single class in
accordance with paragraph (g)(i), subject to renewal of the voting right of the
Senior PIK Preferred Stock under paragraph (g)(ii)(A) from time to time. At any
time after the right to elect two directors is vested in the Senior PIK
Preferred Stock, and at any time after the exclusive right to elect directors
shall revert to the Common Stock and the Senior PIK Preferred Stock as
contemplated by paragraph (g)(i), (i) the holders of 25% or more of the
outstanding
<PAGE>
11
shares of Senior PIK Preferred Stock (or the holders of 25% of the shares of any
other series of Preferred Stock then outstanding upon which like rights have
been conferred and are exercisable) or (ii) 25% or more of the outstanding
Common Stock voting rights, which shall include the one-half common vote per
share to which the Senior PIK Preferred Stock is entitled under paragraph
(g)(i), respectively, have a right to call a special meeting of shareholders for
the purpose of electing all of the members of the Board of Directors, such right
to be exercisable by delivering a request in writing for the calling of the
special meeting to the president or secretary, or to the chairman of the board
or a vice-president if there be such; provided, however, that no such special
-------- -------
meeting shall be called if the next annual meeting of shareholders of the
Company is to be held within 60 days after the voting power to elect directors
shall have become vested, in which case such meeting shall be deemed to have
been called for such next annual meeting. The officer receiving the request
shall forthwith cause notice to be given to the shareholders entitled to vote
that a meeting will be held at a time requested by the person or persons calling
the meeting, not less than 35 nor more than 60 days after the receipt of the
request. If the notice is not given within 20 days after receipt of the request,
the shareholders calling the meeting shall have the rights accorded to them
pursuant to subdivision (c) of Section 601 of the California Corporations Code.
In lieu of electing directors at a meeting of the shareholders in accordance
with the foregoing, the holders of Common Stock and Senior PIK Preferred Stock
(together with the holders of any other series of Preferred Stock upon which
like rights have been conferred and are exercisable, if any), voting as separate
classes in accordance with paragraph (g)(ii)(A), may, pursuant to Section 603 of
the Corporations Code of the State of California elect such directors by
unanimous written consent. Upon the election of directors by the Senior PIK
Preferred Stock (together with the holders of any other series of Preferred
Stock upon which like rights have been conferred and are exercisable, if any) at
a meeting of shareholders (or by written consent), the terms of all persons who
were directors immediately prior thereto shall terminate and the directors
elected by the Senior PIK Preferred Stock (together with the holders of any
other series of Preferred Stock upon which like rights have been conferred and
are exercisable, if any) together with those elected at such meeting (or by
written consent) by the Common Stock shall constitute the directors of the
Company until the next annual meeting, unless the terms of such directors shall
terminate earlier in accordance with the immediately following sentence. Upon
the election of directors by the Common Stock and the Senior PIK Preferred
<PAGE>
12
Stock, voting together as a single class in accordance with paragraph (g)(i), at
a meeting of shareholders (or by written consent) after the exclusive right to
elect directors has reverted to the Common Stock and the Senior PIK Preferred
Stock, as contemplated by paragraph (g)(i), the terms of all persons who were
directors immediately prior thereto shall terminate and the directors elected by
the Common Stock and the Senior PIK Preferred Stock, as contemplated by
paragraph (g)(i), at such meeting (or by written consent) shall constitute the
directors of the Company until the next annual meeting, unless earlier removed
in accordance with this paragraph (g)(ii)(B).
(C) At any meeting held for the purposes of electing directors at
which the Holders of Senior PIK Preferred Stock (together with the holders of
any other series of Preferred Stock upon which like rights have been conferred
and are exercisable) shall have the right, voting together as a single class, to
elect directors as aforesaid, the presence in person or by proxy of the holders
of at least a majority in voting power of the outstanding shares of Senior PIK
Preferred Stock (and such Preferred Stock) shall be required to constitute a
quorum thereof.
(D) Any vacancy occurring in the office of a director elected by the
Holders of Senior PIK Preferred Stock (and such Preferred Stock) may be filled
by the remaining director elected by the Holders of Senior PIK Preferred Stock
(and such Preferred Stock) unless and until such vacancy shall be filled by the
Holders of Senior PIK Preferred Stock (and such Preferred Stock) at a meeting of
shareholders held in accordance with paragraph (g)(ii)(B). In lieu of electing a
director at a meeting of the shareholders in accordance with the foregoing, a
majority of the outstanding shares of Senior PIK Preferred Stock (together with
the holders of any other series of Preferred Stock upon which like rights have
been conferred and are exercisable, if any), voting together as a single class,
may, pursuant to Sections 305(b) and 603 of the Corporations Code of the State
of California, elect such director by written consent.
(E) In the event that an event occurs at any time which results in
the holders of any Parity Stock having voting rights to elect directors to the
Board of Directors, Holders of Senior PIK Preferred Stock shall, whether or not
such event otherwise constitutes a Voting Rights Triggering Event pursuant to
paragraph (g)(ii)(A), have the voting rights set forth in paragraphs (g)(ii)(A)
and (g)(ii)(B), and such event shall be deemed (for purposes of this paragraph
(g) only) to constitute a Voting Rights Triggering
<PAGE>
13
Event. In addition, in the event that during a time in which directors elected
by the Holders of Senior PIK Preferred Stock pursuant to this paragraph (g)(ii)
are serving on the Board of Directors ("Previously-Elected Directors") an event
occurs which results in holders of Preferred Stock having voting rights to elect
(voting together with the Holders of Senior PIK Preferred Stock) at least two
directors to the Board of Directors, the Holders of Senior PIK Preferred Stock
shall vote together, as a single class, with the holders of such Preferred Stock
to elect such new directors, and upon the election of the new directors the term
of office of the Previously-Elected Directors shall (unless such Previously-
Elected Directors are elected as new directors) automatically terminate.
(iii) (A) So long as any shares of Senior PIK Preferred Stock are
outstanding, the Company will not authorize, create or increase the authorized
amount of any class or series of Capital Stock or Preferred Stock, the terms of
which expressly provide that such class or series will rank senior to the Senior
PIK Preferred Stock as to dividend rights and rights upon liquidation, winding-
up and dissolution of the Company (collectively referred to as "Senior Stock")
or Parity Stock without the affirmative vote or consent of Holders of at least
two-thirds of the shares of Senior PIK Preferred Stock then outstanding, voting
or consenting, as the case may be, as one class, given in person or by proxy,
either in writing or by resolution adopted at an annual or special meeting.
(B) So long as any shares of the Senior PIK Preferred Stock are
outstanding, the Company will not amend this Certificate of Determination so as
to affect adversely the specified rights, preferences, privileges or voting
rights of Holders of shares of Senior PIK Preferred Stock or to authorize the
issuance of any additional shares of Senior PIK Preferred Stock (except to
authorize the issuance of additional shares of Senior PIK Preferred Stock to be
paid as dividends on the Senior PIK Preferred Stock, for which no consent shall
be necessary) without the affirmative vote or consent of Holders of at least a
majority of the issued and then outstanding shares of Senior PIK Preferred
Stock, voting or consenting, as the case may be, as one class, given in person
or by proxy, either in writing or by resolution adopted at an annual or special
meeting; provided that this paragraph shall not prohibit the merger of the
--------
Company and a Wholly Owned Subsidiary of Holding or the Company incorporated in
another state of the United States solely for the purpose of reincorporating the
Company to the extent that the surviving corporation issues to Holding shares of
a series of Preferred Stock having an aggregate
<PAGE>
14
liquidation preference equal to the Liquidation Preference of the Senior PIK
Preferred Stock outstanding immediately prior to such merger and terms and
provisions substantially similar to those of the Senior PIK Preferred Stock.
(C) Except as required under California law or as set forth in
paragraph (g)(iii)(A) or (B) above, (x) the creation, authorization or issuance
of any shares of any Junior Stock, Parity Stock or Senior Stock, including the
designation of a series thereof within the existing class of Senior PIK
Preferred Stock, or (y) the increase or decrease in the amount of authorized
Capital Stock of any class, including any Senior PIK Preferred Stock, shall not
require the consent of Holders of Senior PIK Preferred Stock and shall not be
deemed to affect adversely the rights, preferences, privileges or voting rights
of shares of Senior PIK Preferred Stock.
(iv) In any case in which the Holders of Senior PIK Preferred Stock
shall be entitled to vote pursuant to paragraph (g)(ii) or pursuant to law, each
Holder of Senior PIK Preferred Stock entitled to vote with respect to such
matters shall be entitled to one vote for each share of Senior PIK Preferred
Stock held.
(h) Redemption at the Option of Holders Upon a Change of Control. (i)
-------------------------------------------------------------
Upon the occurrence of a Change of Control (the date of such occurrence being
the "Change of Control Date"), each Holder of Senior PIK Preferred Stock shall
have the right to require the Company to redeem all or any part of such Holder's
Senior PIK Preferred Stock pursuant to the offer described in paragraph (h)(ii)
below (the "Change of Control Offer") at a cash redemption price (the "Change of
Control Redemption Price") equal to 101% of the Liquidation Preference thereof,
plus payment in cash of accrued and unpaid dividends thereon, if any, to the
redemption date (including an amount in cash equal to a prorated dividend for
any partial dividend period).
(ii) Within 30 days following the date on which the Company knows or
reasonably should have known a Change of Control has occurred, the Company shall
(a) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (b) send, by first-class mail to each Holder of Senior PIK Preferred Stock,
at such Holder's address appearing in the security register, a notice stating:
(A) that a Change of Control has occurred and a Change of Control Offer is being
made pursuant to this paragraph (h) and that all Senior PIK Preferred Stock
timely tendered will be accepted for payment; (B) the Change of
<PAGE>
15
Control Redemption Price and the purchase date (the "Change of Control
Redemption Date"), which shall be, subject to any contrary requirements of
applicable law, a Business Day no earlier than 30 days nor later than 60 days
from the date such notice is mailed; (C) the circumstances and relevant facts
regarding the Change of Control (including information with respect to pro forma
historical income, cash flow and capitalization after giving effect to the
Change of Control); (D) that any shares of Senior PIK Preferred Stock not
tendered will continue to accrue dividends; (E) that, unless the Company
defaults in making payment therefor, any share of Senior PIK Preferred Stock
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue dividends after the Change of Control Redemption Date; (F) that Holders
electing to have any shares of Senior PIK Preferred Stock redeemed pursuant to a
Change of Control Offer will be required to surrender stock certificates
representing such shares of Senior PIK Preferred Stock, properly endorsed for
transfer, together with such other customary documents as the Company may
reasonably request to the Company at the address specified in the notice prior
to the close of business on the Business Day prior to the Change of Control
Redemption Date; (G) that Holders will be entitled to withdraw their election if
the Company receives, not later than five Business Days prior to the Change of
Control Redemption Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the number of shares of Senior PIK
Preferred Stock the Holder delivered for redemption and a statement that such
Holder is withdrawing his election to have such shares of Senior PIK Preferred
Stock redemption; and (H) that Holders whose shares of Senior PIK Preferred
Stock are redeemed only in part will be issued a new certificate representing
the unredeemed shares of Senior PIK Preferred Stock.
(iii) 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 redemption of Senior PIK Preferred Stock
pursuant to a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Certificate of
Determination, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under this
Certificate of Determination by virtue of such compliance.
(iv) On the Change of Control Redemption Date the Company shall (A)
accept for payment the shares of Senior PIK Preferred Stock validly tendered
pursuant to the Change of Control Offer, (B) pay to the Holders of shares so
<PAGE>
16
accepted the redemption price therefor in cash and (C) cancel each surrendered
certificate and retire the shares represented thereby. Unless the Company
defaults in the payment for the shares of Senior PIK Preferred Stock duly
tendered pursuant to the Change of Control Offer, dividends will cease to accrue
with respect to the shares of Senior PIK Preferred Stock tendered and all rights
of Holders of such tendered shares will terminate, except for the right to
receive payment therefor, on the Change of Control Redemption Date.
(v) To accept the Change of Control Offer, the Holder of a share of
Senior PIK Preferred Stock shall deliver, on or before the 10th day prior to the
Change of Control Redemption Date, written notice to the Company (or an agent
designated by the Company for such purpose) of such Holder's acceptance,
together with certificates evidencing the shares of Senior PIK Preferred Stock
with respect to which the Change of Control Offer is being accepted, duly
endorsed for transfer.
(i) Conversion or Exchange. The Holders of shares of Senior PIK
----------------------
Preferred Stock shall not have any rights hereunder to convert such shares into
or exchange such shares for shares of any other class or classes or of any other
series of any class or classes of Capital Stock of the Company.
(j) Reissuance of Senior PIK Preferred Stock. Shares of Senior PIK
-----------------------------------------
Preferred Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed or exchanged, shall not be reissued as shares of
Senior PIK Preferred Stock and shall (upon compliance with any applicable
provisions of the laws of California) have the status of authorized and unissued
shares of Preferred Stock undesignated as to series and may be redesignated and
reissued as part of any series of Preferred Stock; provided, however, that so
-------- -------
long as any shares of Senior PIK Preferred Stock are outstanding, any issuance
of such shares must be in compliance with the terms hereof.
(k) Business Day. If any payment, redemption or exchange shall be
-------------
required by the terms hereof to be made on a day that is not a Business Day,
such payment, redemption or exchange shall be made on the immediately succeeding
Business Day.
<PAGE>
17
(l) Certain Additional Provisions. The sole remedy to Holders of
-----------------------------
Senior PIK Preferred Stock in the event of the Company's failure to comply with
any of the following covenants, and the sole consequence of any such failure,
shall be the voting rights described in paragraph (g)(ii).
(i) Limitation on Debt. The Company shall not, and shall not
------------------
permit any Restricted Subsidiary to, Incur, directly or indirectly, any Debt
unless, after giving pro forma effect to the application of the proceeds
thereof, either (a) after giving effect to the Incurrence of such Debt and the
application of the proceeds thereof, the Consolidated Interest Coverage Ratio
would be greater than 1.75 to 1.00 if such Debt is Incurred from the Issue Date
through April 15, 2000, and 2.00 to 1.00 if such Debt is Incurred thereafter or
(b) such Debt is Permitted Debt.
(ii) Limitation on Restricted Payments. The Company shall not
---------------------------------
make, and shall not permit any Restricted Subsidiary to make, directly or
indirectly, any Restricted Payment if at the time of, and after giving pro forma
effect to, such proposed Restricted Payment,
(a) a Voting Rights Triggering Event shall have occurred and be
continuing,
(b) the Company could not Incur at least $1.00 of additional
Debt pursuant to clause (a) of paragraph (l)(i) above or
(c) the aggregate amount of such Restricted Payment and all
other Restricted Payments declared or made since the Issue Date (the amount
of any Restricted Payment, if made other than in cash, to be based upon
Fair Market Value) would exceed an amount equal to the sum of:
(i) 50% of the aggregate amount of Consolidated Net Income
accrued during the period (treated as one accounting period) from the
beginning of the fiscal quarter during which the Issue Date occurs to
the end of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or if the aggregate
amount of Consolidated Net Income for such period shall be a deficit,
minus 100% of such deficit),
(ii) Capital Stock Sale Proceeds,
<PAGE>
18
(iii) the amount by which Debt of the Company Incurred after
the Issue Date is reduced on Holding's balance sheet upon the
conversion or exchange (other than by the Company or a Subsidiary of
the Company) subsequent to the Issue Date of any Debt for Preferred
Stock or Junior Stock (other than Disqualified Stock) of the Company
(less the amount of any cash or other Property distributed by the
Company or any Restricted Subsidiary upon such conversion or
exchange), and
(iv) an amount equal to the sum of (A) the net reduction in
Investments in any Person other than the Company or a Restricted
Subsidiary resulting from dividends, repayments of loans or advances
or other transfers of Property, in each case to the Company or any
Restricted Subsidiary from such Person, to the extent such dividends,
repayments or transfers do not increase the amount of Permitted
Investments permitted to be made pursuant to clause (i) of the
definition thereof and (B) the portion (proportionate to the Company's
equity interest in such Unrestricted Subsidiary) of the Fair Market
Value of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that the foregoing sum shall not exceed, in the
-------- -------
case of any Person, the amount of Investments previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person, and
(v) $7.5 million.
Notwithstanding the foregoing limitation, the Company may:
(a) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with this covenant; provided, however, that at the
-------- -------
time of such payment of such dividend, no other Voting Rights Triggering
Event shall have occurred and be continuing (or result therefrom); provided
--------
further, however, that such dividend shall be included in the calculation
------- -------
of the amount of Restricted Payments;
<PAGE>
19
(b) purchase, repurchase, redeem, legally defease, acquire or retire
for value Capital Stock of the Company in exchange for, or in an amount not
in excess of the proceeds of the substantially concurrent sale of, Parity
Stock or Junior Stock of the Company (other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary of the Company or
an employee stock ownership plan or trust established by the Company or any
of its Subsidiaries for the benefit of their employees); provided, however,
-------- -------
that (i) such purchase, repurchase, redemption, legal defeasance,
acquisition or retirement shall be excluded in the calculation of the
amount of Restricted Payments and (ii) the Capital Stock Sale Proceeds from
such exchange or sale shall be excluded from the calculation pursuant to
clause (c)(ii) above;
(c) purchase, repurchase, redeem, legally defease, acquire or retire
for value shares of, or options to purchase shares of, common stock of the
Company or Holding from employees or former employees of the Company,
Holding or any of their Subsidiaries (or their estates or beneficiaries
thereof) upon death, disability, retirement or termination pursuant to the
terms of the agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors or the Company, as
the case may be, under which such individuals purchase or sell, or are
granted the option to purchase or sell, shares of such common stock (or pay
dividends or make loans to Holding for such purpose); provided, however,
-------- -------
that (i) the aggregate amount of such purchases, repurchases, redemptions,
defeasances, acquisitions or retirements shall not exceed $1.0 million in
any year or $5.0 million during the term of the Holding Preferred Stock,
except that (x) such amounts shall be increased by the aggregate net amount
of cash received by Holding or the Company after the Issue Date from the
sale of such shares to, or the exercise of options to purchase such shares
by, employees of the Company, Holding or any of their Subsidiaries and (y)
Holding or the Company may forgive or return Employee Notes without regard
to the limitation set forth in clause (c)(i) above and such forgiveness or
return shall not be treated as a Restricted Payment for purposes of
determining compliance with such clause (c)(i) and (ii) such purchases,
repurchases, defeasances, acquisitions or retirements (but not forgiveness
or return of Employee Notes) shall be included in the calculation of the
amount of Restricted Payments; and
<PAGE>
20
(d) make payments to Helen Hudson Lovaas pursuant to the Merger
Agreement in an aggregate amount not to exceed $1.1 million in any fiscal
year or $3.3 million in the aggregate (plus, in each case, interest due on
the unpaid portion of such required payments in accordance with the Merger
Agreement); provided, however, that such payments shall be excluded in the
-------- -------
calculation of the amount of Restricted Payments.
(iii) Limitation on Issuance or Sale of Capital Stock of Restricted
-------------------------------------------------------------
Subsidiaries. The Company shall not (a) sell, pledge, hypothecate or otherwise
- -------------
dispose of any shares of Capital Stock of a Restricted Subsidiary or (b) permit
any Restricted Subsidiary to, directly or indirectly, issue or sell or otherwise
dispose of any shares of its Capital Stock, other than (i) directors' qualifying
shares, (ii) to the Company or a Wholly Owned Subsidiary or (iii) the
disposition of 100% of the Capital Stock of a Restricted Subsidiary; provided
--------
that (x) the Company receives consideration at the time of such disposition at
least equal to the Fair Market Value of such Restricted Subsidiary, (y) at least
75% of the consideration paid to the Company in connection with such disposition
is in the form of cash or cash equivalents or the assumption by the purchaser of
liabilities of the Company or any Restricted Subsidiary (other than liabilities
that are by their terms subordinated to the Senior PIK Preferred Stock) as a
result of which the Company and the Restricted Subsidiaries are no longer
obligated with respect to such liabilities, and (z) the Net Available Cash
received by the Company from such disposition is applied within twelve months
from the date of the receipt of such Net Available Cash to prepay, repay,
legally defease or purchase Debt of the Company or any Restricted Subsidiary
(excluding, in any such case, Disqualified Stock and Debt owed to the Company or
an Affiliate of the Company) or to reinvest in Additional Assets (including by
means of an Investment in Additional Assets by the Company or a Restricted
Subsidiary with Net Available Cash received by the Company).
(iv) Limitation on Restrictions on Distributions from Restricted
-----------------------------------------------------------
Subsidiaries. The Company shall not, and shall not permit any Restricted
- -------------
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist any consensual restriction on the right of any Restricted Subsidiary to
(a) pay dividends, in cash or otherwise, or make any other distributions on or
in respect of its Capital Stock, or pay any Debt or other obligation owed, to
the Company or any other Restricted Subsidiary (except, with respect to
restrictions on dividends of non-cash Property, as permitted pursuant to clause
(ii) of the next sentence),
<PAGE>
21
(b) make any loans or advances to the Company or any other Restricted Subsidiary
or (c) transfer any of its Property to the Company or any other Restricted
Subsidiary. The foregoing limitations will not apply (i) with respect to clauses
(a), (b) and (c), to restrictions (A) in effect on the Issue Date, (B) pursuant
to the Credit Facility, (C) relating to Debt of a Restricted Subsidiary and
existing at the time it became a Restricted Subsidiary if such restriction was
not created in connection with or in anticipation of the transaction or series
of transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company or (D) which result from the
Refinancing of Debt Incurred pursuant to an agreement referred to in clause
(i)(A) or (C) above or in clause (ii)(A) or (B) below, provided such restriction
--------
is no less favorable to the Holders of the Senior PIK Preferred Stock than those
under the agreement evidencing the Debt so Refinanced, and (ii) with respect to
clause (c) only, to restrictions (A) encumbering Property at the time such
Property was acquired by the Company or any Restricted Subsidiary, so long as
such restriction relates solely to the Property so acquired and was not created
in connection with or in anticipation of such acquisition, (B) resulting from
customary provisions restricting subletting or assignment of leases or customary
provisions in other agreements that restrict assignment of such agreements or
rights thereunder or (C) customary restrictions contained in asset sale
agreements limiting the transfer of such Property pending the closing of such
sale.
(v) Limitation on Transactions with Affiliates. The Company shall
-------------------------------------------
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
conduct any business or enter into or suffer to exist any transaction or series
of transactions (including the purchase, sale, transfer, assignment, lease,
conveyance or exchange of any Property or the rendering of any service) with, or
for the benefit of, any Affiliate of the Company (an "Affiliate Transaction"),
unless (a) the terms of such Affiliate Transaction are (i) set forth in writing,
(ii) in the interest of the Company or such Restricted Subsidiary, as the case
may be, and (iii) no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained in a
comparable arm's-length transaction with a Person that is not an Affiliate of
the Company, (b) if such Affiliate Transaction involves aggregate payments or
value in excess of $2.5 million, the Board of Directors of the Company
(including a majority of the disinterested members of such Board of Directors,
if any) approves such Affiliate Transaction and, in its good faith judgment,
believes that such Affiliate Transaction complies
<PAGE>
22
with clauses (a)(ii) and (iii) of this paragraph and (c) if such Affiliate
Transaction involves aggregate payments or value in excess of $5.0 million, the
Company obtains a written opinion from an Independent Appraiser to the effect
that the consideration to be paid or received in connection with such Affiliate
Transaction is fair, from a financial point of view, to the Company or such
Restricted Subsidiary, as the case may be.
Notwithstanding the foregoing limitation, the Company or any
Restricted Subsidiary may enter into or suffer to exist the following:
(i) any transaction or series of transactions between the Company
and one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business; provided that no more than
--------
5% of the total voting power of the Voting Stock (on a fully diluted basis)
of any such Restricted Subsidiary is owned by an Affiliate of the Company
(other than a Restricted Subsidiary);
(ii) any Restricted Payment permitted to be made pursuant to
paragraph (l)(ii) above;
(iii) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and employees of the Company or any of the Restricted Subsidiaries, so long
as the Board of Directors in good faith shall have approved the terms
thereof and deemed the services theretofore or thereafter to be performed
for such compensation to be fair consideration therefor;
(iv) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or any
Restricted Subsidiary, as the case may be; provided that such loans and
--------
advances do not exceed $1.0 million in the aggregate at any one time
outstanding;
(v) the payment of fees and expenses in connection with the
Recapitalization pursuant to written agreements in effect on the Issue
Date;
(vi) the sale of common stock of the Company for cash; provided, that
--------
the Company may receive Employee Notes in an aggregate principal amount not
in excess of $1.0 million at any one time outstanding; and
<PAGE>
23
(vii) a proportionate split of, or a common stock dividend payable on,
the common stock of the Company.
(vi) Designation of Restricted and Unrestricted Subsidiaries.
-------------------------------------------------------
The Board of Directors may designate any Subsidiary of the Company (other than
any Subsidiary of the Company designated as a Restricted Subsidiary under the
Indenture governing the Notes) to be an Unrestricted Subsidiary if (a) the
Subsidiary to be so designated does not own any Capital Stock or Debt of, or own
or hold any Lien on any Property of, the Company or any other Restricted
Subsidiary, (b) the Subsidiary to be so designated is not obligated under any
Debt, Lien or other obligation that, if in default, would result (with the
passage of time or notice or otherwise) in a default on any Debt of the Company
or of any Restricted Subsidiary and (c) either (i) the Subsidiary to be so
designated has total assets of $1,000 or less or (ii) such designation is
effective immediately upon such entity becoming a Subsidiary of the Company.
Unless so designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of the Company will be classified as a Restricted Subsidiary;
provided, however, that such Subsidiary shall not be designated a Restricted
- -------- -------
Subsidiary and shall be automatically classified as an Unrestricted Subsidiary
if the requirement set forth in the immediately following paragraph will not be
satisfied after giving pro forma effect to such classification. Except as
provided in the first sentence of this paragraph, no Restricted Subsidiary may
be redesignated as an Unrestricted Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, the Company could Incur at least $1.00 of additional Debt pursuant
to clause (a) of the first paragraph of covenant (l)(i) above.
(vii) Merger, Consolidation and Sale of Property. The Company shall
-------------------------------------------
not merge, consolidate or amalgamate with or into any other Person (other than a
merger of a Wholly Owned Subsidiary into the Company) or sell, transfer, assign,
lease, convey or otherwise dispose of all or substantially all its Property in
any one transaction or series of transactions unless: (a) the Company shall be
the surviving Person (the "Surviving Person") or the Surviving Person (if other
than the Company) formed by such merger, consolidation or amalgamation or to
which such sale, transfer, assignment, lease, conveyance or disposition is made
shall be a corporation organized and existing under the laws of the United
States of America, any State thereof or
<PAGE>
24
the District of Columbia; (b) the Surviving Person (if other than the Company )
expressly assumes all obligations of the Company under the Senior PIK Preferred
Stock and this Certificate of Determination; (c) in the case of a sale,
transfer, assignment, lease, conveyance or other disposition of all or
substantially all the Property of the Company, such Property shall have been
transferred as an entirety or virtually as an entirety to one Person; (d)
immediately before and after giving effect to such transaction or series of
transactions on a pro forma basis (and treating, for purposes of this clause (d)
and clauses (e) and (f) below, any Debt which becomes, or is anticipated to
become, an obligation of the Surviving Person or any Restricted Subsidiary as a
result of such transaction or series of transactions as having been Incurred by
the Surviving Person or such Restricted Subsidiary at the time of such
transaction or series of transactions), no Voting Rights Triggering Event shall
have occurred and be continuing; (e) immediately after giving effect to such
transaction or series of transactions on a pro forma basis, the Company or the
Surviving Person, as the case may be, would be able to Incur at least $1.00 of
additional Debt under clause (a) of the first paragraph of covenant (l)(i)
above, determining compliance thereunder for this purpose based upon the
Consolidated Interest Expense, Consolidated Net Income and EBITDA of the Company
or the Surviving Person, as the case may be, and its Restricted Subsidiaries;
provided, however, that this clause (e) shall not apply to a merger between the
- -------- -------
Company and a Wholly Owned Subsidiary of the Company solely for the purpose of
reincorporating the Company in another state of the United States so long as the
total amount of Debt of the Company and its Restricted Subsidiaries is not
increased as a result thereof.
(m) Certificates. (i) Form and Dating. The Senior PIK Preferred
------------- ----------------
Stock shall be substantially in the form of Exhibit A, which is hereby
incorporated in and expressly made a part of this Certificate of Determination.
The Senior PIK Preferred Stock certificate may have notations, legends or
endorsements required by law, stock exchange rule, agreements to which the
Company is subject, if any, or usage (provided that any such notation, legend or
endorsement is in a form acceptable to the Company). The terms of the Senior
PIK Preferred Stock certificate set forth in Exhibit A are part of the terms of
this Certificate of Determination.
(ii) Execution. Two Officers shall sign the certificates
----------
representing Senior PIK Preferred Stock for the Company by manual or facsimile
signature. The Company's
<PAGE>
25
seal shall be impressed, affixed, imprinted or reproduced on the Senior PIK
Preferred Stock and may be in facsimile form.
If an Officer whose signature is on certificates representing Senior
PIK Preferred Stock no longer holds that office, the shares of Senior PIK
Preferred Stock evidenced thereby shall be valid nevertheless.
(iii) Legend. Each certificate evidencing the Senior PIK Preferred
-------
Stock (and all Senior PIK Preferred Stock issued in exchange therefor or
substitution thereof) shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED
EXCEPT IN A TRANSACTION REGISTERED UNDER SUCH ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION THEREFROM UNDER SAID ACT OR THE RULES AND REGULATIONS
PROMULGATED THEREUNDER.
(n) Certain Definitions. As used in this Certificate of
--------------------
Determination, the following terms shall have the following meanings (and (1)
terms defined in the singular have comparable meanings when used in the plural
and vice versa, (2) "including" means including without limitation, (3) "or" is
not exclusive and (4) an accounting term not otherwise defined has the meaning
assigned to it in accordance with United States generally accepted accounting
principles as in effect on the Issue Date and all accounting calculations will
be determined in accordance with such principles), unless the content otherwise
requires:
"Additional Assets" means (a) any Property (other than cash, cash
equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in a Related Business; or (b) Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary from any Person other than
an Affiliate of the Company; provided, however, that, in the case of clause (b),
-------- -------
such Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (a) any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person or (b) any other Person who is a
director or officer of (i) such specified Person, (ii) any Subsidiary of such
specified Person or (iii) any Person described in clause (a) above. For the
purposes of this definition, "control" when used with respect to any Person
<PAGE>
26
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of paragraph (l) (v) only,
"Affiliate" shall also mean any beneficial owner of shares representing 5% or
more of the total voting power of the Voting Stock (on a fully diluted basis) of
the Company or of rights or warrants to purchase such Voting Stock (whether or
not currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Asset Sale" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (a) any
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares) or (b) any other assets of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the Company or such
Restricted Subsidiary (other than, in the case of clauses (a) and (b) above, (i)
any disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) any disposition
effected in compliance with the covenant described under paragraph (l)(vii),
(iii) any Sale and Leaseback Transaction completed within 180 days following the
original acquisition of the subject assets where such Sale and Leaseback
Transaction represents the intended financing of Property acquired after the
Issue Date and (iv) any disposition or series of related dispositions of assets
having a Fair Market Value and sale price of less than $500,000).
"Attributable Debt" in respect of a Sale and Leaseback Transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such Sale and Leaseback Transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Average Life" means, as of any date of determination, with respect to
any Debt or Preferred Stock, the quotient obtained by dividing (a) the sum of
the product of the numbers of years (rounded to the nearest one-twelfth
<PAGE>
27
of one year) from the date of determination to the dates of each successive
scheduled principal payment of such Debt or redemption or similar payment with
respect to such Preferred Stock multiplied by the amount of such payment by (b)
the sum of all such payments.
"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 each day which is not a Legal Holiday.
"Capital Lease Obligations" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Capital Stock" means, with respect to any Person, any shares or other
equivalents (however designated) of corporate stock, partnership interests or
any other participations, rights, warrants, options or other interests in the
nature of an equity interest in such Person, including Preferred Stock, but
excluding any debt security convertible or exchangeable into such equity
interest.
"Capital Stock Sale Proceeds" means the aggregate cash proceeds
received by the Company from the issuance or sale (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 for the benefit of their employees) by the
Company of any class of its Parity Stock and Junior Stock (other than
Disqualified Stock) after the Issue Date, net of attorneys' fees, accountants'
fees, underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees actually incurred in connection with such
issuance or sale and net of taxes paid or payable as a result thereof.
"Certificate of Determination" means this Amended and Restated
Certificate of Determination, as amended from time to time.
<PAGE>
28
"Change of Control" means the occurrence of any of the following
events:
(a) prior to the first Public Equity Offering, the Permitted Holders
cease to be the "beneficial owners" (as defined in Rule 13d-3 under the
Exchange Act, except that a Person will be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of a majority of the voting power of the
Voting Stock of Holding or the Company, whether as a result of the issuance
of securities of Holding or the Company, any merger, consolidation,
liquidation or dissolution of Holding or the Company, any direct or
indirect transfer of securities by the Permitted Holders or otherwise (for
purposes of this clause (a), the Permitted Holders will be deemed to
beneficially own any Voting Stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation") so
long as the Permitted Holders beneficially own, directly or indirectly, in
the aggregate a majority of the voting power of the Voting Stock of such
parent corporation); or
(b) after the first Public Equity Offering, any "Person" or "group"
(as such terms are used in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provisions to either of the foregoing), including any
group acting for the purpose of acquiring, holding, voting or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act,
other than any one or more of the Permitted Holders, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except
that a Person will be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of 35% or more of the voting power of the Voting Stock of
Holding or the Company; provided, however, that the Permitted Holders are
-------- -------
the "beneficial owners" (as defined in Rule 13d-3 under the Exchange Act,
except that a Person will be deemed to have "beneficial ownership" of all
shares that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, in the aggregate of a lesser percentage of the total voting
power of all classes of the Voting Stock of Holding or the Company than
such other Person or group (for purposes of this
<PAGE>
29
clause (b), such Person or group shall be deemed to beneficially own any
Voting Stock of a specified corporation held by a parent corporation so
long as such Person or group beneficially owns, directly or indirectly, in
the aggregate a majority of the voting power of the Voting Stock of such
parent corporation); or
(c) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of Holding and the Restricted Subsidiaries, considered as a whole (other
than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Subsidiary or one or more Permitted Holders)
shall have occurred, or Holding merges, consolidates or amalgamates with or
into any other Person (other than one or more Permitted Holders) or any
other Person (other than one or more Permitted Holders) merges,
consolidates or amalgamates with or into Holding, in any such event
pursuant to a transaction in which the outstanding Voting Stock of Holding
is reclassified into or exchanged for cash, securities or other Property,
other than any such transaction where (i) the outstanding Voting Stock of
Holding is reclassified into or exchanged for Voting Stock of the surviving
corporation and (ii) the Holders of the Voting Stock of Holding immediately
prior to such transaction own, directly or indirectly, not less than a
majority of the Voting Stock of the surviving corporation immediately after
such transaction and in substantially the same proportion as before the
transaction; or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of Holding or
the Board of Directors of the Company (together with any new directors
whose election or appointment by the applicable board or whose nomination
for election by the shareholders of Holding or the Company was approved by
a vote of 66-2/3% of the applicable directors then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of such board then in office; or
(e) the shareholders of Holding or the Company shall have approved any
plan of liquidation or dissolution of Holding or the Company.
<PAGE>
30
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Hudson Respiratory Care Inc., a California
corporation.
"Company Exchange Debentures" means the 11 1/2% Subordinated Exchange
Debentures due 2010 of the Company, issuable in exchange for the Holding
Preferred Stock or the Senior Exchangeable Preferred Stock.
"Consolidated Interest Coverage Ratio" means, as of any date of
determination, the ratio of (a) the aggregate amount of EBITDA for the most
recent four consecutive fiscal quarters ending at least 45 days prior to such
determination date to (b) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (i) if the Company or any Restricted
-------- -------
Subsidiary has Incurred any Debt since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate the
Consolidated Interest Coverage Ratio is an Incurrence of Debt, or both,
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Debt as if such Debt had been Incurred on
the first day of such period and the discharge of any other Debt repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new Debt
as if such discharge had occurred on the first day of such period, (ii) if since
the beginning of such period the Company or any Restricted Subsidiary shall have
repaid, repurchased, legally defeased or otherwise discharged any Debt with
Capital Stock Sale Proceeds, Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to such discharge as if
such discharge had occurred on the first day of such period, (iii) if since the
beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Sale or if the transaction giving rise to the need to calculate
the Consolidated Interest Coverage Ratio is an Asset Sale, or both, EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the Property which is the subject of such Asset Sale
for such period, or increased by an amount equal to the EBITDA (if negative)
directly attributable thereto for such period, in either case as if such Asset
Sale had occurred on the first day of such period and Consolidated Interest
Expense for such period shall be reduced by an amount equal to the Consolidated
Interest Expense directly attributable to any Debt of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in connection
with such
<PAGE>
31
Asset Sale, as if such Asset Sale had occurred on the first day of such period
(or, if the Capital Stock of any Restricted Subsidiary is sold, by an amount
equal to the Consolidated Interest Expense for such period directly attributable
to the Debt of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Debt after such
sale), (iv) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of Property, including any acquisition of Property occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Debt) as if
such Investment or acquisition occurred on the first day of such period and (v)
if since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset Sale,
Investment or acquisition of Property that would have required an adjustment
pursuant to clause (iii) or (iv) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Sale, Investment or acquisition occurred on the first day of such period.
For purposes of this definition, pro forma calculations shall be determined in
good faith by a responsible financial or accounting Officer of the Company and
as further contemplated by the definition of the term "pro forma". If any Debt
bears a floating rate of interest and is being given pro forma effect, the
interest expense on such Debt shall be calculated as if the rate in effect on
the date of determination had been the applicable rate for the entire period
(taking into account any Interest Rate Agreement applicable to such Debt if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent Incurred by the Company or its Restricted Subsidiaries, (a) interest
expense attributable to capital leases, (b) amortization of debt discount and
debt issuance cost, including commitment fees, other than with respect to Debt
Incurred in connection with the Recapitalization,
<PAGE>
32
(c) capitalized interest, (d) non-cash interest expenses, (e) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (f) net costs associated with Hedging Obligations
(including amortization of fees), (g) Disqualified Dividends other than
Disqualified Dividends paid with shares of Parity Stock or Junior Stock of the
Company which is not Disqualified Stock, (h) Preferred Stock dividends in
respect of all Preferred Stock of Restricted Subsidiaries held by Persons other
than the Company or a Wholly Owned Subsidiary, (i) interest Incurred in
connection with Investments in discontinued operations, (j) interest accruing on
any Debt of any other Person to the extent such Debt is Guaranteed by the
Company or any Restricted Subsidiary and (k) the cash contributions to any
employee stock ownership plan or similar trust to the extent such contributions
are used by such plan or trust to pay interest or fees to any Person (other than
the Company) in connection with Debt Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss)
of the Company and its consolidated Subsidiaries; provided, however, that there
-------- -------
shall not be included in such Consolidated Net Income (a) any net income (loss)
of any Person (other than the Company) if such Person is not a Restricted
Subsidiary, except that (i) subject to the exclusion contained in clause (d)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (c) below) and (ii) the Company's equity in a
net loss of any such Person other than an Unrestricted Subsidiary for such
period shall be included in determining such Consolidated Net Income, (b) for
the purposes of paragraph (l)(ii) only, any net income (loss) of any Person
acquired by the Company or any of its consolidated Subsidiaries in a pooling of
interests transaction for any period prior to the date of such acquisition, (c)
any net income (but not loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions, directly or indirectly, to the
Company, except that subject to the exclusion contained in clause (d) below, the
Company's equity in the net income of any such Restricted Subsidiary for such
period shall be included in such Consolidated Net Income up to the aggregate
amount of cash distributed by such Restricted Subsidiary during such period
<PAGE>
33
to the Company or another Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to
another Restricted Subsidiary, to the limitation contained in this clause), (d)
any gain (or, for purposes of paragraphs (l)(i) and (l)(vii) only, loss)
realized upon the sale or other disposition of any Property of the Company or
any of its consolidated Subsidiaries (including pursuant to any Sale and
Leaseback Transaction) which is not sold or otherwise disposed of in the
ordinary course of business, provided that any tax benefit or tax liability
--------
resulting therefrom shall be excluded in such Consolidated Net Income, (e) any
extraordinary gain or loss, provided that any tax benefit or tax liability
--------
resulting therefrom shall be excluded in such Consolidated Net Income, (f) the
cumulative effect of a change in accounting principles and (g) (i) any non-cash
compensation expense realized for grants of performance shares, stock options or
other stock awards to officers, directors and employees of the Company or any
Restricted Subsidiary or (ii) compensation expense realized with respect to
periods prior to the Issue Date in respect of payments under the Company's 1994
Amended and Restated Equity Participation Plan or compensation expense, to the
extent accrued in 1998, related to contingent payments to existing managers of
the Company pursuant to the Merger Agreement in an aggregate amount not in
excess of $2.4 million. Notwithstanding the foregoing, for the purposes of
paragraph (l)(ii) 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 clause (c)(iv) thereof.
"Credit Facility" means, with respect to the Company or any Restricted
Subsidiary, one or more debt or commercial paper facilities with banks or other
institutional lenders (including the New Credit Facility) providing for
revolving credit loans, term loans, receivables or inventory financing
(including through the sale of receivables or inventory to such lenders or to
special purpose, bankruptcy remote entities formed to borrow from such lenders
against such receivables or inventory) or trade letters of credit, in each case
together with any amendments, supplements, modifications (including by any
extension of the maturity thereof), refinancings or replacements thereof by a
lender or syndicate of lenders in one or more successive transactions (including
any such transaction that changes the amount available thereunder,
<PAGE>
34
replaces such agreement or document, or provides for other agents or lenders).
"Currency Exchange Protection Agreement" means, in respect of a
Person, any foreign exchange contract, currency swap agreement, currency option
or other similar agreement or arrangement designed to protect such Person
against fluctuations in currency exchange rates.
"Debt" means, with respect to any Person on any date of determination
(without duplication), (a) the principal of and premium (if any) in respect of
(i) debt of such Person for money borrowed and (ii) debt evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (b) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale and Leaseback Transactions
entered into by such Person; (c) all obligations of such Person issued or
assumed as the deferred purchase price of Property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (d) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (a) through (c)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (e) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends); (f) all obligations of the type
referred to in clauses (a) through (e) of other Persons and all dividends of
other Persons for the payment of which, in either case, such Person is
responsible or liable, directly or indirectly, as obligor, Guarantor or
otherwise, including by means of any Guarantee; (g) all obligations of the type
referred to in clauses (a) through (f) of other Persons secured by any Lien on
any Property of such Person (whether or not such obligation is assumed by such
Person), the amount of such obligation being deemed to be the lesser of the
value of such Property or the amount of the obligation so secured; and (h) to
the extent not otherwise included in this definition, Hedging Obligations of
such Person. The amount of Debt of any Person
<PAGE>
35
at any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date; provided that the amount outstanding at any time of any Debt issued
--------
with original issue discount is the face amount of such Debt less the remaining
unamortized portion of the original issue discount of such Debt at such time as
determined in accordance with GAAP.
"Disqualified Dividends" means, for any dividend with respect to
Disqualified Stock, the quotient of the dividend divided by the difference
between one and the maximum statutory federal income tax rate (expressed as a
decimal number between 1 and 0) then applicable to the issuer of such
Disqualified Stock.
"Disqualified Stock" means, with respect to any Person, Redeemable
Stock of such Person as to which (i) the maturity, (ii) mandatory redemption or
(iii) redemption, repurchase, conversion or exchange at the option of the holder
thereof occurs, or may occur, on or prior to the first anniversary of the Stated
Maturity of the Senior PIK Preferred Stock; provided, however, that Redeemable
-------- -------
Stock of such Person that would not otherwise be characterized as Disqualified
Stock under this definition shall not constitute Disqualified Stock (a) if such
Redeemable Stock is convertible or exchangeable into Debt or Disqualified Stock
solely at the option of the issuer thereof or (b) solely as a result of
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Redeemable Stock upon the occurrence of a "change of
control" occurring prior to the first anniversary of the Stated Maturity of the
Senior PIK Preferred Stock, if (x) such repurchase obligation may not be
triggered in respect of such Redeemable Stock unless a corresponding obligation
also arises with respect to the Senior PIK Preferred Stock and (y) no such
repurchase or redemption is permitted to be consummated unless and until such
Person shall have satisfied all repurchase or redemption obligations with
respect to any required purchase offer made with respect to the Senior PIK
Preferred Stock.
"EBITDA" means, for any period, an amount equal to, for the Company
and its consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net
Income for such period, plus the following to the extent reducing Consolidated
Net Income for such period: (i) the provision for taxes based on income or
profits or utilized in computing net loss, (ii) Consolidated Interest Expense,
(iii) depreciation, (iv) amortization expense and (v) any
<PAGE>
36
other non-cash items (other than any such non-cash item to the extent that it
represents an accrual of or reserve for cash expenditures in any future period),
minus (b) all non-cash items increasing Consolidated Net Income for such period
(other than any such non-cash item to the extent that it will result in the
receipt of cash payments in any future period). Notwithstanding the foregoing,
the provision for taxes based on the income or profits of, and the depreciation
and amortization of, a Restricted Subsidiary 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 Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its shareholders.
"Employee Notes" means promissory notes of employees of Holding, the
Company or any of their Subsidiaries payable to Holding or the Company and
received in connection with the substantially concurrent purchase of common
stock of Holding or the Company by such employees.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exchange Offer Registration Statement" means a registration statement
of Holding and, if applicable and permitted by the SEC, the Company on an
appropriate form under the Securities Act with respect to the Registered
Exchange Offer, all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Exchange Securities" means the Series B Holding Preferred Stock
issued in exchange for Holding Preferred Stock and, if applicable, new exchange
debentures of the Company issued in exchange for the Company Exchange Debentures
and new preferred stock of the Company issued in exchange for the Senior
Exchangeable Preferred Stock, pursuant to the Exchange Offer Registration
Statement.
"Fair Market Value" means, with respect to any Property, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing
<PAGE>
37
seller and a willing buyer, neither of whom is under undue pressure or
compulsion to complete the transaction. Fair Market Value will be determined,
except as otherwise provided, (a) if such Property has a Fair Market Value equal
to or less than $2.5 million, by any Officer of the Company or (b) if such
Property has a Fair Market Value in excess of $2.5 million, by a majority of the
Board of Directors and evidenced by a board resolution, dated within 30 days of
the relevant transaction.
"GAAP" means United States generally accepted accounting principles as
in effect on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such other
entity as approved by a significant segment of the accounting profession and (d)
the rules and regulations of the SEC governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
- -------- -------
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement
or any other similar agreement or arrangement.
<PAGE>
38
"Holder" means the Person in whose name a share of Senior PIK
Preferred Stock is registered on the Company's books.
"Holding" means River Holding Corp., a Delaware corporation.
"Holding Preferred Stock" means the 11 1/2% Senior Exchangeable PIK
Preferred Stock due 2010 of Holding, exchangeable into Company Exchange
Debentures or Senior Exchangeable Preferred Stock.
"Incur" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by merger, conversion, exchange or otherwise),
extend, assume, Guarantee or become liable in respect of such Debt or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Debt or obligation on the balance sheet of such Person (and "Incurrence"
and "Incurred" shall have meanings correlative to the foregoing); provided,
--------
however, that a change in GAAP that results in an obligation of such Person that
- -------
exists at such time, and is not theretofore classified as Debt, becoming Debt
shall not be deemed an Incurrence of such Debt; provided further, however, that
---------------- -------
solely for purposes of determining compliance with paragraph (l)(i),
amortization of debt discount shall not be deemed to be the Incurrence of Debt,
provided that in the case of Debt sold at a discount, the amount of such Debt
- --------
Incurred shall at all times be the aggregate principal amount at Stated
Maturity.
"Indenture" means the Indenture dated as of the Issue Date among
Holding, the Company and the United States Trust Company of New York, as
Trustee, governing the Notes.
"Independent Appraiser" means an investment banking firm of national
standing or any third party appraiser of national standing, provided that such
--------
firm or appraiser is not an Affiliate of the Company.
"Interest Rate Agreement" means, for any Person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect against fluctuations in interest
rates.
"Investment" by any Person means any direct or indirect loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means
<PAGE>
39
of transfers of cash or other Property to others or payments for Property or
services for the account or use of others, or otherwise) to, or Incurrence of a
Guarantee of any obligation of, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Debt issued by, any
other Person. For purposes of paragraphs (l)(ii) and (l)(vi) and the definition
of "Restricted Payment", "Investment" shall include the portion (proportionate
to the Company's equity interest in such Subsidiary) of the Fair Market Value of
the net assets of any 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 (a) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (b) 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. In determining the amount of any Investment made by transfer of
any Property other than cash, such Property shall be valued at its Fair Market
Value at the time of such Investment.
"Issue Date" means April 7, 1998.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the City of New York and Los
Angeles.
"Lien" means, with respect to any Property of any Person, any mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any Capital
Lease Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
"Merger Agreement" means the Amended and Restated Merger Agreement
between Holding, River Acquisition Corp., the Company and shareholders of the
Company dated as of March 15, 1998, as in effect on the Issue Date.
<PAGE>
40
"Merger" means the merger of River Acquisition Corp. with and into the
Company pursuant to the Merger Agreement.
"Moody's" means Moody's Investors Service, Inc. or any successor to
the rating agency business thereof.
"Net Available Cash" from any Asset Sale or other transaction subject
to paragraph (l)(iii) means cash payments received therefrom (including any cash
payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Debt or other obligations relating to the Property that is
the subject of such transaction or received in any other non-cash form), in each
case net of (a) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, provincial, foreign
and local taxes required to be accrued as a liability under GAAP, as a
consequence of such transaction, (b) all payments made on any Debt which is
secured by any Property subject to such transaction, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such Property, or which must by its terms, or in order to obtain a necessary
consent to such transaction, or by applicable law, be repaid out of the proceeds
from such transaction, (c) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures as a result
of such transaction and (d) the deduction of appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the Property disposed in such transaction and retained by the Company or
any Restricted Subsidiary after such transaction.
"New Credit Facility" means the credit facilities made available
pursuant to the Credit Agreement dated as of the Issue Date among the Company,
Holding, the lenders party thereto, Salomon Smith Barney Inc, as Arranger,
Advisor and Syndication Agent, and Bankers Trust Company, as Administrative
Agent.
"Notes" means the 91/2% Senior Subordinated Notes due 2008 of the
Company.
"Officer" means the Chief Executive Officer, the President, the Chief
Financial Officer or any Executive Vice President of the Company.
<PAGE>
41
"Permitted Debt" means:(a) Debt of the Company evidenced by the Notes
and of Subsidiary Guarantors evidenced by Subsidiary Guaranties; (b)(i) Debt
under the Credit Facility; provided that the aggregate principal amount of all
--------
such Debt under the Credit Facility comprised of (A) term loans at any one time
outstanding shall not exceed $40.0 million minus all principal amounts repaid in
respect of such term loans and (B) revolving credit loans or obligations at any
one time outstanding shall not exceed the greater of (x) $60.0 million and (y)
the sum of the amounts equal to (1) 60% of the net book value of the inventory
of the Company and the Restricted Subsidiaries and (2) 85% of the net book value
of the accounts receivable of the Company and the Restricted Subsidiaries, in
each case as of the most recent fiscal quarter ending at least 45 days prior to
the date of determination and (ii) Guarantees of Debt under the Credit Facility;
(c) Debt in respect of Capital Lease Obligations and Purchase Money Debt;
provided that (i) the aggregate principal amount of such Debt does not exceed
the Fair Market Value (on the date of the Incurrence thereof) of the Property
acquired, constructed or leased (including costs of installation, taxes and
delivery charges with respect to such acquisition, construction or lease) and
(ii) the aggregate principal amount of all Debt Incurred and then outstanding
pursuant to this clause (c) (together with all Permitted Refinancing Debt
Incurred in respect of Debt previously Incurred pursuant to this clause (c) and
then outstanding) does not exceed $15.0 million; (d) Debt of the Company owing
to and held by any Wholly Owned Subsidiary and Debt of a Wholly Owned Subsidiary
owing to and held by the Company or any Wholly Owned Subsidiary; provided,
--------
however, that any subsequent issue or transfer of Capital Stock or other event
- -------
that results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary or any subsequent transfer of any such Debt (except to the Company or
a Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Debt by the issuer thereof; (e) Debt of a Wholly Owned
Subsidiary Incurred and outstanding on or prior to the date on which such Wholly
Owned Restricted Subsidiary was acquired by the Company or otherwise became a
Restricted Subsidiary (other than Debt Incurred as consideration in, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of transactions pursuant to which such
Wholly Owned Restricted Subsidiary became a Subsidiary of the Company or was
otherwise acquired by the Company); provided that at the time such Wholly Owned
Restricted Subsidiary was acquired by the Company or otherwise became a
Restricted Subsidiary and after giving pro forma effect to the Incurrence of
such Debt, the Company would have been able to Incur $1.00 of additional Debt
<PAGE>
42
pursuant to clause (a) in the first paragraph of covenant (l)(i); (f) Debt under
Interest Rate Agreements entered into by the Company or a Restricted Subsidiary
for the purpose of limiting interest rate risk in the ordinary course of the
financial management of the Company or such Restricted Subsidiary and not for
speculative purposes, provided that the obligations under such agreements are
directly related to payment obligations on Debt otherwise permitted by the terms
of covenant (l)(i); (g) Debt under Currency Exchange Protection Agreements
entered into by the Company or a Restricted Subsidiary for the purpose of
limiting currency exchange rate risks directly related to transactions entered
into by the Company or such Restricted Subsidiary in the ordinary course of
business and not for speculative purposes; (h) Debt in connection with one or
more standby letters of credit or performance bonds issued for the account of
the Company or a Restricted Subsidiary in the ordinary course of business or
pursuant to self-insurance obligations and not in connection with the borrowing
of money or the obtaining of advances; (i) Debt outstanding on the Issue Date
not otherwise described in clauses (a) through (h) above; (j) Debt not otherwise
described in clauses (a) through (i) above and clause (l) below in an aggregate
principal amount outstanding at any one time not to exceed $15.0 million; (k)
Permitted Refinancing Debt Incurred in respect of Debt Incurred pursuant to
clause (a) of the first paragraph of covenant (l)(i) and clauses (a), (c), (e)
and (i) above, subject, in the case of clause (c) above, to the limitations set
forth in the proviso thereto; and (l) Debt of the Company under the Company
Exchange Debentures.
"Permitted Holders" means Helen Hudson Lovaas, any member of the
senior management of the Company or Holding on the Issue Date and Freeman Spogli
& Co. Incorporated or any successor entity thereof controlled by the principals
of Freeman Spogli & Co. Incorporated or any entity controlled by, or under
common control with, Freeman Spogli & Co. Incorporated.
"Permitted Investment" means any Investment by the Company or a
Restricted Subsidiary in (a) any Restricted Subsidiary or any Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided
--------
that the primary business of such Restricted Subsidiary is a Related Business;
(b) any Person if as a result of such Investment such Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
Property to, the Company or a Restricted Subsidiary; provided that such Person's
--------
primary business is a Related Business; (c) Temporary Cash Investments; (d)
receivables
<PAGE>
43
owing to the Company or a Restricted Subsidiary, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade terms may include such
-------- -------
concessionary trade terms as the Company or such Restricted Subsidiary deems
reasonable under the circumstances; (e) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (f) (i) loans and advances to employees made in the ordinary
course of business consistent with past practices of the Company or such
Restricted Subsidiary, as the case may be; provided that such loans and
--------
advances do not exceed $1.0 million at any one time outstanding and (ii) loans
and advances to, or the receipt of Employee Notes from, employees of Holding,
the Company or any of their Subsidiaries made or received in connection with the
substantially concurrent purchase of common stock of the Company by such
employees; provided that the aggregate principal amount of such loans, advances
--------
and notes payable shall not exceed $1.0 million at any one time outstanding; (g)
stock, obligations or other securities received in settlement of debts created
in the ordinary course of business and owing to the Company or a Restricted
Subsidiary or in satisfaction of judgments; (h) any Person to the extent such
Investment represents the non-cash portion of the consideration received in
connection with a disposition of assets; and (i) Investments in Persons engaged
in a Related Business not to exceed $20.0 million at any one time outstanding
(it being agreed that an Investment shall cease to be outstanding to the extent
of dividends, repayments of loans or advances or other transfers of Property
received by the Company or any Restricted Subsidiary from such Persons, provided
--------
that such amounts do not increase the amount of Restricted Payments which the
Company and the Restricted Subsidiaries may make pursuant to clause (c)(iv)(A)
of paragraph (l)(ii)).
"Permitted Refinancing Debt" means any Debt that Refinances any other
Debt, including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance costs,
related to such Refinancing, (b) the Average Life of such Debt is equal to or
greater than the Average Life of the Debt being Refinanced and (c) the Stated
Maturity of such Debt is no earlier than the Stated Maturity
<PAGE>
44
of the Debt being Refinanced; provided, however, that Permitted Refinancing Debt
-------- -------
shall not include (x) Debt of a Subsidiary that Refinances Debt of the Company
or (y) Debt of the Company or a Restricted Subsidiary that Refinances Debt of an
Unrestricted Subsidiary.
"Person" means any individual, corporation, company (including any
limited liability company), partnership, joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
the payment of dividends, or as to the distribution of assets upon any voluntary
or involuntary liquidation or dissolution of such Person, over shares of any
other class of Capital Stock issued by such Person.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Company, as the case may be.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including Capital Stock in, and other securities of, any
other Person.
"Public Equity Offering" means an underwritten public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Purchase Money Debt" means Debt (a) consisting of the deferred
purchase price of property, conditional sale obligations, obligations under any
title retention agreement, other purchase money obligations and obligations in
respect of industrial revenue bonds, in each case where the maturity of such
Debt does not exceed the anticipated useful life of the asset being financed,
and (b) Incurred to finance the acquisition or construction by the Company or a
Restricted Subsidiary of such asset, including remodeling
<PAGE>
45
thereof and additions and improvements thereto; provided, however, that such
-------- -------
Debt is Incurred within 180 days after such acquisition of such asset by the
Company or a Restricted Subsidiary or completion of such construction,
remodeling, addition or improvement, as the case may be.
"Redeemable Stock" means, with respect to any Person, any Capital
Stock that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable, in either case at the option of the
holder thereof) or otherwise (a) matures or is mandatorily redeemable pursuant
to a sinking fund obligation or otherwise, (b) is or may become redeemable or
repurchaseable at the option of the holder thereof, in whole or in part, or (c)
is convertible or exchangeable, in either case at the option of the holder
thereof, for Debt of Disqualified Stock.
"Refinance" means, in respect of any Debt, to finance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue other Debt, in
exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
"Registered Exchange Offer" means the proposed offer to the holders of
Holding Preferred Stock to issue and deliver to such holders, in exchange for
Holding Preferred Stock (or, if Holding Preferred Stock has been exchanged
therefor, the Senior Exchangeable Preferred Stock or Company Exchange
Debentures, as applicable), a like principal amount or liquidation preference of
Exchange Securities.
"Registration Agreement" means the Registration Agreement, dated as of
April 7, 1998, among the Company, Holding and Salomon Brothers Inc and BT Alex.
Brown Incorporated, as purchasers.
"Related Business" means any business that is related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Restricted Payment" means (a) any dividend or distribution (whether
made in cash, securities or other Property) declared or paid on or with respect
to any shares of Parity Stock or Junior Stock of the Company or any Capital
Stock of any Restricted Subsidiary (including any payment in connection with any
merger or consolidation with or into the Company or any Restricted Subsidiary),
except for any dividend or distribution which is made solely to the Company or a
Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly Owned
Subsidiary, to the other
<PAGE>
46
shareholders of such Restricted Subsidiary on a pro rata basis or on a basis
--- ----
that results in the receipt by the Company or a Restricted Subsidiary of
dividends or distributions of greater value than it would receive on a pro rata
basis) or any dividend or distribution payable solely in shares of Junior Stock
(other than Disqualified Stock) of the Company; (b) the purchase, repurchase,
redemption, acquisition or retirement for value of any Parity Stock or Junior
Stock of the Company or any Capital Stock of any Affiliate of the Company (other
than from the Company or a Restricted Subsidiary) or any securities exchangeable
for or convertible into any such Parity Stock, Junior Stock or Capital Stock,
including the exercise of any option to exchange any such Parity Stock, Junior
Stock or Capital Stock (other than for or into Capital Stock that is not
Disqualified Stock); or (c) any Investment (other than Permitted Investments) in
any Person.
"Restricted Subsidiary" means (a) any Subsidiary of the Company unless
such Subsidiary shall have been designated an Unrestricted Subsidiary as
permitted or required pursuant to paragraph (l)(vi) and (b) an Unrestricted
Subsidiary which is redesignated as a Restricted Subsidiary as permitted
pursuant to paragraph (l)(vi).
"S&P" means Standard & Poor's Ratings Service or any successor to the
rating agency business thereof.
"Sale and Leaseback Transaction" means any arrangement relating to
Property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such Property to another Person and the Company or a
Restricted Subsidiary leases if from such Person.
"Securities Act" means the Securities Act of 1933.
"Senior Exchangeable Preferred Stock" means the 11 1/2% Senior
Exchangeable PIK Preferred Stock due 2010 of the Company, issuable in exchange
for the Holding Preferred Stock.
"Series B Holding Preferred Stock" means the 11 1/2% Series B Senior
Exchangeable Preferred Stock Due 2010 of Holding, exchangeable for Holding
Preferred Stock pursuant to the Exchange Offer Registration Statement.
"Shelf Registration Statement" means a "shelf" registration statement
of the Company and Holding pursuant to the provisions of the Registration
Agreement which covers Holding Preferred Stock (or if Holding Preferred Stock
has
<PAGE>
47
been exchanged therefor, the Senior Exchangeable Preferred Stock or Company
Exchange Debentures, as applicable), and the Exchange Securities, as applicable,
on an appropriate form under Rule 415 under the Securities Act, or any similar
rule that may be adopted by the SEC, all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"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).
"Subsidiary" means, in respect of any Person, any corporation,
company, association, partnership, joint venture or other business entity of
which more than 50% of the total voting power of shares of Capital Stock or
other interests (including partnership interests) entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled directly or
indirectly, by (a) such Person, (b) such Person and one or more Subsidiaries of
such Person or (c) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Subsidiary of the Company that
becomes a Subsidiary Guarantor pursuant to the terms of the Notes.
"Subsidiary Guaranty" means a Guarantee of the Notes on the terms set
forth in the Indenture by a Subsidiary Guarantor of the Company's obligations
with respect to the Notes.
"Temporary Cash Investments" means any of the following: (a)
Investments in U.S. Government Obligations; (b) Investments in time deposit
accounts, certificates of deposit and money market deposits maturing within 90
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 or any state thereof
having capital surplus and undivided profits aggregating in excess of $500.0
million and whose long-term debt rate is "A-3 or "A-" or higher according to
Moody's or S&P (or such similar
<PAGE>
48
equivalent rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act)); (c) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (a) entered into with a bank meeting the
qualifications described in clause (b) above; (d) Investments in commercial
paper, maturing not more than 90 days after the date of acquisition, issued by a
corporation (other than an Affiliate of the Company) organized and in existence
under the laws of the United States of America with a rating at the time as of
which any investment therein is made of "P-1" (or higher) according to Moody's
or "A-1" (or higher) according to S&P (or such similar equivalent rating by at
least one "nationally recognized statistical rating organization" (as defined in
Rule 436 under the Securities Act)): (e) direct obligations (or certificates
representing an ownership in such obligations) of any state of the United States
of America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of such state is pledged and which are not
callable or redeemable at the issuer's option, provided that (i) the long-term
--------
debt of such state is rated "A-3" or "A-" or higher according to Moody's or S&P
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)) and (ii) such obligations mature within 180 days of the date of
acquisition thereof; and (f) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(a) through (e) above.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company in
existence on the Issue Date that is not a Restricted Subsidiary; (b) any
Subsidiary of an Unrestricted Subsidiary; and (c) any Subsidiary of the Company
that is designated after the Issue Date as an Unrestricted Subsidiary as
permitted or required pursuant to paragraph (l)(vi) and not thereafter
redesignated as a Restricted Subsidiary as permitted pursuant thereto.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and
<PAGE>
49
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary
all the Voting Stock of which (except directors' qualifying shares) is at such
time owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.
3. The foregoing Amendment and Restatement of Certificate of
Determination set forth herein has been duly approved and adopted by the Board
of Directors of the Company.
4. The foregoing Amendment and Restatement of Certificate of
Determination set forth herein has been duly approved by the required vote of
shareholders in accordance with Section 902 and 903 of the Corporations Code.
The Company has outstanding 7,800,000 shares of Common Stock and 300,000 shares
of Senior PIK Preferred Stock. The vote required to approve this amendment was
more than 50% of the outstanding Common Stock and more than 50% of the
outstanding Senior PIK Preferred Stock, each voting as a separate class, and the
number of shares voting in favor of this amendment equaled or exceeded the vote
required.
[remainder of page intentionally left blank]
<PAGE>
50
The undersigned each further declares under penalty of perjury under
the laws of the State of California that the matters set forth in this
certificate are true and correct of his own knowledge and that this certificate
has been executed on April 8, 1998 in Temecula, California.
/s/ Richard W. Johansen
___________________________________________
Richard W. Johansen, President
/s/ Jay R. Ogram
___________________________________________
Jay R. Ogram, Chief Financial Officer
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
HUDSON RESPIRATORY CARE INC.
Richard W. Johansen and Jay R. Ogram certify that:
1. They are the President and Secretary, respectively, of Hudson
Respiratory Care Inc., a California corporation (the "CORPORATION").
2. The Amended and Restated Articles of Incorporation of the Corporation
are amended and restated to read as follows:
I
NAME OF CORPORATION
The name of the Corporation shall be:
Hudson Respiratory Care Inc.
II
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III
AUTHORIZED CAPITAL STOCK
The Corporation is authorized to issue two classes of shares of stock to be
designated, respectively, "COMMON STOCK" and "PREFERRED STOCK;" the total number
of such shares shall be seventeen million (17,000,000); the total number of
Common Stock shall be fifteen million (15,000,000), each having a par value of
one-cent ($.01); and the total number of Preferred Stock shall be two million
(2,000,000), each having a par value of one-cent ($.01).
Upon amendment and restatement of the Amended and Restated Articles of
Incorporation as herein set forth, each outstanding share of Common Stock is
split up and converted into two hundred and forty-five (245) shares of Common
Stock.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby vested with authority to fix by resolution or
resolutions the designations and the powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation, the dividend
rate, conversion rights, redemption price and liquidation preference, of any
series of Preferred
<PAGE>
Stock, and to fix the number of shares constituting any such series, and to
increase or decrease the number of shares of any such series (but not below the
number of shares thereof then outstanding). In case the number of shares of any
such series shall be so decreased, the shares constituting such decrease shall
resume the status which they had before the adoption of the resolution or
resolutions originally fixing the number of such shares.
IV
LIMITATION ON DIRECTOR LIABILITY
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
V
INDEMNIFICATION OF AGENTS
The Corporation is authorized to provide indemnification of its agents (as
such term is defined in Section 317 of the California General Corporation Law)
to the fullest extent permissible under California law.
3. The foregoing amendment and restatement of the Amended and Restated
Articles of Incorporation has been duly approved by the Board of Directors of
the Corporation.
4. The foregoing amendment and restatement of the Amended and Restated
Articles of Incorporation has been duly approved by the required vote of
shareholders in accordance with Section 902 of the Corporations Code. The total
number of outstanding shares of the Corporation is fifty-nine thousand and
fifty-six (59,056). The number of shares voting in favor of the amendment and
restatement was fifty-nine thousand and fifty-six (59,056) and this number
equaled or exceeded the vote required. The percentage vote required was more
than 50%.
2
<PAGE>
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: March 23, 1998
/s/ Richard W. Johansen
----------------------------------
Richard W. Johansen
President
/s/ Jay R. Ogram
----------------------------------
Jay R. Ogram
Secretary
[SEAL APPEARS HERE]
3
<PAGE>
EXHIBIT 3.2
BYLAWS FOR THE REGULATION OF
HUDSON RESPIRATORY CARE INC.
A CALIFORNIA CORPORATION
ARTICLE I
Principal Executive Office
--------------------------
The principal executive office of the corporation shall be 27711 Diaz Road,
Temecula, California 92390.
ARTICLE II
Meeting of Shareholders
-----------------------
Section 2.01 Annual Meetings. The annual meeting of shareholders shall
---------------
be held on such date as the board of directors shall determine. At each annual
meeting, directors shall be elected and any other proper business may be
transacted.
Section 2.02 Special Meetings. Special meetings of shareholders may be
----------------
called by the board of directors, the chairman of the board, the chief executive
officer, or the holders of shares entitled to cast not less than ten percent
(10%) of the votes at such meeting. Each special meeting shall be held at such
date and time as is requested by the person or persons calling the meeting
within the limits fixed by law.
Section 2.03 Place of Meetings. Each annual or special meeting of
-----------------
shareholders shall be held at such location as may be determined by the board of
directors, or if no such determination is made, at such place as may be
determined by the chief executive officer, or by any other officer authorized by
the board of directors. If no location is so determined, any annual or special
meeting shall be held at the principal executive office of the corporation.
Section 2.04 Notice of Meetings. Notice of each annual or special
------------------
meeting of shareholders shall contain such information, and shall be given to
such persons at such time, and in such manner, as the board of directors shall
determine, or if no such determination is made, as the chief executive officer,
or any other officer so authorized by the board of directors or the chief
executive officer, shall determine, subject to the requirements of applicable
law.
Section 2.05 Conduct of Meetings. Subject to the requirements of
-------------------
applicable law, all annual and special meetings of shareholders shall be
conducted in accordance with such rules and procedures as the board of directors
may determine and, as to matters not governed by such rules and procedures, as
the chairman of such meeting shall determine. The chairman of any annual or
special meeting of shareholders shall be designated by the board of directors
and, in the absence of any such designation, shall be the chief executive
officer of the corporation.
<PAGE>
ARTICLE III
Directors
---------
Section 3.01 Number of Directors. The Corporation shall have not less
-------------------
than three (3) nor more than five (5) directors. The exact number of directors
shall be fixed from time to time, within the limits specified above, by
resolution of the shareholders in accordance with applicable law. Subject to
the foregoing provisions for changing the number of directors, the number of
directors of the Corporation shall be three (3).
Section 3.02 Meetings of the Board. Each regular and special meeting of
---------------------
the board shall be held at a location determined as follows: The board of
directors may designate any place, within or without the State of California,
for the holding of any meeting. If no such designation is made, (i) any meeting
called by a majority of the directors shall be held at such location, within the
county of the corporation's principal executive office, as the directors calling
the meeting shall designate; and (ii) any other meeting shall be held at such
location, within the county of the corporation's principal executive office, as
the chief executive officer may designate, or in the absence of such
designation, at the corporation's principal executive office. Subject to the
requirements of applicable law, all regular and special meetings of the board of
directors shall be conducted in accordance with such rules and procedures as the
board of directors may approve and, as to matters not governed by such rules and
procedures, as the chairman of such meeting shall determine. The chairman of
any regular or special meeting shall be designated by the directors and, in the
absence of any such designation, shall be the chief executive officer of the
corporation.
ARTICLE IV
Indemnification of Directors,
Officers, and Other Corporate Agents
------------------------------------
Section 4.01 Indemnification. This corporation shall indemnify and hold
---------------
harmless each "agent" of the corporation, as the term "agent" is defined in
Section 317(a) of the California General Corporation Law, (the "Law") from and
against any expenses, judgments, fines, settlements, and other amounts actually
and reasonably incurred in connection with any "proceeding" (as defined in said
Section 317(a) to the full extent permitted by applicable law. The corporation
shall advance to its agents expenses incurred in defending any proceeding prior
to the final disposition thereof to the full extent and in the manner permitted
by applicable law.
Section 4.02 Right to Indemnification. This section shall create a right
------------------------
of indemnification for each person referred to in section, whether or not the
proceeding to which the indemnification relates arose in whole or in part prior
to adoption of such section and in the event of death such right shall extend to
such person' s legal representatives. The right of indemnification hereby given
shall not be exclusive of any other rights such person may have whether by law
or under any agreement, insurance policy, vote of directors or shareholders, or
otherwise.
2
<PAGE>
Section 4.03 Insurance. The corporation shall have power to purchase and
---------
maintain insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such whether or not the corporation would have the
power to indemnify the agent against such liability.
ARTICLE V
Officers
--------
Section 5.01 Officers. The corporation shall have a chief executive
--------
officer, a president, a chief financial officer, a secretary and may have such
other officers, including a chairman of the board, as may be designated by the
board. officers shall have such powers and duties as may be specified by, or in
accordance with, resolutions of the board of directors. In the absence of any
contrary determination by the board of directors, the chief executive officer
shall, subject to the power and authority of the board of directors, have
general supervision, direction, and control of the officers, employees,
business, and affairs of the corporation.
Section 5.02 Limited Authority of Officers. No officers of the
-----------------------------
corporation shall have any power or authority outside the normal day-to-day
business of the corporation to bind the corporation by any contract or
engagement or to pledge its credit or to render it liable in connection with any
transaction unless so authorized by the board of directors.
ARTICLE VI
Waiver of Annual Reports
------------------------
So long as the corporation has less than 100 holders of record of its
shares (determined as provided in Section 605 of the California General
Corporation Law), no annual report to shareholders shall be required, and the
requirement to the contrary of Section 1501 of the California General
Corporation Law is hereby expressly waived.
ARTICLE VII
Amendments
----------
New bylaws may be adopted or these bylaws may be amended or repealed by the
shareholders or, except for Section 3.01, by the directors.
3
<PAGE>
Exhibit 4.1
EXECUTION COPY
================================================================================
HUDSON RESPIRATORY CARE INC.
9 1/8% Senior Subordinated Notes due 2008
___________________________________________
INDENTURE
Dated as of April 7, 1998
__________________________________________
UNITED STATES TRUST COMPANY OF NEW YORK,
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions......................................... 1
SECTION 1.02. Other Definitions................................... 29
SECTION 1.03. Incorporation by Reference of Trust Indenture Act... 30
SECTION 1.04. Rules of Construction............................... 30
ARTICLE 2
The Securities
--------------
SECTION 2.01. Amount of Securities; Issuable in Series............ 31
SECTION 2.02. Form and Dating..................................... 31
SECTION 2.03. Execution and Authentication........................ 32
SECTION 2.04. Registrar and Paying Agent.......................... 33
SECTION 2.05. Paying Agent To Hold Money in Trust................. 34
SECTION 2.06. Securityholder Lists................................ 34
SECTION 2.07. Replacement Securities.............................. 34
SECTION 2.08. Outstanding Securities.............................. 35
SECTION 2.09. Temporary Securities................................ 35
SECTION 2.10. Cancelation......................................... 36
SECTION 2.11. Defaulted Interest.................................. 36
SECTION 2.12. CUSIP Numbers....................................... 36
ARTICLE 3
Redemption
----------
SECTION 3.01. Notices to Trustee.................................. 37
SECTION 3.02. Selection of Securities To Be Redeemed.............. 37
SECTION 3.03. Notice of Redemption................................ 37
SECTION 3.04. Effect of Notice of Redemption...................... 38
SECTION 3.05. Deposit of Redemption Price......................... 39
SECTION 3.06. Securities Redeemed in Part......................... 40
</TABLE>
<PAGE>
Contents, p.2
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 4
Covenants
---------
SECTION 4.01. Payment of Securities............................... 40
SECTION 4.02. SEC Reports......................................... 40
SECTION 4.03. Limitation on Company and Subsidiary Guarantor
Debt............................................. 41
SECTION 4.04. Limitation on Non-Guarantor Subsidiary Debt......... 41
SECTION 4.05. Limitation on Restricted Payments................... 41
SECTION 4.06. Limitation on Restrictions on Distributions from
Restricted Subsidiaries......................... 45
SECTION 4.07. Limitation on Asset Sales........................... 46
SECTION 4.08. Limitation on Transactions with Affiliates.......... 50
SECTION 4.09. Limitation on Issuance or Sale of Capital Stock of
Restricted Subsidiaries......................... 51
SECTION 4.10. Repurchase at the Option of Holders Upon a Change
of Control...................................... 51
SECTION 4.11. Limitation on Liens................................. 54
SECTION 4.12. Compliance Certificate.............................. 54
SECTION 4.13. Further Instruments and Acts........................ 54
SECTION 4.14. Limitation on Layered Debt.......................... 54
SECTION 4.15. Designation of Restricted and Unrestricted
Subsidiaries.................................... 55
SECTION 4.16. Limitation on Holding's Business.................... 56
ARTICLE 5
Successor Company
-----------------
SECTION 5.01. When Company May Merge or Transfer Assets........... 56
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default................................... 57
SECTION 6.02. Acceleration........................................ 60
SECTION 6.03. Other Remedies...................................... 60
SECTION 6.04. Waiver of Defaults.................................. 60
SECTION 6.05. Control by Majority................................. 61
SECTION 6.06. Limitation on Suits................................. 61
</TABLE>
<PAGE>
Contents, p.3
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.07. Rights of Holders To Receive Payment................ 62
SECTION 6.08. Collection Suit by Trustee.......................... 62
SECTION 6.09. Trustee May File Proofs of Claim.................... 62
SECTION 6.10. Priorities.......................................... 62
SECTION 6.11. Undertaking for Costs............................... 63
SECTION 6.12. Waiver of Stay or Extension Laws.................... 63
ARTICLE 7
Trustee
-------
SECTION 7.01. Duties of Trustee................................... 64
SECTION 7.02. Rights of Trustee................................... 65
SECTION 7.03. Individual Rights of Trustee........................ 66
SECTION 7.04. Trustee's Disclaimer................................ 66
SECTION 7.05. Notice of Defaults.................................. 66
SECTION 7.06. Reports by Trustee to Holders....................... 66
SECTION 7.07. Compensation and Indemnity.......................... 67
SECTION 7.08. Replacement of Trustee.............................. 68
SECTION 7.09. Successor Trustee by Merger......................... 69
SECTION 7.10. Eligibility; Disqualification....................... 69
SECTION 7.11. Preferential Collection of Claims Against Company... 70
ARTICLE 8
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. Discharge of Liability on Securities; Defeasance.... 70
SECTION 8.02. Conditions to Defeasance............................ 71
SECTION 8.03. Application of Trust Money.......................... 73
SECTION 8.04. Repayment to Company................................ 73
SECTION 8.05. Indemnity for Government Obligations................ 73
SECTION 8.06. Reinstatement....................................... 73
ARTICLE 9
Amendments
----------
SECTION 9.01. Without Consent of Holders.......................... 74
SECTION 9.02. With Consent of Holders............................. 75
SECTION 9.03. Compliance with Trust Indenture Act................. 76
SECTION 9.04. Revocation and Effect of Consents
</TABLE>
<PAGE>
Contents, p.4
<TABLE>
<CAPTION>
Page
----
<S> <C>
and Waivers....................................... 76
SECTION 9.05. Notation on or Exchange of Securities............... 77
SECTION 9.06. Trustee To Sign Amendments.......................... 77
SECTION 9.07. Payment for Consent................................. 78
ARTICLE 10
Subordination
-------------
SECTION 10.01. Agreement To Subordinate........................... 78
SECTION 10.02. Liquidation, Dissolution, Bankruptcy............... 78
SECTION 10.03. Default on Senior Debt............................. 79
SECTION 10.04. Acceleration of Payment of Securities.............. 80
SECTION 10.05. When Distribution Must Be Paid Over................ 80
SECTION 10.06. Subrogation........................................ 80
SECTION 10.07. Relative Rights.................................... 80
SECTION 10.08. Subordination May Not Be Impaired by Company....... 80
SECTION 10.09. Rights of Trustee and Paying Agent................. 81
SECTION 10.10. Distribution or Notice to Representative........... 81
SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit
Right To Accelerate............................. 81
SECTION 10.12. Trust Moneys Not Subordinated...................... 81
SECTION 10.13. Trustee Entitled To Rely........................... 82
SECTION 10.14. Trustee To Effectuate Subordination................ 82
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Debt... 82
SECTION 10.16. Reliance by Holders of Senior Debt on Subordination
Provisions...................................... 83
ARTICLE 11
Subsidiary Guaranties
---------------------
SECTION 11.01. Guaranties......................................... 83
SECTION 11.02. Contribution....................................... 85
SECTION 11.03. Successors and Assigns............................. 86
SECTION 11.04. No Waiver.......................................... 86
SECTION 11.05. Modification....................................... 86
SECTION 11.06. Execution of Supplemental
</TABLE>
<PAGE>
Contents, p.5
<TABLE>
<CAPTION>
Page
----
<S> <C>
Indenture for Future Subsidiary Guarantors......... 86
ARTICLE 12
Subordination of Subsidiary Guaranties
--------------------------------------
SECTION 12.01. Agreement To Subordinate........................... 87
SECTION 12.02. Liquidation, Dissolution, Bankruptcy............... 87
SECTION 12.03. Default on Senior Debt of Subsidiary Guarantor..... 88
SECTION 12.04. Demand for Payment................................. 88
SECTION 12.05. When Distribution Must Be Paid Over................ 88
SECTION 12.06. Subrogation........................................ 89
SECTION 12.07. Relative Rights.................................... 89
SECTION 12.08. Subordination May Not Be Impaired by Subsidiary
Guarantor....................................... 89
SECTION 12.09. Rights of Trustee and Paying Agent................. 89
SECTION 12.10. Distribution or Notice to Representative........... 90
SECTION 12.11. Article 12 Not To Prevent Defaults Under a Subsidiary
Guaranty or Limit Right To Demand Payment....... 90
SECTION 12.12. Trustee Entitled To Rely........................... 90
SECTION 12.13. Trustee To Effectuate Subordination................ 91
SECTION 12.14. Trustee Not Fiduciary for Holders of Senior Debt of
Subsidiary Guarantor........................... 91
SECTION 12.15. Reliance by Holders of Senior Debt on Subordination
Provisions..................................... 91
ARTICLE 13
Miscellaneous
-------------
SECTION 13.01. Trust Indenture Act Controls....................... 92
SECTION 13.02. Notices............................................ 92
SECTION 13.03. Communication by Holders with Other Holders........ 93
SECTION 13.04. Certificate and Opinion as to Conditions Precedent. 93
SECTION 13.05. Statements Required in Certificate or Opinion...... 94
SECTION 13.06. When Securities Disregarded; Acts
</TABLE>
<PAGE>
Contents, p.6
<TABLE>
<CAPTION>
Page
----
<S> <C>
of Holder...................................... 95
SECTION 13.07. Rules by Trustee, Paying Agent and Registrar....... 95
SECTION 13.08. Legal Holidays..................................... 95
SECTION 13.09. Governing Law...................................... 95
SECTION 13.10. No Recourse Against Others......................... 95
SECTION 13.11. Successors......................................... 96
SECTION 13.12. Multiple Originals................................. 96
SECTION 13.13. Table of Contents; Headings........................ 96
</TABLE>
Appendix A Provisions Relating to Initial Securities and Exchange
Securities
Exhibit 1 to
Appendix A Form of Initial Security
Exhibit A Form of Exchange Security
Exhibit B Form of Supplemental Indenture
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310(a)(1).................................... 7.10
(a)(2)....................................... 7.10
(a)(3)....................................... N.A.
(a)(4)....................................... N.A.
(b).......................................... 7.08; 7.10
(c).......................................... N.A.
311(a)....................................... 7.11
(b).......................................... 7.11
(c).......................................... N.A.
312(a)....................................... 2.06
(b).......................................... 13.03
(c).......................................... 13.03
313(a)....................................... 7.06
(b)(1)....................................... N.A.
(b)(2)....................................... 7.06
(c).......................................... 13.02
(d).......................................... 7.06
314(a)....................................... 4.02; 4.12; 13.02
(b).......................................... N.A.
(c)(1)....................................... 13.04
(c)(2)....................................... 13.04
(c)(3)....................................... N.A.
(d).......................................... N.A.
(e).......................................... 13.05
(f).......................................... 4.12
315(a)....................................... 7.01
(b).......................................... 7.05; 13.02
(c).......................................... 7.01
(d).......................................... 7.01
(e).......................................... 6.11
316(a)
(last
sentence).................................... 13.06
(a)(1)(A).................................... 6.05
(a)(1)(B).................................... 6.04
(a)(2)....................................... N.A.
(b).......................................... 6.07
317(a)(1).................................... 6.08
(a)(2)....................................... 6.09
(b).......................................... 2.05
318(a)....................................... 13.01
</TABLE>
N.A. Means Not Applicable.
___________________
Note: This Cross-Reference Table shall not, for any purposes, be deemed to be
part of this Indenture.
<PAGE>
INDENTURE dated as of April 7, 1998, among HUDSON
RESPIRATORY CARE INC., a California corporation (the "Company"),
RIVER HOLDING CORP., a Delaware corporation ("Holding") and
UNITED STATES TRUST COMPANY OF NEW YORK, 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 the Company's 9 1/8% Senior
Subordinated Notes due 2008 (the "Initial Securities") and, if and when issued
pursuant to a registered or private exchange for the Initial Securities, the
Company's 9 1/8% Senior Subordinated Notes due 2008 (the "Exchange Securities"
and, together with the Initial Securities, the "Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions.
------------
"Additional Assets" means (a) any Property (other than cash, cash
-----------------
equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in a Related Business; or (b) Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary from any Person other than
an Affiliate of the Company; provided, however, that, in the case of clause (b),
-------- -------
such Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (a) any other Person
---------
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person or (b) any other Person who is a
director or officer of (i) such specified Person, (ii) any Subsidiary of such
specified Person or (iii) any Person described in clause (a) above. For the
purposes of this definition, "control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of Section 4.07, Section 4.08 and
the definition of "Additional Assets" only, "Affiliate" shall also mean any
beneficial owner of shares representing 5% or more of the total voting power of
the
<PAGE>
2
Voting Stock (on a fully diluted basis) of the Company or of rights or warrants
to purchase such Voting Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Agent Member" means any member of, or participant in, the Depository.
------------
"Applicable Procedures" means, with respect to any transfer or
---------------------
transaction involving a Temporary Regulation S Global Note or beneficial
interest therein, the rules and procedures of the Depository, Euroclear and
Cedel for such Global Note, in each case to the extent applicable to such
transaction and as in effect from time to time.
"Asset Sale" means any sale, lease, transfer, issuance or other
----------
disposition (or series of related sales, leases, transfers, issuances or
dispositions) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (a) any
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares) or (b) any other assets of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the Company or such
Restricted Subsidiary other than, in the case of clauses (a) and (b) above, (i)
any disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) for purposes of Section
4.07 only, any disposition that constitutes a Permitted Investment or Restricted
Payment permitted by Section 4.05, (iii) any disposition effected in compliance
with Section 5.01(a), (iv) any Sale and Leaseback Transaction completed within
180 days following the original acquisition of the subject assets where such
Sale and Leaseback Transaction represents the intended financing of Property
acquired after the Issue Date and (v) any disposition or series of related
dispositions of assets having a Fair Market Value and sale price of less than
$500,000.
"Attributable Debt" in respect of a Sale and Leaseback Transaction
-----------------
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such Sale and Leaseback Transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
<PAGE>
3
"Average Life" means, as of any date of determination, with respect
------------
to any Debt or Preferred Stock, the quotient obtained by dividing (a) the sum of
the product of the numbers of years (rounded to the nearest one-twelfth of one
year) from the date of determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by (b) the sum of
all such payments.
"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 each day which is not a Legal Holiday.
------------
"Capital Lease Obligations" means any obligation under a lease that is
-------------------------
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty. For purposes of
Section 4.11, a Capital Lease Obligation shall be deemed secured by a Lien on
the Property being leased.
"Capital Stock" means, with respect to any Person, any shares or other
-------------
equivalents (however designated) of corporate stock, partnership interests or
any other participations, rights, warrants, options or other interests in the
nature of an equity interest in such Person, including Preferred Stock, but
excluding any debt security convertible or exchangeable into such equity
interest.
"Capital Stock Sale Proceeds" means the aggregate cash proceeds
---------------------------
received by the Company from the issuance or sale (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 for the benefit of their employees) by the
Company of any class of its Capital Stock (other than Disqualified Stock) after
the Issue Date, net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
<PAGE>
4
"Change of Control" means the occurrence of any of the following
-----------------
events:
(a) prior to the first Public Equity Offering, the Permitted Holders
cease to be the "beneficial owners" (as defined in Rule 13d-3 under the
Exchange Act, except that a Person will be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of a majority of the voting power of the
Voting Stock of the Company, whether as a result of the issuance of
securities of the Company, any merger, consolidation, liquidation or
dissolution of the Company, any direct or indirect transfer of securities
by the Permitted Holders or otherwise (for purposes of this clause (a), the
Permitted Holders will be deemed to beneficially own any Voting Stock of a
corporation (the "specified corporation") held by any other corporation
(the "parent corporation") so long as the Permitted Holders beneficially
own, directly or indirectly, in the aggregate a majority of the voting
power of the Voting Stock of such parent corporation); or
(b) after the first Public Equity Offering, any "Person" or "group"
(as such terms are used in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provisions to either of the foregoing), including any
group acting for the purpose of acquiring, holding, voting or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act,
other than any one or more of the Permitted Holders, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except
that a Person will be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of 35% or more of the voting power of the Voting Stock of the
Company; provided, however, that the Permitted Holders are the "beneficial
-------- -------
owners" (as defined in Rule 13d-3 under the Exchange Act, except that a
Person will be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, in
the aggregate of a lesser percentage of the total voting power of all
classes of the Voting Stock of the Company than such other Person or group
(for purposes of this clause (b),
<PAGE>
5
such Person or group shall be deemed to beneficially own any Voting Stock
of a specified corporation held by a parent corporation so long as such
Person or group beneficially owns, directly or indirectly, in the aggregate
a majority of the voting power of the Voting Stock of such parent
corporation); or
(c) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Subsidiary or one or more Permitted Holders)
shall have occurred, or the Company merges, consolidates or amalgamates
with or into any other Person (other than one or more Permitted Holders) or
any other Person (other than one or more Permitted Holders) merges,
consolidates or amalgamates with or into the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is reclassified into or exchanged for cash, securities or other
Property, other than any such transaction where (i) the outstanding Voting
Stock of the Company is reclassified into or exchanged for Voting Stock of
the surviving corporation and (ii) the holders of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving corporation
immediately after such transaction and in substantially the same proportion
as before the transaction; or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election or appointment by such Board or whose
nomination for election by the shareholders of the Company was approved by
a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the members of the Board of Directors then in office; or
(e) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
<PAGE>
6
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Consolidated Interest Coverage Ratio" means, as of any date of
------------------------------------
determination, the ratio of (a) the aggregate amount of EBITDA for the most
recent four consecutive fiscal quarters ending at least 45 days prior to such
determination date to (b) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (i) if the Company or any Restricted
-------- -------
Subsidiary has Incurred any Debt since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate the
Consolidated Interest Coverage Ratio is an Incurrence of Debt, or both,
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Debt as if such Debt had been Incurred on
the first day of such period and the discharge of any other Debt repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new Debt
as if such discharge had occurred on the first day of such period, (ii) if since
the beginning of such period the Company or any Restricted Subsidiary shall have
repaid, repurchased, legally defeased or otherwise discharged any Debt with
Capital Stock Sale Proceeds, Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to such discharge as if
such discharge had occurred on the first day of such period, (iii) if since the
beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Sale or if the transaction giving rise to the need to calculate
the Consolidated Interest Coverage Ratio is an Asset Sale, or both, EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the Property which is the subject of such Asset Sale
for such period, or increased by an amount equal to the EBITDA (if negative)
directly attributable thereto for such period, in either case as if such Asset
Sale had occurred on the first day of such period and Consolidated Interest
Expense for such period shall be reduced by an amount equal to the Consolidated
Interest Expense directly attributable to any Debt of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in connection
with such Asset Sale, as if such Asset Sale had occurred on the first day of
such period (or, if the Capital Stock of any Restricted Subsidiary is sold, by
an amount equal to the Consolidated Interest Expense for such period directly
attributable to the Debt of such Restricted Subsidiary to the extent the Company
and its continuing Restricted Subsidiaries are no longer liable for such Debt
after such sale), (iv) if since the beginning of such period the
<PAGE>
7
Company or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of Property, including any acquisition
of Property occurring in connection with a transaction causing a calculation to
be made hereunder, which constitutes all or substantially all of an operating
unit of a business, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Debt) as if such Investment or acquisition occurred on the
first day of such period and (v) if since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary or was merged with or
into the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Sale, Investment or acquisition of Property
that would have required an adjustment pursuant to clause (iii) or (iv) above if
made by the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Sale, Investment or acquisition
occurred on the first day of such period. For purposes of this definition, pro
forma calculations shall be determined in good faith by a responsible financial
or accounting Officer of the Company and as further contemplated by the
definition of the term "pro forma". If any Debt bears a floating rate of
interest and is being given pro forma effect, the interest expense on such Debt
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any Interest
Rate Agreement applicable to such Debt if such Interest Rate Agreement has a
remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
-----------------------------
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent Incurred by the Company or its Restricted Subsidiaries, (a) interest
expense attributable to capital leases, (b) amortization of debt discount and
debt issuance cost, including commitment fees, other than with respect to Debt
Incurred in connection with the Recapitalization, (c) capitalized interest, (d)
non-cash interest expenses, (e) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (f) net costs associated with Hedging Obligations (including
amortization of fees), (g) Disqualified Dividends other than Disqualified
Dividends paid with shares of Capital Stock of the Company which is not
Disqualified Stock, (h) Preferred Stock dividends in respect of all
<PAGE>
8
Preferred Stock of Restricted Subsidiaries held by Persons other than the
Company or a Wholly Owned Subsidiary, (i) interest Incurred in connection with
Investments in discontinued operations, (j) interest accruing on any Debt of any
other Person to the extent such Debt is Guaranteed by the Company or any
Restricted Subsidiary and (k) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Debt Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss)
-----------------------
of the Company and its consolidated Subsidiaries; provided, however, that there
-------- -------
shall not be included in such Consolidated Net Income (a) any net income (loss)
of any Person (other than the Company) if such Person is not a Restricted
Subsidiary, except that (i) subject to the exclusion contained in clause (d)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (c) below) and (ii) the Company's equity in a
net loss of any such Person other than an Unrestricted Subsidiary for such
period shall be included in determining such Consolidated Net Income, (b) for
the purposes of Section 4.05 only, any net income (loss) of any Person acquired
by the Company or any of its consolidated Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (c) any net
income (but not loss) of any Restricted Subsidiary if such Restricted Subsidiary
is subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions, directly or indirectly, to the Company, except
that subject to the exclusion contained in clause (d) below, the Company's
equity in the net income of any such Restricted Subsidiary for such period shall
be included in such Consolidated Net Income up to the aggregate amount of cash
distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution to another Restricted Subsidiary,
to the limitation contained in this clause), (d) any gain (or, for purposes of
Section 4.03 and Section 5.01 only, loss) realized upon the sale or other
disposition of any Property of the Company or any of its consolidated
Subsidiaries (including pursuant to any Sale
<PAGE>
9
and Leaseback Transaction) which is not sold or otherwise disposed of in the
ordinary course of business, provided, that any tax benefit or tax liability
--------
resulting therefrom shall be excluded in such Consolidated Net Income, (e) any
extraordinary gain or loss, provided, that any tax benefit or tax liability
--------
resulting therefrom shall be excluded in such Consolidated Net Income, (f) the
cumulative effect of a change in accounting principles and (g) (i) any non-cash
compensation expense realized for grants of performance shares, stock options or
other stock awards to officers, directors and employees of the Company or any
Restricted Subsidiary or (ii) compensation expense realized with respect to
periods prior to the Issue Date in respect of payments under the Company's 1994
Amended and Restated Equity Participation Plan or compensation expense, to the
extent accrued in 1998, related to contingent payments to existing managers of
the Company pursuant to the Merger Agreement in an aggregate amount not in
excess of $2.4 million. Notwithstanding the foregoing, for the purposes of
Section 4.05 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 Section pursuant to clause (a)(iii)(D) thereof.
"Credit Facility" means, with respect to the Company or any Restricted
---------------
Subsidiary, one or more debt or commercial paper facilities with banks or other
institutional lenders (including the New Credit Facility) providing for
revolving credit loans, term loans, receivables or inventory financing
(including through the sale of receivables or inventory to such lenders or to
special purpose, bankruptcy remote entities formed to borrow from such lenders
against such receivables or inventory) or trade letters of credit, in each case
together with any amendments, supplements, modifications (including by any
extension of the maturity thereof), refinancings or replacements thereof by a
lender or syndicate of lenders in one or more successive transactions (including
any such transaction that changes the amount available thereunder, replaces such
agreement or document, or provides for other agents or lenders).
"Currency Exchange Protection Agreement" means, in respect of a
--------------------------------------
Person, any foreign exchange contract, currency swap agreement, currency option
or other similar agreement or arrangement designed to protect such Person
against fluctuations in currency exchange rates.
<PAGE>
10
"Debt" means, with respect to any Person on any date of determination
----
(without duplication), (a) the principal of and premium (if any) in respect of
(i) debt of such Person for money borrowed and (ii) debt evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (b) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale and Leaseback Transactions
entered into by such Person; (c) all obligations of such Person issued or
assumed as the deferred purchase price of Property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (d) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (a) through (c)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (e) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends); (f) all obligations of the type
referred to in clauses (a) through (e) of other Persons and all dividends of
other Persons for the payment of which, in either case, such Person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; (g) all obligations of the type
referred to in clauses (a) through (f) of other Persons secured by any Lien on
any Property of such Person (whether or not such obligation is assumed by such
Person), the amount of such obligation being deemed to be the lesser of the
value of such Property or the amount of the obligation so secured; and (h) to
the extent not otherwise included in this definition, Hedging Obliga tions of
such Person. The amount of Debt of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; provided
--------
that the amount outstanding at any time of any Debt issued with original issue
discount is the face amount of such Debt less the remaining unamortized portion
of the original issue discount of such Debt at such time as determined in
accordance with GAAP.
<PAGE>
11
"Default" means any event which is, or after notice or passage of time
-------
or both would be, an Event of Default.
"Designated Senior Debt" means any Senior Debt which has, at the time
----------------------
of determination, an aggregate principal amount outstanding of at least $10.0
million (including the amount of all undrawn commitments and matured and
contingent reimbursement obligations pursuant to letters of credit thereunder)
that is specifically designated in the instrument evidencing such Senior Debt
and is designated in a notice delivered by the Company to the holders or a
Representative of the holders of such Senior Debt and in an Officers'
Certificate delivered to the Trustee as "Designated Senior Debt" of the Company
for purposes of this Indenture; provided that the New Credit Facility shall be
--------
deemed to be Designated Senior Debt under this Indenture.
"Disqualified Dividends" means, for any dividend with respect to
----------------------
Disqualified Stock, the quotient of the dividend divided by the difference
between one and the maximum statutory federal income tax rate (expressed as a
decimal number between 1 and 0) then applicable to the issuer of such
Disqualified Stock.
"Disqualified Stock" means, with respect to any Person, Redeemable
------------------
Stock of such Person as to which (i) the maturity, (ii) mandatory redemption or
(iii) redemption, repurchase, conversion or exchange at the option of the holder
thereof occurs, or may occur, on or prior to the first anniversary of the Stated
Maturity of the Securities; provided, however, that Redeemable Stock of such
-------- -------
Person that would not otherwise be characterized as Disqualified Stock under
this definition shall not constitute Disqualified Stock (a) if such Redeemable
Stock is convertible or exchangeable into Debt or Disqualified Stock solely at
the option of the issuer thereof or (b) solely as a result of provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Redeemable Stock upon the occurrence of a "change of control" occurring
prior to the first anniversary of the Stated Maturity of the Securities, if (x)
such repurchase obligation may not be triggered in respect of such Redeemable
Stock unless a corresponding obligation also arises with respect to the
Securities and (y) no such repurchase or redemption is permitted to be
consummated unless and until such Person shall have satisfied all repurchase or
redemption obligations with respect to any required purchase offer made with
respect to the Securities.
<PAGE>
12
"Domestic Restricted Subsidiary" means any Restricted Subsidiary other
------------------------------
than (a) a Foreign Restricted Subsidiary or (b) a Subsidiary of a Foreign
Restricted Subsidiary.
"EBITDA" means, for any period, an amount equal to, for the Company
------
and its consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net
Income for such period, plus the following to the extent reducing Consolidated
Net Income for such period: (i) the provision for taxes based on income or
profits or utilized in computing net loss, (ii) Consolidated Interest Expense,
(iii) depreciation, (iv) amortization expense and (v) any other non-cash items
(other than any such non-cash item to the extent that it represents an accrual
of or reserve for cash expenditures in any future period), minus (b) all non-
cash items increasing Consolidated Net Income for such period (other than any
such non-cash item to the extent that it will result in the receipt of cash
payments in any future period). Notwithstanding the foregoing, the provision
for taxes based on the income or profits of, and the depreciation and
amortization of, a Restricted Subsidiary 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 Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its shareholders.
"Employee Notes" means promissory notes of employees of the Company,
--------------
Holding or any of their Subsidiaries payable to the Company or Holding and
received in connection with the substantially concurrent purchase of common
stock of the Company or Holding by such employees.
"Event of Default" has the meaning set forth in Section 6.01.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Fair Market Value" means, with respect to any Property, the price
-----------------
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair
<PAGE>
13
Market Value will be determined, except as otherwise provided, (a) if such
--------
Property has a Fair Market Value equal to or less than $2.5 million, by any
Officer of the Company or (b) if such Property has a Fair Market Value in excess
of $2.5 million, by a majority of the Board of Directors and evidenced by a
Board Resolution, dated within 30 days of the relevant transaction, delivered to
the Trustee.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary which
-----------------------------
is not organized under the laws of the United States of America or any State
thereof or the District of Columbia.
"GAAP" means United States generally accepted accounting principles as
----
in effect on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such other
entity as approved by a significant segment of the accounting profession and (d)
the rules and regulations of the Commission governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the Commission.
"Guarantee" means any obligation, contingent or otherwise, of any
---------
Person directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
- -------- -------
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligation" of any Person means any obligation of such Person
------------------
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement
or any other similar agreement or arrangement.
<PAGE>
14
"Holder" or "Securityholder" means the Person in whose name a Security
------ --------------
is registered on the Security Register.
"Holding" means River Holding Corp., the corporate parent of the
-------
Company, and any successor thereto.
"Incur" means, with respect to any Debt or other obligation of any
-----
Person, to create, issue, incur (by merger, conversion, exchange or otherwise),
extend, assume, Guarantee or become liable in respect of such Debt or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Debt or obligation on the balance sheet of such Person (and "Incurrence"
and "Incurred" shall have meanings correlative to the foregoing); provided,
--------
however, that a change in GAAP that results in an obligation of such Person that
- -------
exists at such time, and is not thereto fore classified as Debt, becoming Debt
shall not be deemed an Incurrence of such Debt; provided further, however, that
-------- ------- -------
solely for purposes of determining compliance with Section 4.03 and Section
4.04, amortization of debt discount shall not be deemed to be the Incurrence of
Debt, provided that in the case of Debt sold at a discount, the amount of such
--------
Debt Incurred shall at all times be the aggregate principal amount at Stated
Maturity.
"Indenture" means this Indenture as amended or supplemented from time
---------
to time.
"Industrias Hudson" means Industrias Hudson S.A. de C.V.
-----------------
"Independent Appraiser" means an investment banking firm of national
---------------------
standing or any third party appraiser of national standing, provided that such
--------
firm or appraiser is not an Affiliate of the Company.
"Interest Rate Agreement" means, for any Person, any interest rate
-----------------------
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect against fluctuations in interest
rates.
"Investment" by any Person means any direct or indirect loan (other
----------
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any
<PAGE>
15
obligation of, or purchase or acquisition of Capital Stock, bonds, notes,
debentures or other securities or evidence of Debt issued by, any other Person.
For purposes of Section 4.05, Section 4.15 and the definition of "Restricted
Payment", "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the Fair Market Value of the
net assets of any 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 (a) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (b) 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. In determining the amount of any Investment made by transfer of
any Property other than cash, such Property shall be valued at its Fair Market
Value at the time of such Investment.
"Issue Date" means the date on which the Initial Securities are
----------
issued.
"Lien" means, with respect to any Property of any Person, any mortgage
----
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any Capital
Lease Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
"Merger" means the merger of River Acquisition Corp. with and into the
------
Company pursuant to the Merger Agreement.
"Merger Agreement" means the Amended and Restated Merger Agreement
----------------
between Holding, River Acquisition Corp., the Company and shareholders of the
Company dated as of March 15, 1998, as in effect on the Issue Date.
"Mirror Preferred Stock" means the 11-1/2% Senior PIK Preferred Stock
----------------------
due 2010 of the Company.
"Moody's" means Moody's Investors Service, Inc. or any successor to
-------
the rating agency business thereof.
<PAGE>
16
"Net Available Cash" from any Asset Sale means cash payments received
------------------
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to the
Property that is the subject of such Asset Sale or received in any other noncash
form), in each case net of (a) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be accrued as a liability under
GAAP, as a consequence of such Asset Sale, (b) all payments made on any Debt
which is secured by any Property subject to such Asset Sale, in accordance with
the terms of any Lien upon or other security agreement of any kind with respect
to such Property, or which must by its terms, or in order to obtain a necessary
consent to such Asset Sale, or by applicable law, be repaid out of the proceeds
from such Asset Sale, (c) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures as a result
of such Asset Sale and (d) the deduction of appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the Property disposed in such Asset Sale and retained by the Company or any
Restricted Subsidiary after such Asset Sale.
"New Credit Facility" means the credit facilities made available
-------------------
pursuant to the Credit Agreement dated as of the Issue Date among the Company,
Holding, the lenders party thereto, Salomon Smith Barney Inc, as Arranger,
Advisor and Syndication Agent and Bankers Trust Company, as Administrative
Agent.
"Officer" means the Chief Executive Officer, the President, the Chief
-------
Financial Officer or any Executive Vice President of the Company.
"Officers' Certificate" means a certificate signed by two Officers of
---------------------
the Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
<PAGE>
17
"Permitted Debt" means:
--------------
(a) Debt evidenced by the Securities and of Subsidiary Guarantors
evidenced by Subsidiary Guaranties;
(b) (i) Debt under the Credit Facility; provided that the aggregate
--------
principal amount of all such Debt under the Credit Facility comprised of
(A) term loans at any one time outstanding shall not exceed $40.0 million
minus all principal amounts repaid in respect of such term loans and (B)
revolving credit loans or obligations at any one time outstanding shall not
exceed the greater of (x) $60.0 million, which amount shall be permanently
reduced by the amount of Net Available Cash used to repay Debt under the
Credit Facility, and not subsequently reinvested in Additional Assets or
used to purchase Securities pursuant to Section 4.07 and (y) the sum of the
amounts equal to (1) 60% of the net book value of the inventory of the
Company and the Restricted Subsidiaries and (2) 85% of the net book value
of the accounts receivable of the Company and the Restricted Subsidiaries,
in each case as of the most recent fiscal quarter ending at least 45 days
prior to the date of determination and (ii) subject to the proviso
contained in clause (iii) of Section 4.04, Guarantees of Debt under the
Credit Facility;
(c) Debt in respect of Capital Lease Obligations and Purchase Money
Debt; provided that (i) the aggregate principal amount of such Debt does
--------
not exceed the Fair Market Value (on the date of the Incurrence thereof) of
the Property acquired, constructed or leased (including costs of
installation, taxes and delivery charges with respect to such acquisition,
construction or lease) and (ii) the aggregate principal amount of all Debt
Incurred and then outstanding pursuant to this clause (c) (together with
all Permitted Refinancing Debt Incurred in respect of Debt previously
Incurred pursuant to this clause (c) and then outstanding) does not exceed
$15.0 million;
(d) Debt of the Company owing to and held by any Wholly Owned
Subsidiary and Debt of a Wholly Owned Subsidiary owing to and held by the
Company or any Wholly Owned Subsidiary; provided, however, that any
-------- -------
subsequent issue or transfer of Capital Stock or other event that results
in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary
or any subsequent transfer of any such Debt (except to the
<PAGE>
18
Company or a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Debt by the issuer thereof;
(e) Debt of a Wholly Owned Subsidiary Incurred and outstanding on or
prior to the date on which such Wholly Owned Restricted Subsidiary was
acquired by the Company or otherwise became a Restricted Subsidiary (other
than Debt Incurred as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of transactions pursuant to which such Wholly Owned Restricted
Subsidiary became a Subsidiary of the Company or was otherwise acquired by
the Company); provided that at the time such Wholly Owned Restricted
--------
Subsidiary was acquired by the Company or otherwise became a Restricted
Subsidiary and after giving pro forma effect to the Incurrence of such
Debt, the Company would have been able to Incur $1.00 of additional Debt
pursuant to clause (a) in the first paragraph of Section 4.03;
(f) Debt under Interest Rate Agreements entered into by the Company or
a Restricted Subsidiary for the purpose of limiting interest rate risk in
the ordinary course of the financial management of the Company or such
Restricted Subsidiary and not for speculative purposes, provided that the
--------
obligations under such agreements are directly related to payment
obligations on Debt otherwise permitted by the terms of Section 4.03;
(g) Debt under Currency Exchange Protection Agreements entered into by
the Company or a Restricted Subsidiary for the purpose of limiting currency
exchange rate risks directly related to transactions entered into by the
Company or such Restricted Subsidiary in the ordinary course of business
and not for speculative purposes;
(h) Debt in connection with one or more standby letters of credit or
performance bonds issued for the account of the Company or a Restricted
Subsidiary in the ordinary course of business or pursuant to self-insurance
obligations and not in connection with the borrowing of money or the
obtaining of advances;
(i) Debt outstanding on the Issue Date not otherwise described in
clauses (a) through (h) above;
<PAGE>
19
(j) Debt not otherwise described in clauses (a) through (i) above in
an aggregate principal amount outstanding at any one time not to exceed
$15.0 million; and
(k) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause (a) of the first paragraph of Section 4.03 and clauses
(a), (c), (e) and (i) above, subject, in the case of clause (c) above, to
the limitations set forth in the proviso thereto.
"Permitted Holders" means Helen Hudson Lovaas, any member of the
-----------------
senior management of the Company or Holding on the Issue Date and Freeman Spogli
& Co. Incorporated or any successor entity thereof controlled by the principals
of Freeman Spogli & Co. Incorporated or any entity controlled by, or under
common control with, Freeman Spogli & Co. Incorporated.
"Permitted Investment" means any Investment by the Company or a
--------------------
Restricted Subsidiary in (a) any Restricted Subsidiary or any Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided
--------
that the primary business of such Restricted Subsidiary is a Related Business;
(b) any Person if as a result of such Investment such Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
Property to, the Company or a Restricted Subsidiary; provided that such Person's
--------
primary business is a Related Business; (c) Temporary Cash Investments; (d)
receivables owing to the Company or a Restricted Subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade terms
-------- -------
may include such concessionary trade terms as the Company or such Restricted
Subsidiary deems reasonable under the circumstances; (e) payroll, travel and
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (f) (i) loans and advances to employees made
in the ordinary course of business consistent with past practices of the Company
or such Restricted Subsidiary, as the case may be; provided that such loans and
--------
advances do not exceed $1.0 million at any one time outstanding and (ii) loans
and advances to, or the receipt of Employee Notes from, employees of Holding,
the Company or any of their Subsidiaries made or received in connection with the
substantially concurrent purchase of common stock of Holding or the Company by
such employees; provided that the aggregate principal amount of such loans,
--------
advances and notes payable shall not exceed $1.0 million at
<PAGE>
20
any one time outstanding; (g) stock, obligations or other securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or a Restricted Subsidiary or in satisfaction of judgments; (h) any
Person to the extent such Investment represents the non-cash portion of the
consideration received in connection with an Asset Sale consummated in
compliance with Section 4.07; and (i) Investments in Persons engaged in a
Related Business not to exceed $10.0 million at any one time outstanding (it
being agreed that an Investment shall cease to be outstanding to the extent of
dividends, repayments of loans or advances or other transfers of Property
received by the Company or any Restricted Subsidiary from such Persons, provided
--------
that such amounts do not increase the amount of Restricted Payments which the
Company and the Restricted Subsidiaries may make pursuant to clause
(a)(iii)(D)(1) of Section 4.05).
"Permitted Liens" means:
---------------
(a) Liens securing Senior Debt of the Company or any Subsidiary
Guarantor;
(b) Liens for taxes, assessments or governmental charges or levies on
the Property of the Company or any Restricted Subsidiary if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or
are being contested in good faith and by appropriate proceedings;
(c) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, on the Property of the Company or any Restricted
Subsidiary arising in the ordinary course of business and securing payment
of obligations which are not more than 60 days past due or are being
contested in good faith and by appropriate proceedings;
(d) Liens on the Property of the Company or any Restricted Subsidiary
Incurred in the ordinary course of business to secure performance of
obligations with respect to statutory or regulatory requirements,
performance or return-of-money bonds, surety or indemnity bonds or other
obligations of a like nature and Incurred in a manner consistent with
industry practice, in each case which are not Incurred in connection with
the borrowing of money, the obtaining of advances or credit or the payment
of the deferred purchase price of Property and which do not in the
aggregate impair in any material respect the use of Property in the
operation of the business of the
<PAGE>
21
Company and the Restricted Subsidiaries taken as a whole;
(e) Liens on Property at the time the Company or any Restricted
Subsidiary acquired such Property, including any acquisition by means of a
merger or consolidation with or into the Company or any Restricted
Subsidiary; provided, however, that any such Lien may not extend to any
-------- -------
other Property of the Company or any Restricted Subsidiary; provided
--------
further, however, that such Liens shall not have been Incurred in
------- -------
anticipation of or in connection with the transaction or series of
transactions pursuant to which such Property was acquired by the Company or
any Restricted Subsidiary;
(f) Liens on the Property of a Person at the time such Person becomes
a Restricted Subsidiary; provided, however, that any such Lien may not
-------- -------
extend to any other Property of the Company or any other Restricted
Subsidiary which is not a direct Subsidiary of such Person; provided
--------
further, however, that any such Lien was not Incurred in anticipation of or
------- -------
in connection with the transaction or series of transactions pursuant to
which such Person became a Restricted Subsidiary;
(g) pledges or deposits by the Company or any Restricted Subsidiary
under worker's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Debt) or leases to which the
Company or any Restricted Subsidiary is party, or deposits to secure public
or statutory obligations of the Company, or deposits for the payment of
rent, in each case Incurred in the ordinary course of business;
(h) utility easements, building restrictions and such other
encumbrances or charges against real Property as are of a nature generally
existing with respect to properties of a similar character;
(i) judgment and attachment Liens in connection with (A) judgments
that do not constitute an Event of Default so long as the judgment creditor
is not seeking enforcement thereof and reserves have been established to
the extent required by GAAP as in effect at such time and (B) litigation
and legal proceedings that are being contested in good faith by appropriate
proceedings (or as to which the Company or Restricted Subsidiary, as the
case may be, is preparing to
<PAGE>
22
promptly initiate appropriate proceedings) so long as reserves have been
established to the extent required by GAAP as in effect at such time and so
long as such Liens do not encumber assets by an aggregate amount (together
with the amount of any unstayed judgments against the Company or any
Restricted Subsidiary) in excess of $7.5 million;
(j) Liens existing on the Issue Date not otherwise described in
clauses (a) through (i) above; and
(k) Liens on the Property of the Company or any Restricted Subsidiary
to secure any Refinancing, in whole or in part, of any Debt secured by
Liens referred to in clause (a), (e), (f) or (j) above; provided, however,
-------- -------
that any such Lien shall be limited to all or part of the same Property
that secured the original Lien (together with improvements and accessions
to such Property) and the aggregate principal amount of Debt that is
secured by such Lien shall not be increased to an amount greater than the
sum of (i) the outstanding principal amount, or, if greater, the committed
amount, of the Debt secured by Liens described under clause (a), (e), (f)
or (j) above, as the case may be, at the time the original Lien became a
Permitted Lien under this Indenture and (ii) an amount necessary to pay any
fees and expenses, including premiums and defeasance costs, Incurred by the
Company or such Restricted Subsidiary in connection with such Refinancing.
"Permitted Refinancing Debt" means any Debt that Refinances any other
--------------------------
Debt, including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance costs,
related to such Refinancing, (b) the Average Life of such Debt is equal to or
greater than the Average Life of the Debt being Refinanced, (c) the Stated
Maturity of such Debt is no earlier than the Stated Maturity of the Debt being
Refinanced and (d) such Debt is subordinated in right of payment to Senior
Debt and the Securities to at least the same extent, if any, as the Debt being
Refinanced; provided, however, that Permitted Refinancing Debt shall not include
-------- -------
(x) Debt of a Subsidiary that Refinances Debt of the Company or (y) Debt of the
<PAGE>
23
Company or a Restricted Subsidiary that Refinances Debt of an Unrestricted
Subsidiary.
"Person" means any individual, corporation, company (including any
------
limited liability company), partnership, joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means any Capital Stock of a Person, however
---------------
designated, which entitles the holder thereof to a preference with respect to
the payment of dividends, or as to the distribution of assets upon any voluntary
or involuntary liquidation or dissolution of such Person, over shares of any
other class of Capital Stock issued by such Person.
"principal" of any Debt (including the Securities) means the principal
---------
amount of such Debt plus the premium, if any, on such Debt.
"pro forma" means, with respect to any calculation made or required to
---------
be made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Company, as the case may be.
"Property" means, with respect to any Person, any interest of such
--------
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including Capital Stock in, and other securities of, any
other Person.
"Public Equity Offering" means an underwritten public offering of
----------------------
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Purchase Money Debt" means Debt (a) consisting of the deferred
-------------------
purchase price of property, conditional sale obligations, obligations under any
title retention agreement, other purchase money obligations and obligations in
respect of industrial revenue bonds, in each case where the maturity of such
Debt does not exceed the anticipated useful life of the asset being financed,
and (b) Incurred to finance the acquisition or construction by the Company or a
<PAGE>
24
Restricted Subsidiary of such asset, including remodeling thereof and additions
and improvements thereto; provided, however, that such Debt is Incurred within
-------- -------
180 days after such acquisition of such asset by the Company or a Restricted
Subsidiary or completion of such construction, remodeling, addition or
improvement, as the case may be.
"Recapitalization" means the recapitalization of the Company to be
----------------
effected on the Issue Date, as described in the Offering Memorandum of the
Company dated April 7, 1998, including the Merger.
"Redeemable Stock" means, with respect to any Person, any Capital
----------------
Stock that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable, in either case at the option of the
holder thereof) or otherwise (a) matures or is mandatorily redeemable pursuant
to a sinking fund obligation or otherwise, (b) is or may become redeemable or
repurchaseable at the option of the holder thereof, in whole or in part, or (c)
is convertible or exchangeable, in either case at the option of the holder
thereof, for Debt or Disqualified Stock.
"Refinance" means, in respect of any Debt, to refinance, extend,
---------
renew, refund, repay, prepay, redeem, defease or retire, or to issue other Debt,
in exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
"Related Business" means any business that is related, ancillary or
----------------
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means the trustee, agent or representative expressly
--------------
authorized to act in such capacity, if any, for an issue of Senior Debt.
"Restricted Payment" means (a) any dividend or distribution (whether
------------------
made in cash, securities or other Property) declared or paid on or with respect
to any shares of Capital Stock of the Company or any Restricted Subsidiary
(including any payment in connection with any merger or consolidation with or
into the Company or any Restricted Subsidiary), except for any dividend or
distribution which is made solely to the Company or a Restricted Subsidiary
(and, if such Restricted Subsidiary is not a Wholly Owned Subsidiary, to the
other shareholders of such Restricted Subsidiary on a pro rata basis or on a
basis that results in the receipt by the Company or a Restricted Subsidiary of
dividends or distributions of greater value than it would
<PAGE>
25
receive on a pro rata basis) or any dividend or distribution payable solely in
shares of Capital Stock (other than Disqualified Stock) of the Company; (b) the
purchase, repurchase, redemption, acquisition or retirement for value of any
Capital Stock of the Company or any Affiliate of the Company (other than from
the Company or a Restricted Subsidiary) or any securities exchangeable for or
convertible into any such Capital Stock, including the exercise of any option to
exchange any Capital Stock (other than for or into Capital Stock of the Company
that is not Disqualified Stock); (c) the purchase, repurchase, redemption,
acquisition or retirement for value, prior to any scheduled maturity, scheduled
sinking fund or mandatory redemption payment, any Subordinated Obligation (other
than the purchase, repurchase or other acquisition of any Subordinated
Obligation purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of the
date of acquisition); or (d) any Investment (other than Permitted Investments)
in any Person.
"Restricted Subsidiary" means (a) any Subsidiary of the Company unless
---------------------
such Subsidiary shall have been designated an Unrestricted Subsidiary as
permitted or required pursuant to Section 4.15 and (b) an Unrestricted
Subsidiary which is redesignated as a Restricted Subsidiary as permitted
pursuant to Section 4.15.
"S&P" means Standard & Poor's Ratings Service or any successor to the
---
rating agency business thereof.
"Sale and Leaseback Transaction" means any arrangement relating to
------------------------------
Property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such Property to another Person and the Company or a
Restricted Subsidiary leases it from such Person.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Senior Debt" of the Company means (a) all obligations consisting of
-----------
the principal, premium, if any, and accrued and unpaid interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company to the extent post-filing interest is
allowed in such proceeding) in respect of (i) Debt of the Company for borrowed
money and (ii) Debt of the Company evidenced by notes, debentures, bonds or
other similar instruments permitted under this Indenture for the payment of
which the Company is responsible or liable; (b) all Capital Lease Obligations of
the Company; (c) all
<PAGE>
26
obligations of the Company (i) for the reimbursement of any obligor on any
letter of credit, bankers' acceptance or similar credit transaction, (ii) under
Hedging Obligations or (iii) issued or assumed as the deferred purchase price of
Property and all conditional sale obligations of the Company and all obligations
under any title retention agreement permitted under this Indenture; and (d) all
obligations of other Persons of the type referred to in clauses (a), (b) and (c)
for the payment of which the Company is responsible or liable as Guarantor;
provided, however, that Senior Debt shall not include (A) Debt of the Company
- -------- -------
that is by its terms subordinate or pari passu in right of payment to the
Securities, including any Senior Subordinated Debt or any Subordinated
Obligations; (B) any Debt Incurred in violation of the provisions of this
Indenture; (C) accounts payable or any other obligations of the Company to trade
creditors created or assumed by the Company in the ordinary course of business
in connection with the obtaining of materials or services (including Guarantees
thereof or instruments evidencing such liabilities); (D) any liability for
Federal, state, local or other taxes owed or owing by the Company; (E) any
obligation of the Company to any Subsidiary; or (F) any obligations with respect
to any Capital Stock. "Senior Debt" of any Subsidiary Guarantor has a
correlative meaning.
"Senior Subordinated Debt" of the Company means the Securities and any
------------------------
other subordinated Debt of the Company that specifically provides that such Debt
is to rank pari passu with the Securities and is not subordinated by its terms
to any other subordinated Debt or other obligation of the Company which is not
Senior Debt. "Senior Subordinated Debt" of any "Subsidiary Guarantor" has a
correlative meaning.
"Significant Subsidiary" means any Subsidiary that would be a
----------------------
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.
"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).
<PAGE>
27
"Subordinated Obligation" means any Debt of the Company or any
-----------------------
Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) which is subordinate or junior in right of payment to the Securities
or the applicable Subsidiary Guarantee pursuant to a written agreement to that
effect.
"Subsidiary" means, in respect of any Person, any corporation,
----------
company, association, partnership, joint venture or other business entity of
which more than 50% of the total voting power of shares of Capital Stock or
other interests (including partnership interests) entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled directly or
indirectly, by (a) such Person, (b) such Person and one or more Subsidiaries of
such Person or (c) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Domestic Restricted Subsidiary that
--------------------
becomes a Subsidiary Guarantor pursuant to Section 4.04.
"Subsidiary Guaranty" means a Guarantee on the terms set forth in this
-------------------
Indenture by a Subsidiary Guarantor of the Company's obligations with respect to
the Securities.
"Temporary Cash Investments" means any of the following: (a)
--------------------------
Investments in U.S. Government Obligations; (b) Investments in time deposit
accounts, certificates of deposit and money market deposits maturing within 90
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 or any state thereof
having capital, surplus and undivided profits aggregating in excess of $500.0
million and whose long-term debt is rate "A-3" or "A-" or higher according to
Moody's or S&P (or such similar equivalent rating by at least one "nationally
recognized statistical rating organization" (as defined in Rule 436 under the
Securities Act); (c) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (a) entered into with
a bank meeting the qualifications described in clause (b) above; (d) Investments
in commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America with a
rating at the time as of which any Investment therein is made of "P-1" (or
higher) according to Moody's or "A-1" (or higher) according to S&P (or such
similar equivalent rating by at least one
<PAGE>
28
"nationally recognized statistical rating organization" (as defined in Rule 436
under the Securities Act); (e) direct obligations (or certificates representing
an ownership interest in such obligations) of any state of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of such state is pledged and which are not
callable or redeemable at the issuer's option, provided that (i) the long-term
--------
debt of such state is rated "A-3" or "A-" or higher according to Moody's or S&P
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)) and (ii) such obligations mature within 180 days of the date of
acquisition thereof; and (f) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(a) through (e) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
--- ------
77bbbb) as in effect on the date of this Indenture except as required by Section
9.03 hereof; provided that in the event the Trust Indenture Act of 1939 is
--------
amended after such date, "Trust Indenture Act" means, to the extent required by
-------------------
any such amendment, the Trust Indenture Act of 1939, as so amended.
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
-------------
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code
-----------------------
as in effect from time to time.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company in
-----------------------
existence on the Issue Date that is not a Restricted Subsidiary; (b) any
Subsidiary of an Unrestricted Subsidiary; and (c) any Subsidiary of the Company
that is designated after the Issue Date as an Unrestricted Subsidiary as
permitted or required pursuant to Section 4.15 and not thereafter redesignated
as a Restricted Subsidiary as permitted pursuant thereto.
"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)
<PAGE>
29
for the payment of which the full faith and credit of the United States of
America is pledged and which are not callable or redeemable at the issuer's
option.
"Voting Stock" of a corporation means all classes of Capital Stock of
------------
such corporation then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary
-----------------------
all the Voting Stock of which (except directors' qualifying shares) is at such
time owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.
SECTION 1.02. Other Definitions.
------------------
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
"Bankruptcy Law"............................ 6.01
"Change of Control Offer"................... 4.10
"Change of Control Purchase Price".......... 4.10
"Claiming Guarantor"........................ 11.02
"Contributing Party"........................ 11.02
"covenant defeasance option"................ 8.01(b)
"Custodian"................................. 6.01
"Event of Default".......................... 6.01
"Excess Proceeds"........................... 4.07
"Global Security"........................... Appendix A
"legal defeasance option"................... 8.01(b)
"Legal Holiday"............................. 13.08
"Obligations"............................... 11.01
"Offer Amount".............................. 4.07
"Offer Period".............................. 4.07
"pay its Subsidiary Guaranty"............... 12.03
"pay the Securities"........................ 10.03
"Paying Agent".............................. 2.04
"Payment Blockage Notice"................... 10.03
"Payment Blockage Period"................... 10.03
"Prepayment Offer".......................... 4.07
"Prepayment Offer Notice"................... 4.07
"Purchase Date"............................. 4.07
</TABLE>
<PAGE>
30
<TABLE>
<S> <C>
"Registrar".................................. 2.04
"Successor Company".......................... 5.01
</TABLE>
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.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, each
Subsidiary Guarantor 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.
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 Debt shall not be deemed to be subordinate or junior to
secured Debt merely by virtue of its nature as unsecured Debt;
<PAGE>
31
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP; and
(8) the principal amount of any Preferred Stock shall be the greater
of (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.
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 $115,000,000.
Subject to Section 2.03, the Trustee shall authenticate Initial
Securities for original issue on the Issue Date in the aggregate principal
amount of $115,000,000.
SECTION 2.02. Form and Dating. (a) Provisions relating to the
----------------
Initial Securities and the Exchange Securities are set forth in Appendix A,
which is hereby incorporated in and expressly made a part of this Indenture. The
Initial Securities of each series and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit 1 to Appendix A
which is hereby incorporated in and expressly made a part of this Indenture.
The Exchange Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A, 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 is subject, if any, or usage, provided that any such notation,
--------
legend or endorsement is in a form reasonably acceptable to the Company. Each
Security shall be dated the date of its authentication. The terms of the
Securities set forth in Exhibit 1 to Appendix A and Exhibit A are part of the
terms of this Indenture.
(b) Upon their original issuance, Rule 144A Securities shall be
issued in the form of one or more Global Notes registered in the name of the
Depository or its
<PAGE>
32
nominee and deposited with the Trustee, as custodian for the Depository, duly
executed by the Company and authenticated by the Trustee, for credit by the
Depository to the respective accounts of beneficial owners of the Securities
represented thereby (or such other accounts as they may direct). Such Global
Notes are collectively herein called the "Rule 144A Global Note". Upon their
original issuance, Regulation S Securities shall be issued in the form of one or
more temporary Global Notes registered in the name of the Depository or its
nominee and deposited with the Trustee as custodian for the Depository, duly
executed by the Company and authenticated by the Trustee, for credit to the
Agent Member accounts at the Depository of Euroclear and/or Cedel for further
credit by Euroclear and Cedel, as the case may be, to the respective accounts of
the beneficial owners of the Securities represented thereby (or such other
accounts as they may direct) (the "Temporary Regulation S Global Notes").
Interests in the Temporary Regulation S Global Notes may only be held by the
Agent Members of the Depository for Euroclear and Cedel.
SECTION 2.03. Execution and Authentication. Two Officers shall sign
-----------------------------
the Securities for the Company by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall
be valid nevertheless.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a written order of the
Company signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of the Company for the authentication and
delivery of such Securities, and the Trustee in accordance with such written
order of the Company shall authenticate and deliver such Securities.
A Security shall not be valid until an authorized officer or 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 may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities
<PAGE>
33
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authen tication 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
---------------------------
in the Borough of Manhattan, the City of New York, 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.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the Borough of Manhattan, the City of Mew
York) where the Securities may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
-------- -------
that no such designation or recision shall in any manner relieve the Company of
its obligation to maintain an office or agency in the Borough of Manhattan, the
City of New York, for such purposes. The Company will give written notice to
the Trustee of any such designation or recision and of any change in the
location of any such other office or agency.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of 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 incorporated Wholly Owned Subsidiaries may
act as Paying Agent, Registrar, co-registrar or transfer agent. The Company may
change any Paying Agent or Registrar upon notice to the Trustee but without
notice to any Holder.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.05. Paying Agent To Hold Money in Trust. No later than
------------------------------------
11:00 a.m., New York City time, on
<PAGE>
34
each due date of the principal and interest on any Security, the Company shall
deposit with the Paying Agent a sum sufficient to pay such principal and
interest then so becoming due. The Company shall require each Paying Agent
(other than the Trustee) 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 Wholly Owned Subsidiary acts as Paying Agent, it
shall segregate the money held by it as Paying Agent and hold it as a separate
trust fund. The Company at any time may require a Paying Agent 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 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. Replacement Securities. If a mutilated Security is
-----------------------
surrendered to the Registrar or if the Holder of a Security claims that such
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee and the Company. If required
by the Trustee or the Company, such Holder shall furnish an indemnity bond
sufficient in the judgment of the Company and the Trustee to protect the
Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from
any loss which any of them may suffer if a Security is replaced. The Company
and the Trustee may charge the Holder for their expenses in replacing a
Security.
Every replacement Security is an additional obligation of the Company.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and
<PAGE>
35
remedies with respect to the replacement of mutilated, lost, destroyed or
wrongfully taken Securities.
SECTION 2.08. 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.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Securities
(or portions thereof) to be redeemed or maturing, as the case may be, and the
Paying Agent is not prohibited from paying such money to the Securityholders on
that date pursuant to the terms of this Indenture, then on and after that date
such Securities (or portions thereof) cease to be outstanding and interest on
them ceases to accrue.
SECTION 2.09. Temporary Securities. Until definitive Securities are
---------------------
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form
of definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Every such temporary Security shall be
authenticated upon the same conditions and in substantially the same manner,
and with the same effect, as the definitive Securities. Without unreasonable
delay, the Company shall prepare and the Trustee shall authenticate definitive
Securities and deliver them in exchange for temporary Securities. Such exchange
shall be made by the Company at its own expense and without any charge therefor.
Until so exchanged, the temporary Securities shall in all respects be entitled
to the same rights, privileges and benefits under this Indenture as definitive
Securities authenticated and delivered hereunder.
SECTION 2.10. 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
<PAGE>
36
else shall cancel and destroy (subject to the record retention requirements of
the Exchange Act) all Securities surrendered for registration of transfer,
exchange, payment or cancelation and deliver a certificate of such destruction
to the Company, unless the Company directs the Trustee to deliver canceled
Securities to the Company. If the Company shall acquire any of the Securities,
such acquisition shall not operate as a redemption or satisfaction of the Debt
represented by such Securities unless and until the same are delivered to the
Trustee for cancelation. The Company may not issue new Securities to replace
Securities it has redeemed, paid or delivered to the Trustee for cancelation.
SECTION 2.11. Defaulted Interest. If the Company defaults on a
-------------------
payment of interest on the Securities, the Company shall pay 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 to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid. Notwithstanding the foregoing,
any interest which is paid prior to the expiration of the grace period provided
for in Section 6.01(1) hereof shall be paid to the Holders of the Securities as
of the regular record date for which interest has not been paid.
SECTION 2.12. 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.
ARTICLE 3
Redemption
----------
SECTION 3.01. Notices to Trustee. If the Company redeems 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
<PAGE>
37
redeemed and whether such redemption is being made pursuant to paragraph 5(a) or
5(b) of the Securities.
In the event of a redemption pursuant to paragraph 5(a) of the
Securities, the Company shall give each notice to the Trustee provided for in
this Section at least 45 days before the redemption date unless the Trustee
consents to a shorter period. In the event of a redemption pursuant to
paragraph 5(b) of the Securities, the Company shall give the notice to the
Trustee provided for in this Section no later than 5:00 p.m., New York City
time, on April 10, 1998. Any notice pursuant to this Section shall be
transmitted by facsimile and confirmed with a Trust Officer by telephone. Such
notice shall be accompanied by an Officers' Certificate and an Opinion of
Counsel from the Company to the effect that such redemption will comply with the
conditions herein. Such Officers' Certificate shall, in addition, specify the
redemption price of the Securities.
SECTION 3.02. Selection of Securities To Be Redeemed. If less than
---------------------------------------
all the Securities are to be redeemed at any time, selection of Securities for
redemption may be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Securities are
listed, or, if the Securities are not so listed, on a pro rata basis, by lot or
by such other method that the Trustee shall deem fair and appropriate (and in
a manner that complies with applicable legal requirements, if any). The Trustee
shall make the selection from outstanding Securities not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of
$1,000. 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 and, unless the Trustee is acting as such, the
Registrar, promptly of the Securities or portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. The Company shall mail a notice
---------------------
of redemption by first-class mail to each Holder of Securities to be redeemed
(i) in the case of a redemption under paragraph 5(a) of the Securities, at least
30 days but not more than 60 days before a date for redemption of Securities,
and (ii) in the case of a redemption under paragraph 5(b) of the Securities, on
April 10, 1998.
<PAGE>
38
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price, or the calculation thereof described in
paragraph 5 of the Securities;
(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 identification 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; and
(7) 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 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.
In the event of a redemption pursuant to paragraph 5(b) of the
Securities, the Company will, on April 10, 1998, cause a notice of such
redemption to be sent at least once to the Dow Jones News Service or similar
business news service in the United States.
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, and from
and after such redemption date (unless the Company shall default on the payment
of the redemption price and accrued interest) such Securities shall cease to
bear interest. Upon surrender to the Paying Agent, such Securities shall be
paid at the redemption price stated in the notice, plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive
<PAGE>
39
interest due on the relevant interest payment date that is on or prior to the
date of redemption). 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. No later than 11:00 a.m.,
----------------------------
New York City time, on the redemption date, the Company shall deposit with the
Paying Agent (or, if the Company or a Wholly Owned Subsidiary is the Paying
Agent, shall segregate and hold in trust) money sufficient to pay the redemption
price of and accrued interest (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 redemption) on all Securities to be
redeemed on that date other than Securities or portions of Securities called for
redemption which have been delivered by the Company to the Trustee for
cancelation. All money earned on funds held in trust by the Trustee or any
Paying Agent and any excess or remaining funds shall be remitted to the Company.
In the event of a redemption pursuant to paragraph 5(b) of the Securities,
Holding will, on April 10, 1998, irrevocably deposit with the Trustee (or a
paying agent designated by the Trustee) money sufficient to pay the redemption
price. The Trustee (or the paying agent) will invest such funds in cash or
Temporary Cash Investments as directed in writing by the Company pending
distribution to Holders on April 24, 1998. The Trustee (or the paying agent)
shall not be accountable or liable for any losses resulting from the sale or
depreciation in value of such investments.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of the redemption price of and accrued interest, if any, on the
Securities that remains unclaimed for two years or if then held by the Company
or a Wholly Owned Subsidiary in trust for the payment thereof, shall be
discharged from such trust, and, thereafter, Securityholders entitled to the
money must look to the Company for payment as general creditors; provided,
--------
however, that the Trustee or such Paying Agent before being required to make any
- -------
such repayment shall at the expense of the Company cause to be mailed to each
such Holder a notice that said moneys have not been so applied and that after a
date named therein any unclaimed balance of said moneys then remaining will be
returned to the Company.
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
<PAGE>
40
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
----------------------
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. SEC Reports. Notwithstanding that the Company may not
------------
be subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the Commission and provide the Trustee, Holders
of Securities and, upon request, security analysts of prospective holders of the
Securities with such annual reports and such information, documents and other
reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and reports to be so filed and provided at the times specified for the
filing of such information, documents and reports under such Sections; provided,
--------
however, that the Company shall not be so obligated to file such information,
- -------
documents and reports with the Commission if the Commission does not permit such
filings. The Company shall file with the Commission and provide the Trustee,
Holders of Securities and, upon request, security analysts of prospective
Holders of the Securities with the information, documents and reports described
herein whether or not the Exchange Offer Registration Statement has been filed
or declared effective.
SECTION 4.03. Limitation on Company and Subsidiary Guarantor Debt.
----------------------------------------------------
The Company shall not, and shall not permit any Subsidiary Guarantor to, Incur,
directly or
<PAGE>
41
indirectly, any Debt unless, after giving pro forma effect to the application of
the proceeds thereof, no Default or Event of Default would occur as a
consequence of such Incurrence or be continuing following such Incurrence and
either (a) after giving effect to the Incurrence of such Debt and the
application of the proceeds thereof, the Consolidated Interest Coverage Ratio
would be greater than 1.75 to 1.00 if such Debt is Incurred from the Issue Date
through April 15, 2000, and 2.00 to 1.00 if such Debt is Incurred thereafter or
(b) such Debt is Permitted Debt.
Notwithstanding paragraphs (j) and (k) of the definition of "Permitted
Debt", (a) the Company shall not, and shall not permit any Subsidiary Guarantor
to, Incur any Debt pursuant to such paragraphs if the proceeds thereof are used,
directly or indirectly, to Refinance (i) any Subordinated Obligations unless
such Debt shall be subordinated to the Securities and the Subsidiary Guaranties,
as applicable, to at least the same extent as such Subordinated Obligations or
(ii) any Senior Subordinated Debt unless such Debt shall be Senior Subordinated
Debt or shall be subordinated to the Securities and the Subsidiary Guaranties,
as applicable and (b) the Company shall not permit any Restricted Subsidiary to
Incur any Debt pursuant to such paragraphs if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations or Senior
Subordinated Debt.
SECTION 4.04. Limitation on Non-Guarantor Subsidiary Debt. The
--------------------------------------------
Company shall not permit any Restricted Subsidiary which is not a Subsidiary
Guarantor to, directly or indirectly, Incur any Debt except: (i) Debt
outstanding on the Issue Date and any Permitted Refinancing Debt with respect
thereto; (ii) Debt described in clauses (e) or (h) of the definition of
Permitted Debt; provided, however, that Industrias Hudson may Incur Debt in an
-------- -------
aggregate principal amount outstanding at any one time not to exceed $5.0
million; and (iii) Guarantees of the Company's obligations under the New Credit
Facility; provided that any Restricted Subsidiary which Incurs any such
--------
Guarantee shall concurrently therewith execute and deliver to the Trustee a
Subsidiary Guaranty.
SECTION 4.05. Limitation on Restricted Payments. (a) The Company
----------------------------------
shall not make, and shall not permit any Restricted Subsidiary to make, directly
or indirectly, any Restricted Payment if at the time of, and after giving pro
forma effect to, such proposed Restricted Payment,
(i) a Default or Event of Default shall have occurred and be
continuing,
<PAGE>
42
(ii) the Company could not Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of Section 4.03, or
(iii) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of
any Restricted Payment, if made other than in cash, to be based upon Fair
Market Value) would exceed an amount equal to the sum of:
(A) 50% of the aggregate amount of Consolidated Net Income
accrued during the period (treated as one accounting period) from the
beginning of the fiscal quarter during which the Issue Date occurs to
the end of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or if the aggregate
amount of Consolidated Net Income for such period shall be a deficit,
minus 100% of such deficit),
(B) Capital Stock Sale Proceeds,
(C) the amount by which Debt of the Company Incurred after the
Issue Date is reduced on the Company's balance sheet upon the
conversion or exchange (other than by the Company or a Subsidiary of
the Company) subsequent to the Issue Date of any Debt (other than
Subordinated Obligations) of the Company for Capital Stock (other
than Disqualified Stock) of the Company (less the amount of any cash
or other Property distributed by the Company or any Restricted
Subsidiary upon such conversion or exchange), and
(D) an amount equal to the sum of (1) the net reduction in
Investments in any Person other than the Company or a Restricted
Subsidiary resulting from dividends, repayments of loans or advances
or other transfers of Property, in each case to the Company or any
Restricted Subsidiary from such Person, to the extent such dividends,
repayments or transfers do not increase the amount of Permitted
Investments permitted to be made pursuant to clause (i) of the
definition thereof and (2) the portion (proportionate to the Company's
equity interest in such Unrestricted Subsidiary) of the Fair Market
Value of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a
<PAGE>
43
Restricted Subsidiary; provided, however, that the foregoing sum shall
-------- -------
not exceed, in the case of any Person, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company
or any Restricted Subsidiary in such Person, and
(E) $7.5 million.
(b) Notwithstanding the foregoing limitation, the Company may:
(i) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with this Indenture; provided, however, that at the
-------- -------
time of such payment of such dividend, no other Default or Event of Default
shall have occurred and be continuing (or result therefrom); provided
--------
further, however, that such dividend shall be included in the calculation
------- -------
of the amount of Restricted Payments;
(ii) purchase, repurchase, redeem, legally defease, acquire or retire
for value Capital Stock of the Company or Subordinated Obligations in
exchange for, or in an amount not in excess of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of the Company or an employee stock ownership plan or trust
established by the Company or any of its Subsidiaries for the benefit of
their employees); provided, however, that (A) such purchase, repurchase,
-------- -------
redemption, legal defeasance, acquisition or retirement shall be excluded
in the calculation of the amount of Restricted Payments and (B) the Capital
Stock Sale Proceeds from such exchange or sale shall be excluded from the
calculation pursuant to clause (a)(iii)(B) above;
(iii) purchase, repurchase, redeem, legally defease, acquire or retire
for value any Subordinated Obligations in exchange for, or in an amount not
in excess of the proceeds of the substantially concurrent sale of,
Permitted Refinancing Debt; provided, however, that such purchase,
-------- -------
repurchase, redemption, legal defeasance, acquisition or retirement shall
be excluded in the calculation of the amount of Restricted Payments;
<PAGE>
44
(iv) purchase, repurchase, redeem, legally defease, acquire or retire
for value, or pay dividends or make loans to Holding to enable Holding
substantially concurrently therewith to purchase, repurchase, redeem,
legally defease, acquire or retire for value, shares of, or options to
purchase shares of, common stock of the Company or Holding from employees
or former employees of the Company, Holding or any of their Subsidiaries
(or their estates or beneficiaries thereof) upon death, disability,
retirement or termination pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto) approved
by the Board or Directors or the board of directors of Holding, as the case
may be, under which such individuals purchase or sell, or are granted the
option to purchase or sell, shares of such common stock; provided, however,
-------- -------
that (A) the aggregate amount of such purchases, repurchases, redemptions,
defeasances, acquisitions or retirements shall not exceed $1.0 million in
any year or $5.0 million during the term of the Securities, except that (1)
such amounts shall be increased by the aggregate net amount of cash
received by the Company after the Issue Date from the sale of such shares
to, or the exercise of options to purchase such shares by, employees of the
Company, Holding or any of their Subsidiaries and (2) the Company may
forgive or return Employee Notes without regard to the limitation set forth
in clause (b)(iv)(A) above and such forgiveness or return shall not be
treated as a Restricted Payment for purpose of determining compliance with
such clause (b)(iv)(A) and (B) such purchases, repurchases, defeasances,
acquisitions or retirements (but not forgiveness or return of Employee
Notes) shall be included in the calculation of the amount of Restricted
Payments;
(v) purchase or redeem Subordinated Obligations pursuant to asset sale
or change of control provisions contained in the governing instrument
relating thereto; provided, however, that (i) no offer or purchase
-------- -------
obligation may be triggered in respect of any such Subordinated Obligation
unless a corresponding obligation also arises with respect to the
Securities and (ii) in any event, no repurchase or redemption of any such
Subordinated Obligation may be consummated unless and until the Company
shall have satisfied all repurchase obligations with respect to any
required purchase offer made with respect to the Securities; provided,
--------
however, that such purchases or redemptions
-------
<PAGE>
45
shall be included in the calculation of the amount of Restricted Payments;
and
(vi) make payments to Helen Hudson Lovaas pursuant to the Merger
Agreement in an aggregate amount not to exceed $1.1 million in any fiscal
year or $3.3 million during the term of the Securities (plus, in each case,
interest due on the unpaid portion of such required payments in accordance
with the Merger Agreement); provided, however, that such payments shall be
-------- -------
excluded in the calculation of the amount of Restricted Payments.
(c) In computing Consolidated Net Income of the Company under
paragraph (a) above, (1) the Company shall use audited financial statements for
the portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (2) the Company shall be permitted to
rely in good faith on the financial statements and other financial data derived
from the books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time
of the making of such Restricted Payment, would in the good faith determination
of the Company be permitted under the requirements of this Indenture, such
Restricted Payment shall be deemed to have been made in compliance with this
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Net Income of the Company
for any period.
SECTION 4.06. Limitation on Restrictions on Distributions from
------------------------------------------------
Restricted Subsidiaries. The Company shall not, and shall not permit any
- ------------------------
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist any consensual restriction on the right of any Restricted
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock, or pay any Debt or other
obligation owed, to the Company or any other Restricted Subsidiary (except, with
respect to restrictions on dividends of non-cash Property, as permitted pursuant
to clause (ii) of the next sentence), (b) make any loans or advances to the
Company or any other Restricted Subsidiary or (c) transfer any of its Property
to the Company or any other Restricted Subsidiary. The foregoing limitations
will not apply (i) with respect to clauses (a), (b) and (c), to restrictions (A)
in effect on the Issue Date, (B) relating
<PAGE>
46
to Debt of a Restricted Subsidiary and existing at the time it became a
Restricted Subsidiary if such restriction was not created in connection with or
in anticipation of the transaction or series of transactions pursuant to which
such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company or (C) which result from the Refinancing of Debt Incurred pursuant to an
agreement referred to in clause (i)(A) or (B) above or in clause (ii)(A) or (B)
below, provided such restriction is no less favorable to the holders of
--------
Securities than those under the agreement evidencing the Debt so Refinanced, and
(ii) with respect to clause (c) only, to restrictions (A) relating to Debt that
is permitted to be Incurred and secured without also securing the Securities or
the applicable Subsidiary Guaranty without equal and ratable treatment pursuant
to Section 4.03 and Section 4.11 that limit the right of the debtor to dispose
of the Property securing such Debt, (B) encumbering Property at the time such
Property was acquired by the Company or any Restricted Subsidiary, so long as
such restriction relates solely to the Property so acquired and was not created
in connection with or in anticipation of such acquisition, (C) resulting from
customary provisions restricting subletting or assignment of leases or customary
provisions in other agreements that restrict assignment of such agreements or
rights thereunder or (D) customary restrictions contained in asset sale
agreements limiting the transfer of such Property pending the closing of such
sale.
SECTION 4.07. Limitation on Asset Sales. (a) The Company shall not,
--------------------------
and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Sale unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the Property subject to such Asset Sale; (ii) at least 75% of
the consideration paid to the Company or such Restricted Subsidiary in
connection with such Asset Sale is in the form of cash or cash equivalents or
the assumption by the purchaser of liabilities of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Securities or the applicable Subsidiary Guaranty) as a result of which the
Company and the Restricted Subsidiaries are no longer obligated with respect to
such liabilities; and (iii) the Company delivers an Officers' Certificate to the
Trustee certifying that such Asset Sale complies with the foregoing clauses (i)
and (ii).
(b) The Net Available Cash (or any portion thereof) from Asset Sales
may be applied by the Company or a Restricted Subsidiary, to the extent the
Company or such
<PAGE>
47
Restricted Subsidiary elects (or is required by the terms of any Debt): (i) to
prepay, repay, legally defease or purchase Senior Debt of the Company or any
Subsidiary Guarantor or Debt of any Restricted Subsidiary that is not a
Subsidiary Guarantor (excluding, in any such case, Disqualified Stock and Debt
owed to the Company or an Affiliate of the Company); or (ii) to reinvest in
Additional Assets (including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by the Company or another
Restricted Subsidiary): provided, however, that in connection with any
-------- -------
prepayment, repayment, legal defeasance or purchase of Debt pursuant to clause
(i) above, the Company or such Subsidiary Guarantor or other Restricted
Subsidiary shall retire such Debt and shall cause the related loan commitment
(if any) to be permanently reduced by an amount equal to the principal amount so
prepaid, repaid, legally defeased or purchased.
(c) Any Net Available Cash from an Asset Sale not applied in
accordance with the preceding paragraph within twelve months from the date of
the receipt of such Net Available Cash shall constitute "Excess Proceeds". When
the aggregate amount of Excess Proceeds exceeds $10.0 million (taking into
account income earned on such Excess Proceeds, if any), the Company will be
required to make an offer to purchase (the "Prepayment Offer") the Securities
which offer shall be in the amount of the Excess Proceeds, on a pro rata basis
according to principal amount, at a purchase price equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon, if any, to
the purchase date (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 procedures (including prorating in the event of
oversubscription) set forth in this Indenture. To the extent that any portion of
the amount of Net Available Cash remains after compliance with the preceding
sentence and provided that all holders of Securities have been given the
opportunity to tender their Securities for purchase in accordance with this
Indenture, the Company or such Restricted Subsidiary may use such remaining
amount for any purpose permitted by this Indenture and the amount of Excess
Proceeds will be reset to zero.
(d)(1) Within five business days after the Company is obligated to
make a Prepayment Offer as described in the preceding paragraph, the Company
shall send a written notice, by first-class mail, to the Trustee and the Holders
of Securities (the "Prepayment Offer Notice"), accompanied by such information
regarding the Company and its Subsidiaries as the Company in good faith
believes will enable such Holders to make an informed decision with respect to
<PAGE>
48
such Prepayment Offer. The Prepayment Offer Notice shall state (i) that the
Company is offering to purchase Securities pursuant to the provisions of this
Indenture, (ii) that any Security (or any portion thereof) accepted for payment
(and duly paid on the Purchase Date) pursuant to the Prepayment Offer shall
cease to accrue interest on the Purchase Date, (iii) that any Securities (or
portions thereof) not properly tendered shall continue to accrue interest, (iv)
the purchase price and purchase date, which shall be, subject to any contrary
requirements of applicable law, a Business Day no earlier than 30 days nor later
than 60 days after the date the Prepayment Offer Notice is mailed (the "Purchase
Date"), (v) the aggregate principal amount of Securities to be purchased, (vi) a
description of the procedures which Holders of Securities must follow in order
to tender their Securities and the procedures that Holders of Securities must
follow in order to withdraw an election to tender their Securities for payment
and (vii) all other instructions and materials necessary to enable Holders to
tender Securities pursuant to the Prepayment Offer.
(2) Not later than the date upon which written notice of a Prepayment
Offer is delivered to the Trustee as provided above, the Company shall deliver
to the Trustee an Officers' Certificate as to (i) the amount of the Prepayment
Offer (the "Offer Amount"), (ii) the allocation of the Net Available Cash from
the Asset Sales pursuant to which such Prepayment Offer is being made and (iii)
the compliance of such allocation with the provisions of Section 4.07(a). On
such date or prior to the Purchase Date, the Company shall also irrevocably
deposit with the Trustee or with the Paying Agent (or, if the Company or a
Wholly Owned Subsidiary is the Paying Agent, shall segregate and hold in trust)
in cash or Temporary Cash Investments, maturing on the last day prior to the
Purchase Date or on the Purchase Date if funds are immediately available by open
of business, an amount equal to the Offer Amount to be held for payment in
accordance with the provisions of this Section. Upon the expiration of the
period for which the Prepayment Offer remains open (the "Offer Period"), the
Company shall deliver to the Trustee for cancelation the Securities or portions
thereof which have been properly tendered to and are to be accepted by the
Company. The Trustee or the Paying Agent shall, on the Purchase Date, mail or
deliver payment to each tendering Holder in the amount of the purchase price.
In the event that the aggregate purchase price of the Securities delivered by
the Company to the Trustee is less than the Offer Amount, the Trustee or the
Paying Agent shall deliver the excess to the Company immediately after the
expiration of the Offer Period for application in accordance with this Section.
<PAGE>
49
(3) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Company or its agent 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, telex, 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. If at the expiration of the Offer Period the aggregate principal
amount of Securities surrendered by Holders exceeds the Offer Amount, the
Company shall select the Securities to be purchased on a pro rata basis (with
such adjustments as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000, or integral multiples thereof, shall be
purchased). Holders whose Securities are purchased only in part shall be issued
new Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section 4.07. A Security
shall be deemed to have been accepted for purchase at the time the Trustee or
the Paying Agent mails or delivers payment therefor to the surrendering Holder.
(e) 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 as described
above. To the extent that the provisions of any securities laws or regulations
conflict with the provisions relating to the Prepayment Offer, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described above by virtue thereof.
SECTION 4.08. Limitation on Transactions with Affiliates. (a) The
-------------------------------------------
Company shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, conduct any business or enter into or suffer to exist any
transaction or series of transactions (including the purchase, sale, transfer,
assignment, lease, conveyance or exchange of any Property or the rendering of
any service)
<PAGE>
50
with, or for the benefit of, any Affiliate of the Company (an "Affiliate
Transaction"), unless (a) the terms of such Affiliate Transaction are (i) set
forth in writing, (ii) in the interest of the Company or such Restricted
Subsidiary, as the case may be, and (iii) no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could be
obtained in a comparable arm's-length transaction with a Person that is not an
Affiliate of the Company, (b) if such Affiliate Transaction involves aggregate
payments or value in excess of $2.5 million, the Board of Directors (including a
majority of the disinterested members of the Board of Directors, if any)
approves such Affiliate Transaction and, in its good faith judgment, believes
that such Affiliate Transaction complies with clauses (a)(ii) and (iii) of this
paragraph as evidenced by a Board Resolution promptly delivered to the Trustee
and (c) if such Affiliate Transaction involves aggregate payments or value in
excess of $5.0 million, the Company obtains a written opinion from an
Independent Appraiser to the effect that the consideration to be paid or
received in connection with such Affiliate Transaction is fair, from a financial
point of view, to the Company or such Restricted Subsidiary, as the case may be
and a copy of the written opinion is delivered to the Trustee.
(b) Notwithstanding the foregoing limitation, the Company or any
Restricted Subsidiary may enter into or suffer to exist the following:
(i) any transaction or series of transactions between the Company
and one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business, provided that no more than
--------
5% of the total voting power of the Voting Stock (on a fully diluted basis)
of any such Restricted Subsidiary is owned by an Affiliate of the Company
(other than a Restricted Subsidiary);
(ii) any Restricted Payment permitted to be made pursuant to Section
4.05;
(iii) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and employees of the Company or any of the Restricted Subsidiaries, so long
as the Board of Directors in good faith shall have approved the terms
thereof and deemed the services theretofore or thereafter to be performed
for such compensation to be fair consideration therefor;
<PAGE>
51
(iv) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or such
Restricted Subsidiary, as the case may be; provided that such loans and
--------
advances do not exceed $1.0 million in the aggregate at any one time
outstanding;
(v) the payment of fees and expenses in connection with the
Recapitalization pursuant to written agreements in effect on the Issue
Date;
(vi) the sale of common stock of the Company for cash; provided,
--------
that the Company may receive Employee Notes in an aggregate principal
amount not in excess of $1.0 million at any one time outstanding;
(vii) the payment of dividends in kind in respect of (i) the Mirror
Preferred Stock or (ii) any other Preferred Stock issued in compliance with
this Section; and
(viii) a proportionate split of, or a common stock dividend payable
on, the common stock of the Company.
SECTION 4.09. Limitation on Issuance or Sale of Capital Stock of
--------------------------------------------------
Restricted Subsidiaries. The Company shall not (a) sell, pledge, hypothecate or
- ------------------------
otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary or
(b) permit any Restricted Subsidiary to, directly or indirectly, issue or sell
or otherwise dispose of any shares of its Capital Stock, other than (i)
directors' qualifying shares, (ii) to the Company or a Wholly Owned Subsidiary
or (iii) a disposition of 100% of the shares of Capital Stock of a Restricted
Subsidiary that complies with Section 4.07; provided, however, that, in the case
-------- -------
of this clause (iii), upon consummation of such disposition, any such Restricted
Subsidiary shall be released from all its obligations under its Subsidiary
Guaranty.
SECTION 4.10. Repurchase at the Option of Holders Upon a Change of
----------------------------------------------------
Control. (a) Upon the occurrence of a Change of Control, each holder of
- --------
Securities shall have the right to require the Company to repurchase all or any
part of such holder's Securities pursuant to the offer described below (the
"Change of Control Offer") at a purchase price (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the purchase date (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date).
<PAGE>
52
(b) Within 30 days following any Change of Control, the Company shall
(a) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (b) send, by first-class mail, with a copy to the Trustee, to each holder of
Securities, at such holder's address appearing in the Security Register, a
notice stating: (i) that a Change of Control has occurred and a Change of
Control Offer is being made pursuant to this Section and that all Securities
timely tendered will be accepted for payment; (ii) the Change of Control
Purchase Price and the purchase date, which shall be, subject to any contrary
requirements of applicable law, a business day no earlier than 30 days nor later
than 60 days from the date such notice is mailed; (iii) the circumstances and
relevant facts regarding the Change of Control (including information with
respect to pro forma historical income, cash flow and capitalization after
giving effect to the Change of Control); (iv) that any Security (or portion
thereof) accepted for payment (and duly paid on the Change of Control Payment
Date) pursuant to the Change of Control Offer shall cease to accrue interest on
the Change of Control Payment Date; (v) that any Securities (or portions
thereof) not properly tendered shall continue to accrue interest; (vi) the
procedures that Holders of Securities must follow in order to tender their
Securities (or portions thereof) for payment and the procedures that Holders of
Securities must follow in order to withdraw an election to tender Securities (or
portions thereof) for payment; and (vii) all other instructions and materials
necessary to enable Holders to tender Securities pursuant to the Change of
Control Offer.
(c) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Company or its agent at the address specified in the notice at least three
Business Days prior to the Change of Control Payment 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 Change of Control Payment Date, a
telegram, telex, 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. Holders whose Securities are purchased only in part
shall be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered.
<PAGE>
53
(d) On or prior to the Change of Control Payment Date, the Company
shall irrevocably deposit with the Trustee or with the Paying Agent (or, if the
Company or any of its Wholly Owned Subsidiaries is acting as the Paying Agent,
segregate and hold in trust) in cash an amount equal to the Change of Control
Payment payable to the Holders entitled thereto, to be held for payment in
accordance with the provisions of this Section.
(e) On the Change of Control Payment Date, the Company shall deliver
to the Trustee the Securities or portions thereof which have been properly
tendered to and are to be accepted by the Company for payment. The Trustee or
the Paying Agent shall, on the Change of Control Payment Date, mail or deliver
payment to each tendering Holder of the Change of Control Payment. In the event
that the aggregate Change of Control Payment is less than the amount delivered
by the Company to the Trustee or the Paying Agent, the Trustee or the Paying
Agent, as the case may be, shall deliver the excess to the Company immediately
after the Change of Control Payment Date.
(f) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section. A Security shall
be deemed to have been accepted for purchase at the time the Trustee or the
Paying Agent mails or delivers payment therefor to the surrendering Holder.
Unless the Company defaults in the payment of the Change of Control Payment,
each Security accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest on and after the Change of Control Payment Date.
(g) The Company shall comply, to the extent applicable, with the
requirements of Rule 14(e) under the Exchange Act and any other securities laws
or regulations thereunder in connection with the purchase of Securities pursuant
to this Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Sec tion by virtue thereof.
SECTION 4.11. Limitation on Liens. The Company shall not, and shall
--------------------
not permit any Restricted Subsidiary to, directly or indirectly, Incur or suffer
to exist, any Lien (other than Permitted Liens) upon any of its Property
<PAGE>
54
(including Capital Stock of a Restricted Subsidiary), whether owned at the Issue
Date or thereafter acquired, or any interest therein or any income or profits
therefrom, unless (i) if such Lien secures Senior Subordinated Debt, the
Securities or the applicable Subsidiary Guaranty are secured on an equal and
ratable basis with such Debt and (ii) if such Lien secures Subordinated
Obligations, such Lien shall be subordinated to a Lien securing the Securities
or the applicable Subsidiary Guaranty in the same Property as that securing such
Lien to the same extent as such Subordinated Obligations are subordinated to the
Securities and the Subsidiary Guaranties.
SECTION 4.12. 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 TIA (S) 314(a)(4).
SECTION 4.13. 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 4.14. Limitation on Layered Debt. The Company shall not, and
---------------------------
shall not permit any Subsidiary Guarantor to, Incur, directly or indirectly, any
Debt which is subordinate or junior in right of payment to any Debt unless such
Debt is Senior Subordinated Debt or is expressly subordinated in right of
payment to Senior Subordinated Debt. In addition, no Subsidiary Guarantor shall
Guarantee, directly or indirectly, any Debt of the Company that is subordinate
or junior in right of payment to any Senior Debt unless such Guarantee is
expressly subordinate in right of payment to, or ranks pari passu with, the
---- -----
Subsidiary Guaranty of such Subsidiary Guarantor.
SECTION 4.15. Designation of Restricted and Unrestricted
------------------------------------------
Subsidiaries. The Board of Directors may designate any Subsidiary of the
- -------------
Company (other than Industrias Hudson) to be an Unrestricted Subsidiary if (a)
the Subsidiary to be so designated does not own any Capital Stock or Debt of, or
own or hold any Lien on any Property of, the Company or any other Restricted
Subsidiary,
<PAGE>
55
(b) the Subsidiary to be so designated is not obligated under any Debt, Lien or
other obligation that, if in default, would result (with the passage of time or
notice or otherwise) in a default on any Debt of the Company or of any
Restricted Subsidiary and (c) either (i) the Subsidiary to be so designated has
total assets of $1,000 or less or (ii) such designation is effective immediately
upon such entity becoming a Subsidiary of the Company. Unless so designated as
an Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company
will be classified as a Restricted Subsidiary; provided, however, that such
-------- -------
Subsidiary shall not be designated a Restricted Subsidiary and shall be
automatically classified as an Unrestricted Subsidiary if either of the
requirements set forth in clauses (x) and (y) of the immediately following
paragraph will not be satisfied after giving pro forma effect to such
classification. Except as provided in the first sentence of this paragraph, no
Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary. Upon
designation of a Restricted Subsidiary as an Unrestricted Subsidiary in
compliance with this Section, such Restricted Subsidiary will, by delivery of a
supplemental indenture in form satisfactory to the Trustee, be released from any
Subsidiary Guaranty previously made by such Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, (x) the Company could Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of Section 4.03 and (y) no Default
or Event of Default shall have occurred and be continuing or would result
therefrom. Any such designation or redesignation by the Board of Directors will
be evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation or redesignation and an Officers' Certificate (a)
certifying that such designation or redesignation complies with the foregoing
provisions and (b) giving the effective date of such designation or
redesignation, such filing with the Trustee to occur within 45 days after the
end of the fiscal quarter of the Company in which such designation or
redesignation is made (or, in the case of a designation or redesignation made
during the last fiscal quarter of the Company's fiscal year, within 90 days
after the end of such fiscal year).
SECTION 4.16. Limitation on Holding's Business. Holding shall not,
---------------------------------
directly or indirectly, engage in any business or activity other than the
ownership of Capital Stock of the Company and business activities incidental
thereto.
<PAGE>
56
ARTICLE 5
Successor Company
-----------------
SECTION 5.01. When Company May Merge or Transfer Assets. (a) The
------------------------------------------
Company shall not merge, consolidate or amalgamate with or into any other Person
(other than a merger of a Wholly Owned Subsidiary into the Company) or sell,
transfer, assign, lease, convey or otherwise dispose of all or substantially all
its Property in any one transaction or series of transactions unless: (i) the
Company shall be the surviving Person (the "Surviving Person") or the Surviving
Person (if other than the Company) formed by such merger, consolidation or
amalgamation or to which such sale, transfer, assignment, lease, conveyance or
disposition is made shall be a corporation organized and existing under the laws
of the United States of America, any State thereof or the District of Columbia;
(ii) the Surviving Person (if other than the Company) expressly assumes, by
supplemental indenture in form satisfactory to the Trustee, executed and
delivered to the Trustee by such Surviving Person, the due and punctual payment
of the principal of, and premium, if any, and interest on, all the Securities,
according to their tenor, and the due and punctual performance and observance of
all the covenants and conditions of this Indenture to be performed by the
Company; (iii) in the case of a sale, transfer, assignment, lease, conveyance or
other disposition of all or substantially all the Property of the Company, such
Property shall have been transferred as an entirety or virtually as an entirety
to one Person; (iv) immediately before and after giving effect to such
transaction or series of transactions on a pro forma basis (and treating, for
purposes of this clause (iv) and clauses (v) and (vi) below, any Debt which
becomes, or is anticipated to become, an obligation of the Surviving Person or
any Restricted Subsidiary as a result of such transaction or series of
transactions as having been Incurred by the Surviving Person or such Restricted
Subsidiary at the time of such transaction or series of transactions), no
Default or Event of Default shall have occurred and be continuing; (v)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis, the Company or the Surviving Person, as the case may be,
would be able to Incur at least $1.00 of additional Debt under clause (a) of the
first paragraph of Section 4.03; provided, however, that this clause (v) shall
-------- -------
not apply to a merger between the Company and a Wholly Owned Subsidiary of the
Company or Holding incorporated in another state of the United States solely for
the purpose of reincorporating the Company as long as the total amount of Debt
of the Company and its
<PAGE>
57
Restricted Subsidiaries is not increased as a result thereof; and (vi) the
Company shall deliver, or cause to be delivered, to the Trustee, in form and
substance reasonably satisfactory to the Trustee, an Officers' Certificate and
an Opinion of Counsel, each stating that such transaction and the supplemental
indenture, if any, in respect thereto comply with this Section and that all
conditions precedent herein provided for relating to such transaction have been
satisfied and that the supplemental indenture, if any, has been duly authorized,
executed and delivered and is enforceable against the Surviving Person.
(b) The Surviving Person shall succeed to, and be substituted for,
and may exercise every right and power of the Company under this Indenture, but
the predecessor Company in the case of a sale, transfer, assignment, lease,
conveyance or other disposition shall not be released from the obligation to pay
the principal of, and premium, if any, and interest on, the Securities.
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default. The following events shall be
------------------
"Events of Default":
(1) the Company defaults in any payment of inter est on the
Securities when the same becomes due and payable, whether or not such
payment shall be prohibited by Article 10, and such default continues for a
period of 30 days;
(2) the failure to make the payment of any principal of or premium, if
any, on any of the Securities when the same become due and payable at its
Stated Maturity, upon acceleration, redemption, optional redemption, upon
required repurchase or otherwise, whether or not such payment shall be
prohibited by Article 10;
(3) the Company or any Subsidiary Guarantor fails to comply with
Article 5;
(4) the Company fails to comply with any other covenant or agreement
in the Securities or in this Indenture (other than a failure which is the
subject of the foregoing clause (1), (2) or (3)) and continuance of such
failure for a period of 30 days after the notice specified below;
<PAGE>
58
(5) default by the Company or any Restricted Subsidiary under any Debt
of the Company or any Restricted Subsidiary which results in acceleration
of the stated maturity of such Debt, or the failure to pay such Debt at
final maturity, in an aggregate amount greater than $7.5 million or its
foreign currency equivalent at the time;
(6) any judgment or judgments for the payment of money in an aggregate
amount in excess of $7.5 million (or its foreign currency equivalent at the
time) shall be rendered against the Company or any Restricted Subsidiary
and shall not be waived, satisfied or discharged for any period of 30
consecutive days during which a stay of enforcement shall not be in effect;
(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
(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;
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary; or
(D) grants any similar relief under any foreign laws;
<PAGE>
59
and in each such case the order or decree remains unstayed and in effect
for 60 days; or
(9) the Subsidiary Guaranty of any Significant Subsidiary or, if
issued, Industrias Hudson ceases to be in full force and effect (other than
in accordance with the terms thereof) or any Significant Subsidiary or, if
applicable, Industrias Hudson denies or disaffirms its obligations under
its Subsidiary Guaranty.
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.
A Default under clause (4) is not an Event of Default until the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Securities notify the Company (and in the case of such notice by
Holders, the Trustee) in writing of such Default and the Company does not cure
such Default within the time specified 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 and event which with the giving of notice or the lapse of
time would become an Event of Default, 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)) occurs and is continuing,
the Trustee by notice to the Company, or the Holders of at least 25% in
aggregate principal amount of the Securities then outstanding by notice to the
Company and the Trustee, may declare the principal amount of all the Securities
then outstanding, plus accrued but unpaid interest to be due and payable. Upon
such a declaration, such principal shall be
<PAGE>
60
due and payable immediately. If an Event of Default specified in Section 6.01(7)
or (8) occurs, the principal of the Securities shall automatically and without
any action by the Trustee or any Holder, become immediately due and payable. The
Holders of a majority in aggregate principal amount of the outstanding
Securities by notice to the Trustee and the Company may rescind and annul any
declaration of acceleration 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, premium or interest that has become due
solely because of the 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 acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Defaults. The Holders of a majority in
-------------------
aggregate principal amount of the Securities by notice to the Trustee may waive,
on behalf of the Holders of all outstanding Securities, a past or an existing
Default and its consequences or compliance with any provision of this Indenture
or the Securities except (i) a Default in the payment of the principal of or
interest on a Security or (ii) a Default in respect of a provision that under
Section 9.02 cannot be amended without the consent of each Securityholder
affected. When a Default is waived, it is deemed cured and not to have occurred
for every purpose of this Indenture and the Securities, 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
--------------------
aggregate principal amount of the Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee with respect to the
Securities. However, the
<PAGE>
61
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 reasonable indemnity against all losses and expenses caused by taking or not
taking such action.
SECTION 6.06. Limitation on Suits. A Security holder may not pursue
--------------------
any remedy with respect to this Indenture or the Securities unless:
(1) such Holder shall have previously given to the Trustee written
notice of a continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of the
Securities then outstanding shall have made a written request, and such
Holder of or Holders shall have offered reasonable indemnity, to the
Trustee to pursue such proceeding as trustee; and
(3) the Trustee has failed to institute such proceeding and has not
received from the Holders of at least a majority in aggregate principal
amount of the Securities outstanding a direction inconsistent with such
request, within 60 days after such notice, request and offer.
The foregoing limitations on the pursuit of remedies by a
Securityholder shall not apply to a suit instituted by a Holder of Securities
for the enforcement of payment of the principal of or interest on such Security
on or after the applicable due date specified in such Security. A Securityholder
may not use this Indenture to prejudice the rights of another Securityholder or
to obtain a preference or priority over another Securityholder.
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 interest on the Securities held by such Holder, on
or after the respective due dates expressed in this 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.
<PAGE>
62
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
---------------------------
specified 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, its creditors or
its 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, is empowered to participate as a member,
voting or otherwise, of any official committee of creditors appointed in such
matter, and any Custodian in any such judicial proceeding is hereby authorized
by each Holder to make payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and its counsel, and any
other amounts due the Trustee under Section 7.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money 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 Debt 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, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
<PAGE>
63
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
----------------------
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, the Company, a suit by a Holder pursuant to Section 6.07 or a suit by
Holders of more than 10% in aggregate principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
---------------------------------
extent it may lawfully do so) shall not 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 (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.
<PAGE>
64
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture, but
shall not be obligated to verify the contents thereof.
(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
<PAGE>
65
incur financial liability in the performance of any of its duties hereunder or
in the exercise of any of its rights or powers, if it shall have reasonable
grounds to believe that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
------------------
document reasonably believed by it to be genuine and to have been signed or
presented by the proper person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on 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 (other than an agent who is an
employee of the Trustee) 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 reasonably believes to be authorized or within
its rights or powers; provided, however, that the Trustee's conduct does not
-------- -------
constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel, and the written advice or
written 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 such advice or opinion of such
counsel.
(f) Unless otherwise specifically provided herein, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.
(g) The Company, the Paying Agent, the Registrar, the Trustee and any
agent of the Company, the Paying Agent, the Registrar or the Trustee may deem
and treat the Person in whose name any Security is registered as the absolute
<PAGE>
66
owner of such Security for the purpose of receiving payment of or on account of
the principal of and, subject to the provisions of this Indenture, interest on
such Security and for all other purposes; and neither the Company, the Paying
Agent, the Registrar nor the Trustee nor any agent of the Company, the Paying
Agent, the Registrar or the Trustee shall be affected by any notice to the
contrary.
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-
registrar 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 or any Subsidiary Guarantor in this Indenture or in any
document issued in connection with the sale of the Securities or in the
Securities other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
-------------------
continuing and if it is known to the employees of the Trustee with
responsibility for the Securities, the Trustee shall mail to each Securityholder
notice of the Default within 90 days after it is known to such employees of the
Trustee or written notice of it is received by the Trustee. Except in the case
of a Default in payment of principal of or interest on any Security, 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 May 15 beginning with May 15, 1999, and in any event
prior to July 15 in each year, the Trustee shall mail to each Securityholder a
brief report dated as of May 15 each year that complies with TIA (S) 313(a), if
and to the extent required by said subsection. The Trustee also shall comply
with TIA (S) 313(b).
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.
<PAGE>
67
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 from time to time reasonable compensation for its services. 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.
Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. The Company shall indemnify the Trustee against any and all loss,
liability or expense (including reasonable attorneys' fees, but excluding any
franchise taxes imposed on the Trustee and any taxes based on the income of the
Trustee) incurred by it in connection with the acceptance and administration of
this trust, including the reasonable costs and expenses of enforcing this
Indenture against the Company (including Section 7.07) and of defending itself
against any claim (whether asserted by any Holder, the Company or any Subsidiary
Guarantor) and the performance of its duties hereunder. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder, except to the extent such failure shall have
materially prejudiced the Company. The Company shall defend the claim and the
Trustee shall cooperate in the defense. If the Trustee is advised by counsel in
writing that it may have available to it defenses which are in conflict with the
defenses available to the Company, then the Trustee may have separate counsel
and the Company shall pay the reasonable fees and expenses of such counsel. The
Company need not reimburse any expense or indemnify against any loss, liability
or expense incurred by the Trustee or any of its agents, counsel, accountants or
experts which is judicially determined to be the result of the Trustee's or any
such agent's, counsel's, accountant's or expert's own wilful misconduct,
negligence or bad faith. The Company need not pay for any settlement made by the
Trustee without the Company's consent, such consent not to be unreasonably
withheld or delayed.
The Trustee's right to receive payment of any amounts due under this
Section 7.07 shall not be subordinated to any other liability or indebtedness of
the Company (even though the Securities may be so subordinated).
<PAGE>
68
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.01(7) or (8), 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 aggregate
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 aggregate 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 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 60 days after the
retiring Trustee resigns or is removed,
<PAGE>
69
the retiring Trustee, the Company or the Holders of 10% in aggregate principal
amount of the Securities may petition any court of competent jurisdiction for
the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
who has been a bona fide Holder of a Security for at least six months 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 or banking
association 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
such 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 (S) 310(a). The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. The Trustee shall comply with
TIA (S) 310(b), subject to the penultimate paragraph thereof; provided, however,
-------- -------
that there shall be excluded from the operation of TIA (S) 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 (S) 310(b)(1) are met.
<PAGE>
70
SECTION 7.11. Preferential Collection of Claims Against Company. The
--------------------------------------------------
Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship
listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be
subject to TIA (S) 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 2.07) 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 and the
Company irrevocably deposits with the Trustee funds 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 2.07), and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Sections
8.01(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel 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 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, 4.14, 4.15 and 4.16 the
operation of Sections 6.01(4) (to the extent relating to such other Sections),
6.01(5), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections
6.01(6) and (7), with respect only to Significant Subsidiaries), its obligations
under Sections 5.01(a)(iv), 5.01(a)(v) and the related operation of Section
6.01(3) ("covenant defeasance option"). 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 Sections 6.01(3) and 6.01(4) (with
<PAGE>
71
respect to the provisions of Articles 4 and 5 referred to in the immediately
preceding paragraph) and Sections 6.01(5), 6.01(6), 6.01(7), 6.01(8) and 6.01(9)
(but, in the case of Sections 6.01(6) and (7), with respect only to Significant
Subsidiaries). If the Company exercises its legal defeasance option or its
covenant defeasance option, each Subsidiary Guarantor, if any, shall be released
from all its obligations under its Subsidiary Guaranty.
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, 7.07, 7.08, 8.05 and 8.06 and
Appendix A shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07 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 of and interest
on the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity 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(6) or (7) 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 material
agreement binding on the Company and is not prohibited by Article 10;
<PAGE>
72
(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 will not recognize income, gain or loss for Federal
income tax purposes as a result of such defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such 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
Securityholders will not recognize income, gain or loss for Federal income
tax purposes as a result of such covenant defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred; and
(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.
Opinions of Counsel required to be delivered to the Trustee may have
assumptions customary for opinions of the type required and counsel delivering
such Opinions of Counsel may rely on certificates of the Company or government
or other officials customary for opinions of the type required, including
certificates certifying as to matters of fact, including that various financial
covenants 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.
<PAGE>
73
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 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 request any money held by them for
the payment of principal or interest that remains unclaimed for two years (or if
then held by the Company or a Wholly Owned Subsidiary in trust for the payment
thereof) shall be discharged from such trust, and, thereafter, Securityholders
entitled to the money must look to the Company for payment as general creditors;
provided, however, that the Trustee or such Paying Agent before being required
- -------- -------
to make any such repayment, may at the expense of the Company cause to be mailed
to each such Holder a notice that said moneys have not been so applied and that
after a date named therein any unclaimed balance of said moneys then remaining
will be returned to the Company.
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 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
<PAGE>
74
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 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 Debt of the
Company or any Subsidiary Guarantor (or Representatives therefor) under
Article 10 or Article 12, respectively;
(5) to add or to remove Subsidiary Guarantors when permitted by the
terms hereof, 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; or
(8) to make any change that does not adversely affect the rights of
any Securityholder in any material respect.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 or
<PAGE>
75
Article 12 of any holder of Senior Debt then outstanding unless the holders of
such Senior Debt (or their Representative) consent in writing to such change, it
being understood that any amendment the purpose of which is to permit the
Incurrence of additional Debt shall not be construed as impairing the rights of
the holders of Senior Debt pursuant to such subordination provisions.
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 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 aggregate
principal amount of the Securities. However, without the consent of each Holder
of an outstanding Security affected thereby an amendment or waiver may not:
(1) reduce the amount of Securities whose holders must consent to an
amendment or waiver,
(2) reduce the rate of or extend the time for payment of interest on
any Security,
(3) reduce the principal of or extend the Stated Maturity of any
Security,
(4) make any Security payable in money other than that stated in the
Security,
(5) impair the right of any holder of the Securities to receive
payment of principal of and interest on such holder's Securities on or
after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such holder's Securities or any
Subsidiary Guaranty,
(6) release any security interest that may have been granted in favor
of the holders of the Securities,
(7) reduce the premium payable upon the redemption or repurchase of
any Security, or change the time at which any Security may be redeemed, as
described under Article 3,
<PAGE>
76
(8) reduce the premium payable upon a Change of Control or, at any
time after a Change of Control or Asset Sale has occurred, change the time
at which the Change of Control Offer or Prepayment Offer relating thereto
must be made or at which the Securities must be repurchased pursuant to
such Change of Control Offer, or
(9) make any change to the subordination provisions of this Indenture
that would adversely affect the holders of the Securities or make any
change in any Subsidiary Guaranty that would adversely affect the holders
of 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 may not make any change that adversely
affects the rights under Article 10 or Article 12 of any holder of Senior Debt
then outstanding unless the holders of such Senior Debt (or their
Representative) consent in writing to such change, it being understood that any
amendment the purpose of which is to permit the Incurrence of additional Debt
shall not be construed as impairing the rights of the holders of Senior Debt
pursuant to such subordination provisions.
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
<PAGE>
77
or waiver becomes effective, it shall form a part of this Indenture for all
purposes and shall bind every Securityholder. An amendment or waiver becomes
effective upon the execution of such amendment or waiver by 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 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 or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any
---------------------------
amendment authorized pursuant to this Article 9 if such 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.
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
<PAGE>
78
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 Securities are
senior subordinated obligations of the Company and that the Debt evidenced by
the Securities is subordinated in right of payment, to the extent and in the
manner provided in this Article 10, to the payment when due of all Senior Debt
of the Company and that the subordination is for the benefit of and enforceable
by the holders of such Senior Debt. The Securities shall in all respects rank
pari passu in right of payment with any future Senior Subordinated Debt of the
- ---- -----
Company and senior to any future Subordinated Obligations of the Company, and
only Senior Debt of the Company shall rank senior to the Securities in
accordance with the provisions set forth herein. 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, dissolution or winding up of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property:
(1) holders of Senior Debt of the Company shall be entitled to receive
payment in full in cash of such Senior Debt before Securityholders shall be
entitled to receive any payment of principal of or interest on the
Securities, except that Holders of Securities may receive and retain shares
of stock and any debt securities that are subordinated to Senior Debt to at
least the same extent as the Securities; and
(2) until such Senior Debt is paid in full in cash, any distribution
to which Securityholders would be entitled but for this Article 10 shall be
made to holders of such Senior Debt as their interests may appear.
SECTION 10.03. Default on Senior Debt. The Company may not pay the
-----------------------
principal of or interest on the Securities or make any deposit pursuant to
Section 8.01 and may not repurchase, redeem or otherwise retire any
<PAGE>
79
Securities (collectively, "pay the Securities") if (a) any principal, premium or
interest in respect of any Senior Debt is not paid within any applicable grace
period (including at maturity) or (b) any other default on Senior Debt occurs
and the maturity of such Senior Debt is accelerated in accordance with its
terms unless, in either case, (i) the default has been cured or waived and any
such acceleration has been rescinded or (ii) such Senior Debt has been paid in
full in cash; provided, however, that the Company may pay the Securities without
-------- -------
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of each issue of Designated
Senior Debt. During the continuance of any default (other than a default
described in clause (a) or (b) of the preceding sentence) with respect to any
Designated Senior Debt pursuant to which the maturity thereof may be accelerated
immediately without further notice (except notice required to effect the
acceleration) or the expiration of any applicable grace period, the Company may
not pay the Securities for a period (a "Payment Blockage Period") commencing
upon the receipt by the Company and the Trustee of written notice of such
default from the Representative of the holders of such Designated Senior Debt
specifying an election to effect a Payment Blockage Period (a "Payment Blockage
Notice") and ending 179 days thereafter (unless such Payment Blockage Period is
earlier terminated (a) by written notice to the Trustee and the Company from the
Representative which gave such Payment Blockage Notice, (b) because such default
is no longer continuing or (c) because such Designated Senior Debt has been
repaid in full in cash). Unless the holders of such Designated Senior Debt or
the Representative of such holders have accelerated the maturity of such
Designated Senior Debt and not rescinded such acceleration, the Company may
(unless otherwise prohibited as described in the first sentence of this
paragraph) resume payments on the Securities after the end of such Payment
Blockage Period. Not more than one Payment Blockage Notice with respect to all
issues of Designated Senior Debt may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to one or more issues of
Designated Senior Debt during such period.
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 shall promptly notify the holders of the Designated Senior Debt (or
their Representatives) of the acceleration. If payment of the Securities is
accelerated when any Designated Senior Debt is outstanding, the Company may not
pay the Securities until three Business Days after the
<PAGE>
80
Representatives of all issues of Designated Senior Debt receive notice of such
acceleration and, thereafter, may pay the Securities only if this Indenture
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 Debt of the Company and pay it over
to them as their interests may appear.
SECTION 10.06. Subrogation. After all Senior Debt of the Company is
------------
paid in full in cash and until the Securities are paid in full, Securityholders
shall be subrogated to the rights of holders of such Senior Debt to receive
distributions applicable to such Senior Debt. A distribution made under this
Article 10 to holders of such Senior Debt which otherwise would have been made
to Securityholders is not, as between the Company and Securityholders, a payment
by the Company on such Senior Debt.
SECTION 10.07. Relative Rights. This Article 10 defines the relative
----------------
rights of Securityholders and holders of Senior Debt 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 the Securities in accordance with their terms; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default or an Event of Default, subject to the
rights of holders of Senior Debt 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 Debt of the Company to enforce the subordination
of the Debt 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
<PAGE>
81
facts that would prohibit the making of any such payments unless, not less than
two Business Days prior to the date of such payment, a Trust Officer receives
notice satisfactory to it that payments may not be made under this Article 10.
The Company, the Registrar or co-registrar, the Paying Agent, a Representative
or a holder of Senior Debt may give the notice; provided, however, that, if an
-------- -------
issue of Senior Debt 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
Debt of the Company 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 10 with respect to any Senior Debt of the Company which may at any time
be held by it, to the same extent as any other holder of such Senior Debt; 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 Debt 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 Securityholders 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 Debt 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
Debt of the Company or any other creditor of the Company.
<PAGE>
82
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
Debt of the Company for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of such Senior Debt and
other Debt 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
evidence is required with respect to the right of any Person as a holder of
Senior Debt 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 Debt 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 Debt 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 Debt. The
-------------------------------------------------
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Debt 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 Debt of the Company shall be entitled by
virtue of this Article 10 or otherwise.
SECTION 10.16. Reliance by Holders of Senior Debt on Subordination
---------------------------------------------------
Provisions. Each Securityholder by accept-
- -----------
<PAGE>
83
ing 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 Debt of the Company, whether such Senior Debt 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 Debt and such holder
of such Senior Debt shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold, or in continuing
to hold, such Senior Debt.
ARTICLE 11
Subsidiary Guaranties
---------------------
SECTION 11.01. Guaranties. Subject to the provisions of this Article
-----------
11, each Subsidiary Guarantor hereby unconditionally guarantees on a senior
subordinated basis, jointly and severally, to each Holder and to the Trustee, on
behalf of the Holders, and its successors and assigns (a) the full and punctual
payment of principal of and interest, within any applicable grace period, on the
Securities when due, whether at maturity, by acceleration, by redemption or
otherwise, and all other monetary obligations of the Company under this
Indenture and the Securities and (b) the full and punctual performance within
applicable grace periods of all other obligations of the Company under this
Indenture and the Securities (all the foregoing being hereinafter collectively
called the "Obligations"). Each Subsidiary Guarantor further agrees that the
Obligations may be extended or renewed, in whole or in part, without notice or
further assent from such Subsidiary Guarantor and that such Subsidiary Guarantor
will remain bound under this Article 11 notwithstanding any extension or renewal
of any Obligation.
Each Subsidiary Guarantor waives presentation to, demand of, payment
from and protest to the Company of any of the Obligations and also waives notice
of protest for nonpayment. Each Subsidiary Guarantor waives notice of any
default under the Securities or the 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
<PAGE>
84
by any Holder or the Trustee for the Obligations or any of them; (e) the failure
of any Holder or the Trustee to exercise any right or remedy against any other
guarantor of the Obligations; or (f) any change in the ownership of such
Subsidiary Guarantor.
Each Subsidiary Guarantor further agrees that its Subsidiary Guaranty
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 Obligations.
Each Subsidiary Guaranty 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 in cash of all Senior Debt of the Subsidiary Guarantor giving such
Subsidiary Guaranty and each Subsidiary Guaranty is made subject to such
provisions of this Indenture.
Except as expressly set forth in Sections 4.09, 4.15, 5.01 and
8.01(b), 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 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, willful or
otherwise, in the performance of the obligations, or by any other act or thing
or omission or delay to do any other act or thing which may or might in any
manner or to any extent vary the risk of such Subsidiary Guarantor or would
otherwise operate as a discharge of such Subsidiary Guarantor as a matter of law
or equity.
Each Subsidiary Guarantor further agrees that its Subsidiary Guaranty
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
Obligation is rescinded or must otherwise be restored by any Holder or the
Trustee upon the bankruptcy or reorganization of the Company or otherwise.
<PAGE>
85
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 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 Obligation, each Subsidiary Guarantor hereby
promises to and will, upon receipt of written demand by the Trustee, forthwith
pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal
to the sum of (i) the unpaid amount of such Obligations, (ii) accrued and unpaid
interest on such 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 respect of any Obligations guaranteed hereby until
payment in full in cash of all Obligations and all obligations to which the
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 Obligations
guaranteed hereby may be accelerated as provided in Article 6 for the purposes
of such Subsidiary Guarantor's Subsidiary Guaranty herein, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect of
the Obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such obligations as provided in Article 6, such Obligations
(whether or not due and payable) shall forthwith become due and payable by such
Subsidiary Guarantor for the purposes of this Section.
Each Subsidiary Guarantor also agrees to pay any and all reasonable
costs and expenses (including reasonable attorneys' fees) incurred by the
Trustee or any Holder in enforcing any rights under this Section.
SECTION 11.02. Contribution. Each of the Company and any Subsidiary
-------------
Guarantor (a "Contributing Party") agrees (subject to Articles 10 and 12) that,
in the event a payment shall be made by any other Subsidiary Guarantor under any
Subsidiary Guaranty (the "Claiming Guarantor"), the Contributing Party shall
indemnify the Claiming Guarantor in an amount equal to the amount of such
payment multiplied by a fraction, the numerator of which shall be the net worth
of the Contributing Party on the date of such payment and the denominator of
which shall be the aggregate net worth of the Company and all the Subsidiary
Guarantors on the date of such payment.
<PAGE>
86
SECTION 11.03. Successors and Assigns. This Article 11 shall be
-----------------------
binding upon each Subsidiary Guarantor and its successors and assigns and shall
enure 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 shall promptly execute and deliver to the Trustee a supplemental
indenture in the form of Exhibit B hereto pursuant to which such Subsidiary
shall become a Subsidiary Guarantor under this Article 11 and shall guarantee
the Obligations. Concurrently with the execution and delivery of such
supplemental indenture, the Company shall deliver to the Trustee an Opinion of
Counsel 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 considered in a proceeding at
<PAGE>
87
law or in equity, the Subsidiary Guaranty 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 Subsidiary Guaranties
--------------------------------------
SECTION 12.01. Agreement To Subordinate. Each Subsidiary Guarantor
-------------------------
agrees, and each Securityholder by accepting a Security agrees, that the
Subsidiary Guarantees are senior subordinated obligations of the Subsidiary
Guarantor and that the Obligations of such Subsidiary Guarantor are subordinated
in right of payment, to the extent and in the manner provided in this Article
12, to the payment when due of all Senior Debt of such Subsidiary Guarantor and
that the subordination is for the benefit of and enforceable by the holders of
such Senior Debt. The Obligations of a Subsidiary Guarantor shall in all
respects rank pari passu in right of payment with any future Senor Subordinated
---- -----
Debt of such Subsidiary Guarantor and senior to any future Subordinated
Obligations of such Subsidiary Guarantor.
SECTION 12.02. Liquidation, Dissolution, Bankruptcy. Upon any
-------------------------------------
payment or distribution of the assets of any Subsidiary Guarantor upon a total
or partial liquidation, dissolution or winding up of such Subsidiary Guarantor
or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to such Subsidiary Guarantor or its property:
(1) holders of Senior Debt of such Subsidiary Guarantor shall be
entitled to receive payment in full in cash of such Senior Debt before
Securityholders shall be entitled to receive any payment pursuant to any
Obligations of such Subsidiary Guarantor , except that Securityholders may
receive shares of stock and any debt securities of such Subsidiary
Guarantor that are subordinated to Senior Debt of such Subsidiary Guarantor
to at least the same extent as the Obligations of such Subsidiary Guarantor
are subordinated to Senior Debt of such Subsidiary Guarantor; and
(2) until the Senior Debt of any Subsidiary Guarantor is paid in full
in cash, any distribution to which Securityholders would be entitled but
for this Article 12 shall be made to holders of such Senior Debt as their
interests may appear.
<PAGE>
88
SECTION 12.03. Default on Senior Debt of Subsidiary Guarantor. No
-----------------------------------------------
Subsidiary Guarantor may make any payment pursuant to any of its Obligations or
repurchase, redeem or otherwise retire or defease any Securities or other
Obligations (collectively, "pay its Subsidiary Guaranty") if (i) any principal,
premium or interest in respect of Senior Debt of such Subsidiary Guarantor is
not paid within any applicable grace period (including at maturity) or (ii) any
other default on Senior Debt of such Subsidiary Guarantor occurs and the
maturity of such Senior Debt is accelerated in accordance with its terms unless,
in either case, (x) the default has been cured or waived and any such
acceleration has been rescinded or (y) such Senior Debt has been paid in full in
cash; provided, however, that any Subsidiary Guarantor may pay its Subsidiary
-------- -------
Guaranty without regard to the foregoing if such Subsidiary Guarantor and the
Trustee receive written notice approving such payment from the Representatives
of each issue of Senior Debt of such Subsidiary Guarantor. No Subsidiary
Guarantor may pay its Subsidiary Guaranty during the continuance of any Payment
Blockage Period commencing upon the receipt by the Company and the Trustee of a
Payment Blockage Notice under Section 10.03. Unless the holders of Designated
Senior Debt giving such Payment Blockage Notice or the Representative of such
holders shall have accelerated the maturity of such Designated Senior Debt and
not rescinded such acceleration, any Subsidiary Guarantor may resume (unless
otherwise prohibited as described in the first sentence of this paragraph)
payments pursuant to its Subsidiary Guaranty after the end of such Payment
Blockage Period.
SECTION 12.04. Demand for Payment. If 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 Debt (or their Representatives) of
such demand.
SECTION 12.05. When Distribution Must Be Paid Over. If a
------------------------------------
distribution is made to Securityholders that because of this Article 12 should
not have been made to them, the Securityholders who receive the distribution
shall hold it in trust for holders of the relevant Senior Debt and pay it over
to them or their Representatives as their interests may appear.
SECTION 12.06. Subrogation. After all Senior Debt of a Subsidiary
------------
Guarantor is paid in full in cash and until the Securities are paid in full,
Securityholders shall be subrogated to the rights of holders of such Senior Debt
to receive distributions applicable to such Senior Debt. A
<PAGE>
89
distribution made under this Article 12 to holders of such Senior Debt which
otherwise would have been made to Securityholders is not, as between the
relevant Subsidiary Guarantor and Securityholders, a payment by such Subsidiary
Guarantor on such Senior Debt.
SECTION 12.07. Relative Rights. This Article 12 defines the relative
----------------
rights of Securityholders and holders of Senior Debt of a Subsidiary Guarantor.
Nothing in this Indenture shall:
(1) impair, as between a Subsidiary Guarantor and Securityholders, the
obligation of such Subsidiary Guarantor, which is absolute and
unconditional, to pay the Obligations to the extent set forth in Article 11
or the relevant Subsidiary Guaranty; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a default by such Subsidiary Guarantor under the
Obligations, subject to the rights of holders of Senior Debt of such
Subsidiary Guarantor to receive distributions otherwise payable to
Securityholders.
SECTION 12.08. Subordination May Not Be Impaired by Subsidiary
-----------------------------------------------
Guarantor. No right of any holder of Senior Debt of any Subsidiary Guarantor to
- ----------
enforce the subordination of the Obligations of such Subsidiary Guarantor 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 Paying Agent may continue to make payments on any
Subsidiary Guaranty 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
two Business Days prior to the date of such payment, a Trust Officer receives
written notice satisfactory to it that payments may not be made under this
Article 12. The Company, the relevant Subsidiary Guarantor, the Registrar or
co-registrar, the Paying Agent, a Representative or a holder of Senior Debt of
any Subsidiary Guarantor may give the notice; provided, however, that, if an
-------- -------
issue of Senior Debt of any Subsidiary Guarantor has a Representative, only the
Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Debt of any Subsidiary Guarantor with the same rights it would have if it were
not the Trustee.
<PAGE>
90
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 Debt of any Subsidiary Guarantor which may
at any time be held by it, to the same extent as any other holder of such Senior
Debt; 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 Debt of any
Subsidiary Guarantor, the distribution may be made and the notice given to their
Representative (if any).
SECTION 12.11. Article 12 Not To Prevent Defaults Under a Subsidiary
-----------------------------------------------------
Guaranty or Limit Right To Demand Payment. The failure to make a payment
- ------------------------------------------
pursuant to a Subsidiary Guaranty by reason of any provision in this Article 12
shall not be construed as preventing the occurrence of a default under such
Subsidiary Guaranty. 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 any
Subsidiary Guarantor pursuant to Article 11 or the relevant Subsidiary Guaranty.
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 Senior Debt
of any Subsidiary Guarantor for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of such Senior Debt
and other Debt of such 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 Senior Debt of any Subsidiary Guarantor to
participate in any payment or distribution 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 Senior Debt of such Subsidiary
Guarantor held by such Person, the extent to which such Person is entitled to
participate in such
<PAGE>
91
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
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 Debt of any Subsidiary Guarantor 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 Debt of
---------------------------------------------------
Subsidiary Guarantor. The Trustee shall not be deemed to owe any fiduciary duty
- ---------------------
to the holders of Senior Debt of any Subsidiary Guarantor 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 such Senior Debt shall be entitled by virtue of this Article 12 or
otherwise.
SECTION 12.15. Reliance by Holders of Senior Debt 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 Debt of any
Subsidiary Guarantor, whether such Senior Debt 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 Debt and such holder of Senior Debt shall be
deemed conclusively to have relied on such subordination provisions in acquiring
and continuing to hold, or in continuing to hold, such Senior Debt.
<PAGE>
92
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. If any provision of this Indenture modifies or excludes any
provision of the TIA that may be so modified or excluded, the latter provision
shall be deemed to apply to this Indenture as so modified or to be excluded, as
the case may be.
SECTION 13.02. Notices. Any notice or communication shall be in
--------
writing and delivered in person or mailed by first-class mail or recognized
overnight courier or sent by facsimile (with a hard copy delivered in person or
by mail promptly thereafter) and addressed as follows:
if to the Company or any Subsidiary Guarantor:
Hudson Respiratory Care Inc.
27711 Diaz Road
Temecula, California 92589
Attention: Jay R. Ogram
if to the Trustee:
(1) for payment, registration, transfer, exchange and tender of the
Securities:
By Hand:
-------
United States Trust Company of New York
111 Broadway
New York, NY 10006
Attention: Corporate Trust Window Lower Level
By Mail:
-------
United States Trust Company of New York
770 Broadway, 13th Floor
New York, NY 10003
Attention: Corporate Trust Services
Telephone No.: (800) 548-6565
<PAGE>
93
(2) for all other communications relating to the Securities:
United States Trust Company of New York
Attention: Corporate Trust Administration -
Hudson RCI
114 West 47th Street, 25th Floor
New York, NY 10036
Telephone No.: (212) 852-1663
Telecopy No.: (212) 852-1626
The Company or any Subsidiary Guarantor, on the one hand, or the
Trustee, on the other hand, 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.
All such notices and communications shall be deemed to have been duly
received: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail with first-class postage prepaid, if
mailed; when receipt acknowledged, if sent by facsimile; and the next Business
Day after timely delivery to the courier, if sent by recognized overnight
courier guaranteeing next-day delivery. Notices to the Trustee will be deemed
effective only upon actual receipt.
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. Notices to the Trustee shall be effective only upon receipt.
SECTION 13.03. Communication by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA (S) 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 (S) 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
<PAGE>
94
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 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.
Any certificate or opinion of an Officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such Officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous, and provided that any such certificate or opinion names the Trustee
as an addressee and is furnished to the Trustee at the time of delivery of such
certificate or opinion. Any such certificate or Opinion of Counsel may be
based, insofar as it relates to factual matters, upon a certificate or opinion
of, or representations by, an officer
<PAGE>
95
or officers of the Company stating that the information with respect to such
factual matters is in the possession of the Company, unless such counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous. Opinions
of Counsel required to be delivered to the Trustee may have qualifications
customary for opinions of the type required and counsel delivering such Opinions
of Counsel may rely on certificates of the Company or government or other
officials customary for opinions of the type required, including certificates
certifying as to matters of fact, including that various financial covenants
have been complied with.
SECTION 13.06. When Securities Disregarded; Acts of Holder. In
--------------------------------------------
determining whether the Holders of the required principal amount of Securities
have concurred in any direction, waiver or consent, Securities owned by the
Company or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company shall be disregarded
and deemed not to be outstanding, except that, for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities which the Trustee knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at the
time shall be considered in any such determination.
SECTION 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, the Paying Agent and any co-registrar 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 New
York City and Los Angeles. 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 WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW.
SECTION 13.10. No Recourse Against Others. A director, officer,
---------------------------
employee or stockholder, as such, of the Company or any Subsidiary Guarantor
shall not have any
<PAGE>
96
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 any
-----------
Subsidiary Guarantors in this Indenture and the Securities shall bind their
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 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.
SECTION 13.14. Separability Clause. In case any provision of this
--------------------
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 13.15. Benefits of Indenture. Nothing in this Indenture or
----------------------
in the Securities, express or implied, shall give to any Person, other than the
parties hereto, the holders of Senior Debt (subject to Articles 10 and 12
hereof) and the Holders of the Securities and their successors, any benefit or
any legal or equitable right, remedy or claim under this Indenture or the
Securities.
<PAGE>
97
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
HUDSON RESPIRATORY CARE INC.,
by /s/ Richard W. Johansen
___________________________________
Name: Richard W. Johansen
Title: President and Chief Executive
Officer
by /s/ Jay R. Ogram
___________________________________
Name: Jay R. Ogram
Title: Chief Financial Officer
RIVER HOLDING CORP.,
by /s/ Charles P. Rullman
___________________________________
Name: Charles P. Rullman
Title: President
by /s/ Sanjay K. Morey
___________________________________
Name: Sanjay K. Morey
Title: Assistant Secretary
UNITED STATES TRUST COMPANY
OF NEW YORK,
by /s/ James E. Logan
___________________________________
Name: James E. Logan
Title: Vice President
<PAGE>
EXHIBIT 4.2
================================================================================
HUDSON RESPIRATORY CARE INC.
11 1/2% Subordinated Exchange Debentures due 2010
------------------------------------------
EXCHANGE INDENTURE
Dated as of April 7, 1998
-------------------------------------------
UNITED STATES TRUST COMPANY OF NEW YORK,
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions...................................... 1
SECTION 1.02. Other Definitions................................29
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act.................................29
SECTION 1.04. Rules of Construction............................30
ARTICLE 2
The Securities
--------------
SECTION 2.01. Amount of Securities.............................31
SECTION 2.02. Form and Dating..................................31
SECTION 2.03. Execution and Authentication.....................32
SECTION 2.04. Registrar and Paying Agent.......................33
SECTION 2.05. Paying Agent To Hold Money in Trust..............34
SECTION 2.06. Securityholder Lists.............................34
SECTION 2.07. Replacement Securities...........................34
SECTION 2.08. Outstanding Securities...........................35
SECTION 2.09. Temporary Securities.............................35
SECTION 2.10. Cancelation......................................36
SECTION 2.11. Defaulted Interest...............................36
SECTION 2.12. CUSIP Numbers....................................36
ARTICLE 3
Redemption
----------
SECTION 3.01. Notices to Trustee...............................37
SECTION 3.02. Selection of Securities
To Be Redeemed................................37
SECTION 3.03. Notice of Redemption.............................38
SECTION 3.04. Effect of Notice of Redemption...................38
SECTION 3.05. Deposit of Redemption Price......................39
SECTION 3.06. Securities Redeemed in Part......................40
ARTICLE 4
Covenants
---------
SECTION 4.01. Payment of Securities............................40
SECTION 4.02. SEC Reports......................................40
SECTION 4.03. Limitation on Debt...............................41
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Contents, p. 2
Page
----
<S> <C>
SECTION 4.04. Limitation on Restricted Payments................41
SECTION 4.05. Limitation on Restrictions on
Distributions from Restricted
Subsidiaries..................................45
SECTION 4.06. Limitation on Asset Sales........................46
SECTION 4.07. Limitation on Transactions
with Affiliates...............................49
SECTION 4.08. Limitation on Issuance or Sale of
Capital Stock of Restricted
Subsidiaries..................................51
SECTION 4.09. Repurchase at the Option of Holders
Upon a Change of Control......................51
SECTION 4.10. Limitation on Liens..............................53
SECTION 4.11. Compliance Certificate...........................54
SECTION 4.12. Further Instruments and Acts.....................54
SECTION 4.13. Designation of Restricted and
Unrestricted Subsidiaries.....................54
SECTION 4.14. Limitation on Holding's Business.................55
ARTICLE 5
Successor Company
-----------------
SECTION 5.01. When Company May Merge or Transfer
Assets........................................55
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default................................57
SECTION 6.02. Acceleration.....................................59
SECTION 6.03. Other Remedies...................................59
SECTION 6.04. Waiver of Defaults...............................60
SECTION 6.05. Control by Majority..............................60
SECTION 6.06. Limitation on Suits..............................60
SECTION 6.07. Rights of Holders To Receive
Payment.......................................61
SECTION 6.08. Collection Suit by Trustee.......................61
SECTION 6.09. Trustee May File Proofs of Claim.................61
SECTION 6.10. Priorities.......................................62
SECTION 6.11. Undertaking for Costs............................62
SECTION 6.12. Waiver of Stay or Extension Laws.................63
ARTICLE 7
Trustee
-------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Contents, p. 3
Page
----
<S> <C>
SECTION 7.01. Duties of Trustee................................63
SECTION 7.02. Rights of Trustee................................64
SECTION 7.03. Individual Rights of Trustee.....................65
SECTION 7.04. Trustee's Disclaimer.............................65
SECTION 7.05. Notice of Defaults...............................66
SECTION 7.06. Reports by Trustee to Holders....................66
SECTION 7.07. Compensation and Indemnity.......................66
SECTION 7.08. Replacement of Trustee...........................67
SECTION 7.09. Successor Trustee by Merger......................68
SECTION 7.10. Eligibility; Disqualification....................69
SECTION 7.11. Preferential Collection of Claims
Against Company...............................69
ARTICLE 8
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. Discharge of Liability on
Securities; Defeasance........................69
SECTION 8.02. Conditions to Defeasance.........................70
SECTION 8.03. Application of Trust Money.......................72
SECTION 8.04. Repayment to Company.............................72
SECTION 8.05. Indemnity for Government
Obligations...................................72
SECTION 8.06. Reinstatement....................................73
ARTICLE 9
Amendments
----------
SECTION 9.01. Without Consent of Holders.......................73
SECTION 9.02. With Consent of Holders..........................74
SECTION 9.03. Compliance with Trust Indenture Act..............76
SECTION 9.04. Revocation and Effect of Consents
and Waivers...................................76
SECTION 9.05. Notation on or Exchange of
Securities....................................76
SECTION 9.06. Trustee To Sign Amendments.......................76
SECTION 9.07. Payment for Consent..............................77
ARTICLE 10
Subordination
-------------
SECTION 10.01. Agreement To Subordinate........................77
SECTION 10.02. Liquidation, Dissolution,
Bankruptcy...................................77
SECTION 10.03. Default on Senior Debt..........................78
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Contents, p. 4
Page
----
<S> <C>
SECTION 10.04. Acceleration of Payment
of Securities................................79
SECTION 10.05. When Distribution Must Be
Paid Over....................................79
SECTION 10.06. Subrogation.....................................79
SECTION 10.07. Relative Rights.................................79
SECTION 10.08. Subordination May Not Be Impaired
by Company...................................80
SECTION 10.09. Rights of Trustee and Paying Agent..............80
SECTION 10.10. Distribution or Notice to
Representative...............................80
SECTION 10.11. Article 10 Not To Prevent Events
of Default or Limit Right To
Accelerate...................................80
SECTION 10.12. Trust Moneys Not Subordinated...................81
SECTION 10.13. Trustee Entitled To Rely........................81
SECTION 10.14. Trustee To Effectuate
Subordination................................81
SECTION 10.15. Trustee Not Fiduciary for Holders
of Senior Debt...............................82
SECTION 10.16. Reliance by Holders of Senior Debt
on Subordination Provisions..................82
ARTICLE 11
Miscellaneous
-------------
SECTION 11.01. Trust Indenture Act Controls....................82
SECTION 11.02. Notices.........................................82
SECTION 11.03. Communication by Holders with
Other Holders................................84
SECTION 11.04. Certificate and Opinion as to
Conditions Precedent.........................84
SECTION 11.05. Statements Required in Certificate
or Opinion...................................84
SECTION 11.06. When Securities Disregarded;
Acts of Holder...............................85
SECTION 11.07. Rules by Trustee, Paying Agent
and Registrar................................85
SECTION 11.08. Legal Holidays..................................86
SECTION 11.09. Governing Law...................................86
SECTION 11.10. No Recourse Against Others......................86
SECTION 11.11. Successors......................................86
SECTION 11.12. Multiple Originals..............................86
SECTION 11.13. Table of Contents; Headings.....................86
SECTION 11.14. Separability Clause.............................86
SECTION 11.15. Benefits of Indenture...........................86
</TABLE>
<PAGE>
Contents, p. 5
Page
----
Appendix A Provisions Relating to Initial
Securities and Exchange Securities
Exhibit 1 to
Appendix A Form of Initial Security
Exhibit A Form of Exchange Security
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310(a)(1).............................................. 7.10
(a)(2)................................................. 7.10
(a)(3)................................................. N.A.
(a)(4)................................................. N.A.
(b).................................................... 7.08; 7.10
(c).................................................... N.A.
311(a)................................................. 7.11
(b).................................................... 7.11
(c).................................................... N.A.
312(a)................................................. 2.06
(b).................................................... 11.03
(c).................................................... 11.03
313(a)................................................. 7.06
(b)(1)................................................. N.A.
(b)(2)................................................. 7.06
(c).................................................... 11.02
(d).................................................... 7.06
314(a)................................................. 4.02; 4.11;
11.02
(b).................................................... N.A.
(c)(1)................................................. 11.04
(c)(2)................................................. 11.04
(c)(3)................................................. N.A.
(d).................................................... N.A.
(e).................................................... 11.05
(f).................................................... 4.11
315(a)................................................. 7.01
(b).................................................... 7.05; 13.02
(c).................................................... 7.01
(d).................................................... 7.01
(e).................................................... 6.11
316(a)
(last
sentence).............................................. 11.06
(a)(1)(A).............................................. 6.05
(a)(1)(B).............................................. 6.04
(a)(2)................................................. N.A.
(b).................................................... 6.07
317(a)(1).............................................. 6.08
(a)(2)................................................. 6.09
(b).................................................... 2.05
318(a)................................................. 11.01
</TABLE>
N.A. Means Not Applicable.
_______________
Note: This Cross-Reference Table shall not, for any purposes, be deemed to be
part of this Indenture.
<PAGE>
INDENTURE dated as of April 7, 1998, between HUDSON
RESPIRATORY CARE INC., a California corporation (the "Company")
and UNITED STATES TRUST COMPANY OF NEW YORK, 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 the Company's 11 1/2%
Subordinated Exchange Debentures due 2010 (the "Initial Securities") and, if and
when issued pursuant to a registered or private exchange for the Initial
Securities, the Company's 11 1/2% Subordinated Exchange Debentures due 2010 (the
"Exchange Securities" and, together with the Initial Securities, the
"Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions.
------------
"Additional Assets" means (a) any Property (other than cash, cash
equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in a Related Business; or (b) Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary from any Person other than
an Affiliate of the Company; provided, however, that, in the case of clause (b),
-------- -------
such Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (a) any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person or (b) any other Person who is a
director or officer of (i) such specified Person, (ii) any Subsidiary of such
specified Person or (iii) any Person described in clause (a) above. For the
purposes of this definition, "control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of Section 4.06, Section 4.07 and the
definition of "Additional Assets" only, "Affiliate" shall also mean any
beneficial owner of shares representing 5% or more of the total voting power of
the
<PAGE>
2
Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Agent Member" means any member of, or participant in, the Depository.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Temporary Regulation S Global Note or beneficial
interest therein, the rules and procedures of the Depository for such Global
Note, Euroclear and Cedel, in each case to the extent applicable to such
transaction and as in effect from time to time.
"Asset Sale" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (a) any
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares) or (b) any other assets of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the Company or such
Restricted Subsidiary (other than, in the case of clauses (a) and (b) above, (i)
any disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) for purposes of Section
4.06 only, any disposition that constitutes a Permitted Investment or Restricted
Payment permitted by Section 4.04, (iii) any disposition effected in compliance
with Section 5.01(a), (iv) any Sale and Leaseback Transaction completed within
180 days following the original acquisition of the subject assets where such
Sale and Leaseback Transaction represents the intended financing of Property
acquired after the Issue Date and (v) any disposition or series of related
dispositions of assets having a Fair Market Value and sale price of less than
$500,000.
"Attributable Debt" in respect of a Sale and Leaseback Transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such Sale and Leaseback Transaction (including any
period
<PAGE>
3
for which such lease has been extended or may, at the option of the lessor, be
extended).
"Average Life" means, as of any date of determination, with respect to
any Debt or Preferred Stock, the quotient obtained by dividing (a) the sum of
the product of the numbers of years (rounded to the nearest one twelfth of one
year) from the date of determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by (b) the sum of
all such payments.
"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 each day which is not a Legal Holiday.
"Capital Lease Obligations" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty. For purposes of
Section 4.10, a Capital Lease Obligation shall be deemed secured by a Lien on
the Property being leased.
"Capital Stock" means, with respect to any Person, any shares or other
equivalents (however designated) of corporate stock, partnership interests or
any other participations, rights, warrants, options or other interests in the
nature of an equity interest in such Person, including Preferred Stock, but
excluding any debt security convertible or exchangeable into such equity
interest.
"Capital Stock Sale Proceeds" means the aggregate cash proceeds
received by the Company from the issuance or sale (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 for the benefit of their employees) by the
Company of any class of its Capital Stock (other than Disqualified Stock) after
the Issue Date, net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and
<PAGE>
4
brokerage, consultant and other fees actually incurred in connection with such
issuance or sale and net of taxes paid or payable as a result thereof.
"Change of Control" means the occurrence of any of the following
events:
(a) prior to the first Public Equity Offering, the Permitted Holders
cease to be the "beneficial owners" (as defined in Rule 13d-3 under the
Exchange Act, except that a Person will be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of a majority of the voting power of the
Voting Stock of the Company, whether as a result of the issuance of
securities of the Company, any merger, consolidation, liquidation or
dissolution of the Company, any direct or indirect transfer of securities
by the Permitted Holders or otherwise (for purposes of this clause (a), the
Permitted Holders will be deemed to beneficially own any Voting Stock of a
corporation (the "specified corporation") held by any other corporation
(the "parent corporation") so long as the Permitted Holders beneficially
own, directly or indirectly, in the aggregate a majority of the voting
power of the Voting Stock of such parent corporation); or
(b) after the first Public Equity Offering, any "Person" or "group"
(as such terms are used in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provisions to either of the foregoing), including any
group acting for the purpose of acquiring, holding, voting or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act,
other than any one or more of the Permitted Holders, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except
that a Person will be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of 35% or more of the voting power of the Voting Stock of the
Company; provided, however, that the Permitted Holders are the "beneficial
-------- -------
owners" (as defined in Rule 13d-3 under the Exchange Act, except that a
Person will be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is
<PAGE>
5
exercisable immediately or only after the passage of time), directly or
indirectly, in the aggregate of a lesser percentage of the total voting
power of all classes of the Voting Stock of the Company than such other
Person or group (for purposes of this clause (b), such Person or group
shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation so long as such Person or group
beneficially owns, directly or indirectly, in the aggregate a majority of
the voting power of the Voting Stock of such parent corporation); or
(c) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Subsidiary or one or more Permitted Holders)
shall have occurred, or the Company merges, consolidates or amalgamates
with or into any other Person (other than one or more Permitted Holders) or
any other Person (other than one or more Permitted Holders) merges,
consolidates or amalgamates with or into the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is reclassified into or exchanged for cash, securities or other
Property, other than any such transaction where (i) the outstanding Voting
Stock of the Company is reclassified into or exchanged for Voting Stock of
the surviving corporation and (ii) the holders of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving corporation
immediately after such transaction and in substantially the same proportion
as before the transaction; or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election or appointment by such Board or whose
nomination for election by the shareholders of the Company was approved by
a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the members of the Board of Directors then in office; or
<PAGE>
6
(e) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Preferred Stock" means the 11 1/2% Senior Exchangeable PIK
Preferred Stock due 2010 of the Company.
"Consolidated Interest Coverage Ratio" means, as of any date of
determination, the ratio of (a) the aggregate amount of EBITDA for the most
recent four consecutive fiscal quarters ending at least 45 days prior to such
determination date to (b) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (i) if the Company or any Restricted
-------- -------
Subsidiary has Incurred any Debt since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate the
Consolidated Interest Coverage Ratio is an Incurrence of Debt, or both,
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Debt as if such Debt had been Incurred on
the first day of such period and the discharge of any other Debt repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new Debt
as if such discharge had occurred on the first day of such period, (ii) if since
the beginning of such period the Company or any Restricted Subsidiary shall have
repaid, repurchased, legally defeased or otherwise discharged any Debt with
Capital Stock Sale Proceeds, Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to such discharge as if
such discharge had occurred on the first day of such period, (iii) if since the
beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Sale or if the transaction giving rise to the need to calculate
the Consolidated Interest Coverage Ratio is an Asset Sale, or both, EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the Property which is the subject of such Asset Sale
for such period, or increased by an amount equal to the EBITDA (if negative)
directly attributable thereto for such period, in either case as if such Asset
Sale had occurred on the first day of such period and Consolidated Interest
Expense for such period shall be reduced by an amount equal to the Consolidated
Interest Expense directly attributable to any Debt of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in connection
with such
<PAGE>
7
Asset Sale, as if such Asset Sale had occurred on the first day of such period
(or, if the Capital Stock of any Restricted Subsidiary is sold, by an amount
equal to the Consolidated Interest Expense for such period directly attributable
to the Debt of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Debt after such
sale), (iv) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of Property, including any acquisition of Property occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Debt) as if
such Investment or acquisition occurred on the first day of such period and (v)
if since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset Sale,
Investment or acquisition of Property that would have required an adjustment
pursuant to clause (iii) or (iv) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Sale, Investment or acquisition occurred on the first day of such period.
For purposes of this definition, pro forma calculations shall be determined in
good faith by a responsible financial or accounting Officer of the Company and
as further contemplated by the definition of the term "pro forma". If any Debt
bears a floating rate of interest and is being given pro forma effect, the
interest expense on such Debt shall be calculated as if the rate in effect on
the date of determination had been the applicable rate for the entire period
(taking into account any Interest Rate Agreement applicable to such Debt if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent Incurred by the Company or its Restricted Subsidiaries, (a) interest
expense attributable to capital leases, (b) amortization of debt discount and
debt issuance cost, including commitment fees, other than with respect to
<PAGE>
8
Debt Incurred in connection with the Recapitalization, (c) capitalized interest,
(d) non-cash interest expenses, (e) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (f) net costs associated with Hedging Obligations (including
amortization of fees), (g) Disqualified Dividends other than Disqualified
Dividends paid with shares of Capital Stock of the Company which is not
Disqualified Stock, (h) Preferred Stock dividends in respect of all Preferred
Stock of Restricted Subsidiaries held by Persons other than the Company or a
Wholly Owned Subsidiary, (i) interest Incurred in connection with Investments in
discontinued operations, (j) interest accruing on any Debt of any other Person
to the extent such Debt is Guaranteed by the Company or any Restricted
Subsidiary and (k) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Company) in connection
with Debt Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss)
of the Company and its consolidated Subsidiaries; provided, however, that there
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shall not be included in such Consolidated Net Income (a) any net income (loss)
of any Person (other than the Company) if such Person is not a Restricted
Subsidiary, except that (i) subject to the exclusion contained in clause (d)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (c) below) and (ii) the Company's equity in a
net loss of any such Person other than an Unrestricted Subsidiary for such
period shall be included in determining such Consolidated Net Income, (b) for
the purposes of Section 4.04 only, any net income (loss) of any Person acquired
by the Company or any of its consolidated Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (c) any net
income (but not loss) of any Restricted Subsidiary if such Restricted Subsidiary
is subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions, directly or indirectly, to the Company, except
that subject to the exclusion contained in clause (d) below, the Company's
equity in the net income of any such Restricted Subsidiary for such period shall
be included in such
<PAGE>
9
Consolidated Net Income up to the aggregate amount of cash distributed by such
Restricted Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to another Restricted Subsidiary, to the
limitation contained in this clause), (d) any gain (or, for purposes of Section
4.03 and Section 5.01 only, loss) realized upon the sale or other disposition of
any Property of the Company or any of its consolidated Subsidiaries (including
pursuant to any Sale and Leaseback Transaction) which is not sold or otherwise
disposed of in the ordinary course of business, provided, that any tax benefit
--------
or tax liability resulting therefrom shall be excluded in such Consolidated Net
Income, (e) any extraordinary gain or loss, provided that any tax benefit or tax
liability resulting therefrom shall be excluded in such Consolidated Net Income,
(f) the cumulative effect of a change in accounting principles and (g) (i) any
non-cash compensation expense realized for grants of performance shares, stock
options or other stock awards to officers, directors and employees of the
Company or any Restricted Subsidiary or (ii) compensation expense realized with
respect to periods prior to Issue Date in respect of payments under the
Company's 1994 Amended and Restated Equity Participation Plan or compensation
expense, to the extent accrued in 1998, related to contingent payments to
existing managers of the Company pursuant to the Merger Agreement in an
aggregate amount not in excess of $2.4 million. Notwithstanding the foregoing,
for the purposes of Section 4.04 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 Section pursuant to clause (a)(iii)(D)
thereof.
"Credit Facility" means, with respect to the Company or any Restricted
Subsidiary, one or more debt or commercial paper facilities with banks or other
institutional lenders (including the New Credit Facility) providing for
revolving credit loans, term loans, receivables or inventory financing
(including through the sale of receivables or inventory to such lenders or to
special purpose, bankruptcy remote entities formed to borrow from such lenders
against such receivables or inventory) or trade letters of credit, in each case
together with any amendments, supplements, modifications (including by any
extension of the maturity thereof), refinancings or replacements thereof by a
lender or syndicate of lenders in
<PAGE>
10
one or more successive transactions (including any such transaction that changes
the amount available thereunder, replaces such agreement or document, or
provides for other agents or lenders).
"Currency Exchange Protection Agreement" means, in respect of a
Person, any foreign exchange contract, currency swap agreement, currency option
or other similar agreement or arrangement designed to protect such Person
against fluctuations in currency exchange rates.
"Debt" means, with respect to any Person on any date of determination
(without duplication), (a) the principal of and premium (if any) in respect of
(i) debt of such Person for money borrowed and (ii) debt evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (b) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale and Leaseback Transactions
entered into by such Person; (c) all obligations of such Person issued or
assumed as the deferred purchase price of Property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (d) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (a) through (c)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (e) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends); (f) all obligations of the type
referred to in clauses (a) through (e) of other Persons and all dividends of
other Persons for the payment of which, in either case, such Person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; (g) all obligations of the type
referred to in clauses (a) through (f) of other Persons secured by any Lien on
any Property of such Person (whether or not such obligation is assumed by such
Person), the amount of such obligation being deemed to be the lesser of the
value of such Property or the
<PAGE>
11
amount of the obligation so secured; and (h) to the extent not otherwise
included in this definition, Hedging Obligations of such Person. The amount of
Debt of any Person at any date shall be the outstanding balance at such date of
all unconditional obligations as described above and the maximum liability, upon
the occurrence of the contingency giving rise to the obligation, of any
contingent obligations at such date; provided, that the amount outstanding at
--------
any time of any Debt issued with original issue discount is the face amount of
such Debt less the remaining unamortized portion of the original issue discount
of such Debt at such time as determined in accordance with GAAP.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Designated Senior Debt" means any Senior Debt which has, at the time
of determination, an aggregate principal amount outstanding of at least $10.0
million (including the amount of all undrawn commitments and matured and
contingent reimbursement obligations pursuant to letters of credit thereunder)
that is specifically designated in the instrument evidencing such Senior Debt
and is designated in a notice delivered by the Company to the holders or a
Representative of the holders of such Senior Debt and in an Officers'
Certificate delivered to the Trustee as "Designated Senior Debt" of the Company
for purposes of this Indenture; provided that the New Credit Facility shall be
--------
deemed to be Designated Senior Debt under this Indenture.
"Disqualified Dividends" means, for any dividend with respect to
Disqualified Stock, the quotient of the dividend divided by the difference
between one and the maximum statutory federal income tax rate (expressed as a
decimal number between 1 and 0) then applicable to the issuer of such
Disqualified Stock.
"Disqualified Stock" means, with respect to any Person, Redeemable
Stock of such Person as to which (i) the maturity, (ii) mandatory redemption or
(iii) redemption, repurchase, conversion or exchange at the option of the holder
thereof occurs, or may occur, on or prior to the first anniversary of the Stated
Maturity of the Securities; provided, however, that Redeemable Stock of such
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Person that would not otherwise be characterized as Disqualified Stock under
this definition shall not constitute Disqualified Stock (a) if such Redeemable
Stock is convertible or exchangeable into Debt or Disqualified Stock solely at
the option of the issuer thereof or (b) solely as a result of
<PAGE>
12
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Redeemable Stock upon the occurrence of a "change of
control" occurring prior to the first anniversary of the Stated Maturity of the
Securities, if (x) such repurchase obligation may not be triggered in respect of
such Redeemable Stock unless a corresponding obligation also arises with respect
to the Securities and (y) no such repurchase or redemption is permitted to be
consummated unless and until such Person shall have satisfied all repurchase or
redemption obligations with respect to any required purchase offer made with
respect to the Securities.
"EBITDA" means, for any period, an amount equal to, for the Company
and its consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net
Income for such period, plus the following to the extent reducing Consolidated
Net Income for such period: (i) the provision for taxes based on income or
profits or utilized in computing net loss, (ii) Consolidated Interest Expense,
(iii) depreciation, (iv) amortization expense and (v) any other non-cash items
(other than any such non-cash item to the extent that it represents an accrual
of or reserve for cash expenditures in any future period), minus (b) all non-
cash items increasing Consolidated Net Income for such period (other than any
such non-cash item to the extent that it will result in the receipt of cash
payments in any future period). Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
of, a Restricted Subsidiary 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 Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its shareholders.
"Employee Notes" means promissory notes of employees of Holding, the
Company or any of their Subsidiaries payable to the Company or Holding and
received in connection with the substantially concurrent purchase of common
stock of the Company or Holding by such employees.
"Event of Default" has the meaning set forth in Section 6.01.
<PAGE>
13
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Date" means the date on which the Securities are issued in
exchange for the Holding Preferred Stock or Company Preferred Stock.
"Fair Market Value" means, with respect to any Property, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided, (a) if such Property has a Fair Market
Value equal to or less than $2.5 million, by any Officer of the Company or (b)
if such Property has a Fair Market Value in excess of $2.5 million, by a
majority of the Board of Directors and evidenced by a Board Resolution, dated
within 30 days of the relevant transaction, delivered to the Trustee.
"GAAP" means United States generally accepted accounting principles as
in effect on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such other
entity as approved by a significant segment of the accounting profession and (d)
the rules and regulations of the Commission governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the Commission.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
- -------- -------
collection or deposit in the
<PAGE>
14
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement
or any other similar agreement or arrangement.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Security Register.
"Holding" means River Holding Corp., the corporate parent of the
Company, and any successor thereto.
"Holding Preferred Stock" means the 11 1/2% Senior Exchangeable PIK
Preferred Stock due 2010 of Holding.
"Incur" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by merger, conversion, exchange or otherwise),
extend, assume, Guarantee or become liable in respect of such Debt or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Debt or obligation on the balance sheet of such Person (and "Incurrence"
and "Incurred" shall have meanings correlative to the foregoing); provided,
--------
however, that a change in GAAP that results in an obligation of such Person that
- -------
exists at such time, and is not theretofore classified as Debt, becoming Debt
shall not be deemed an Incurrence of such Debt; provided further, however, that
---------------- -------
solely for purposes of determining compliance with Section 4.03, amortization of
debt discount shall not be deemed to be the Incurrence of Debt, provided,
--------
however, that in the case of Debt sold at a discount, the amount of such Debt
- -------
Incurred shall at all times be the aggregate principal amount at Stated
Maturity.
"Indenture" means this Indenture as amended or supplemented from time
to time.
"Independent Appraiser" means an investment banking firm of national
standing or any third party appraiser of national standing, provided, however,
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that such firm or appraiser is not an Affiliate of the Company.
"Industrias Hudson" means Industrias Hudson S.A. de C.V.
<PAGE>
15
"Interest Rate Agreement" means, for any Person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect against fluctuations in interest
rates.
"Investment" by any Person means any direct or indirect loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidence of Debt issued by, any other Person. For purposes
of Section 4.04, Section 4.13 and the definition of "Restricted Payment",
"Investment" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
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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 (a) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (b) 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. In determining
the amount of any Investment made by transfer of any Property other than cash,
such Property shall be valued at its Fair Market Value at the time of such
Investment.
"Issue Date" means April 7, 1998.
"Lien" means, with respect to any Property of any Person, any mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any Capital
Lease Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
<PAGE>
16
"Merger" means the merger of River Acquisition Corp. with and into the
Company pursuant to the Merger Agreement.
"Merger Agreement" means the Amended and Restated Merger Agreement
between Holding, River Acquisition Corp., the Company and shareholders of the
Company dated as of March 15, 1998, as in effect on the Issue Date.
"Mirror Preferred Stock" means the 11 1/2% Senior PIK Preferred Stock
due 2010 of the Company.
"Moody's" means Moody's Investors Service, Inc. or any successor to
the rating agency business thereof.
"Net Available Cash" from any Asset Sale means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to the
Property that is the subject of such Asset Sale or received in any other noncash
form), in each case net of (a) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be accrued as a liability under
GAAP, as a consequence of such Asset Sale, (b) all payments made on any Debt
which is secured by any Property subject to such Asset Sale, in accordance with
the terms of any Lien upon or other security agreement of any kind with respect
to such Property, or which must by its terms, or in order to obtain a necessary
consent to such Asset Sale, or by applicable law, be repaid out of the proceeds
from such Asset Sale, (c) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures as a result
of such Asset Sale and (d) the deduction of appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the Property disposed in such Asset Sale and retained by the Company or any
Restricted Subsidiary after such Asset Sale.
"New Credit Facility" means the credit facilities made available
pursuant to the Credit Agreement dated as of the Issue Date among the Company,
Holding, the lenders party thereto, Salomon Smith Barney Inc, as Arranger,
Advisor and Syndication Agent and Bankers Trust Company, as Administrative
Agent.
<PAGE>
17
"9 1/8% Indenture" means the Indenture dated as of the Issue Date
among Holding, the Company and United States Trust Company of New York, as
Trustee, governing the Notes.
"Notes" means the 9 1/8% Senior Subordinated Notes due 2008 of the
Company.
"Officer" means the Chief Executive Officer, the President, the Chief
Financial Officer or any Executive Vice President of the Company.
"Officers' Certificate" means a certificate signed by two Officers of
the Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Trustee.
"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.
"Permitted Debt" means:
(a) Debt evidenced by the Securities and the Notes and Subsidiary
Guaranties of the Notes;
(b)(i) Debt under the Credit Facility; provided that the aggregate
principal amount of all such Debt under the Credit Facility comprised of
(A) term loans at any one time outstanding shall not exceed $40.0 million
minus all principal amounts repaid in respect of such term loans and (B)
revolving credit loans and obligations at any one time outstanding shall
not exceed the greater of (x) $60.0 million and (y) the sum of the amounts
equal to (1) 60% of the net book value of the inventory of the Company and
the Restricted Subsidiaries and (2) 85% of the net book value of the
accounts receivable of the Company and the Restricted Subsidiaries, in each
case as of the most recent fiscal quarter ending at least 45 days prior to
the date of determination and (ii) Guarantees of Debt under the Credit
Facility;
(c) Debt in respect of Capital Lease Obligations and Purchase Money
Debt; provided, however, that (i) the aggregate principal amount of such
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Debt does not exceed the Fair Market Value (on the date of the Incurrence
thereof) of the Property acquired, constructed or leased (including costs
of installation, taxes and delivery charges with respect to such
acquisition, construction or lease) and (ii) the
<PAGE>
18
aggregate principal amount of all Debt Incurred and then outstanding
pursuant to this clause (c) (together with all Permitted Refinancing Debt
Incurred in respect of Debt previously Incurred pursuant to this clause (c)
and then outstanding) does not exceed $15.0 million;
(d) Debt of the Company owing to and held by any Wholly Owned
Subsidiary and Debt of a Wholly Owned Subsidiary owing to and held by the
Company or any Wholly Owned Subsidiary; provided, however, that any
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subsequent issue or transfer of Capital Stock or other event that results
in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary
or any subsequent transfer of any such Debt (except to the Company or a
Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Debt by the issuer thereof;
(e) Debt of a Wholly Owned Subsidiary Incurred and outstanding on or
prior to the date on which such Wholly Owned Restricted Subsidiary was
acquired by the Company or otherwise became a Restricted Subsidiary (other
than Debt Incurred as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of transactions pursuant to which such Wholly Owned Restricted
Subsidiary became a Subsidiary of the Company or was otherwise acquired by
the Company); provided, however, that at the time such Wholly Owned
-------- -------
Restricted Subsidiary was acquired by the Company or otherwise became a
Restricted Subsidiary and after giving pro forma effect to the Incurrence
of such Debt, the Company would have been able to Incur $1.00 of additional
Debt pursuant to clause (a) in the first paragraph of Section 4.03;
(f) Debt under Interest Rate Agreements entered into by the Company or
a Restricted Subsidiary for the purpose of limiting interest rate risk in
the ordinary course of the financial management of the Company or such
Restricted Subsidiary and not for speculative purposes, provided, however,
-------- -------
that the obligations under such agreements are directly related to payment
obligations on Debt otherwise permitted by the terms of Section 4.03;
(g) Debt under Currency Exchange Protection Agreements entered into by
the Company or a Restricted Subsidiary for the purpose of limiting currency
exchange rate risks directly related to transactions
<PAGE>
19
entered into by the Company or such Restricted Subsidiary in the ordinary
course of business and not for speculative purposes;
(h) Debt in connection with one or more standby letters of credit or
performance bonds issued for the account of the Company or any Restricted
Subsidiary in the ordinary course of business or pursuant to self-insurance
obligations and not in connection with the borrowing of money or the
obtaining of advances;
(i) Debt outstanding on the Issue Date not otherwise described in
clauses (a) through (h) above;
(j) Debt not otherwise described in clauses (a) through (i) above in
an aggregate principal amount outstanding at any one time not to exceed
$15.0 million; and
(k) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause (a) of the first paragraph of Section 4.03 and clauses
(a), (c), (e) and (i) above, subject, in the case of clause (c) above, to
the limitations set forth in the proviso thereto.
"Permitted Holders" means Helen Hudson Lovaas, any member of the
senior management of the Company or Holding on the Issue Date and Freeman Spogli
& Co. Incorporated or any successor entity thereof controlled by the principals
of Freeman Spogli & Co. Incorporated or any entity controlled by, or under
common control with, Freeman Spogli & Co. Incorporated.
"Permitted Investment" means any Investment by the Company or a
Restricted Subsidiary in (a) any Restricted Subsidiary or any Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
--------
however, that the primary business of such Restricted Subsidiary is a Related
- -------
Business; (b) any Person if as a result of such Investment such Person is merged
or consolidated with or into, or transfers or conveys all or substantially all
its Property to, the Company or a Restricted Subsidiary; provided, however, that
-------- -------
such Person's primary business is a Related Business; (c) Temporary Cash
Investments; (d) receivables owing to the Company or a Restricted Subsidiary, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
-------- -------
such trade terms may include such concessionary trade terms as the Company or
such Restricted Subsidiary deems
<PAGE>
20
reasonable under the circumstances; (e) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (f) (i) loans and advances to employees made in the ordinary
course of business consistent with past practices of the Company or such
Restricted Subsidiary, as the case may be; provided, however, that such loans
-------- -------
and advances do not exceed $1.0 million at any one time outstanding and (ii)
loans and advances to, or the receipt of Employee Notes from, employees of
Holding, the Company or any of their Subsidiaries made or received in connection
with the substantially concurrent purchase of common stock of the Company or
Holding by such employees; provided, however, that the aggregate principal
--------- --------
amount of such loans, advances and notes payable shall not exceed $1.0 million
at any one time outstanding; (g) stock, obligations or other securities received
in settlement of debts created in the ordinary course of business and owing to
the Company or a Restricted Subsidiary or in satisfaction of judgments; (h) any
Person to the extent such Investment represents the non-cash portion of the
consideration received in connection with an Asset Sale consummated in
compliance with Section 4.06; and (i) Investments in Persons engaged in a
Related Business not to exceed $10.0 million at any one time outstanding (it
being agreed that an Investment shall cease to be outstanding to the extent of
dividends, repayments of loans or advances or other transfers of Property
received by the Company or any Restricted Subsidiary from such Persons,
provided, however, that such amounts do not increase the amount of Restricted
- -------- -------
Payments which the Company and the Restricted Subsidiaries may make pursuant to
clause (a)(iii)(D)(1) of Section 4.04).
"Permitted Liens" means:
(a) Liens securing Senior Debt of the Company or any Subsidiary
Guarantor;
(b) Liens for taxes, assessments or governmental charges or levies on
the Property of the Company or any Restricted Subsidiary if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or
are being contested in good faith and by appropriate proceedings;
(c) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, on the Property of the Company or any Restricted
Subsidiary arising in the ordinary course of business and securing payment
of
<PAGE>
21
obligations which are not more than 60 days past due or are being contested
in good faith and by appropriate proceedings;
(d) Liens on the Property of the Company or any Restricted Subsidiary
Incurred in the ordinary course of business to secure performance of
obligations with respect to statutory or regulatory requirements,
performance or return-of-money bonds, surety or indemnity bonds or other
obligations of a like nature and Incurred in a manner consistent with
industry practice, in each case which are not Incurred in connection with
the borrowing of money, the obtaining of advances or credit or the payment
of the deferred purchase price of Property and which do not in the
aggregate impair in any material respect the use of Property in the
operation of the business of the Company and the Restricted Subsidiaries
taken as a whole;
(e) Liens on Property at the time the Company or any Restricted
Subsidiary acquired such Property, including any acquisition by means of a
merger or consolidation with or into the Company or any Restricted
Subsidiary; provided, however, that any such Lien may not extend to any
-------- -------
other Property of the Company or any Restricted Subsidiary; provided
--------
further, however, that such Liens shall not have been Incurred in
------- -------
anticipation of or in connection with the transaction or series of
transactions pursuant to which such Property was acquired by the Company or
any Restricted Subsidiary;
(f) Liens on the Property of a Person at the time such Person becomes
a Restricted Subsidiary; provided, however, that any such Lien may not
-------- -------
extend to any other Property of the Company or any other Restricted
Subsidiary which is not a direct Subsidiary of such Person; provided
--------
further, however, that any such Lien was not Incurred in anticipation of or
------- -------
in connection with the transaction or series of transactions pursuant to
which such Person became a Restricted Subsidiary;
(g) pledges or deposits by the Company or any Restricted Subsidiary
under worker's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Debt) or leases to which the
Company or any Restricted Subsidiary is party, or deposits to secure public
or
<PAGE>
22
statutory obligations of the Company, or deposits for the payment of rent,
in each case Incurred in the ordinary course of business;
(h) utility easements, building restrictions and such other
encumbrances or charges against real Property as are of a nature generally
existing with respect to properties of a similar character;
(i) judgment and attachment Liens in connection with (A) judgments
that do not constitute an Event of Default so long as the judgment creditor
is not seeking enforcement thereof and reserves have been established to
the extent required by GAAP as in effect at such time and (B) litigation
and legal proceedings that are being contested in good faith by appropriate
proceedings (or as to which the Company or Restricted Subsidiary, as the
case may be, is preparing to promptly initiate appropriate proceedings) so
long as reserves have been established to the extent required by GAAP as in
effect at such time and so long as such Liens do not encumber assets by an
aggregate amount (together with the amount of any unstayed judgments
against the Company or any Restricted Subsidiary) in excess of $7.5
million;
(j) Liens existing on the Issue Date not otherwise described in
clauses (a) through (i) above; and
(k) Liens on the Property of the Company or any Restricted Subsidiary
to secure any Refinancing, in whole or in part, of any Debt secured by
Liens referred to in clause (a), (e), (f) or (j) above; provided, however,
-------- -------
that any such Lien shall be limited to all or part of the same Property
that secured the original Lien (together with improvements and accessions
to such Property) and the aggregate principal amount of Debt that is
secured by such Lien shall not be increased to an amount greater than the
sum of (i) the outstanding principal amount, or, if greater, the committed
amount, of the Debt secured by Liens described under clause (a), (e), (f)
or (j) above, as the case may be, at the time the original Lien became a
Permitted Lien under this Indenture and (ii) an amount necessary to pay any
fees and expenses, including premiums and defeasance costs, Incurred by the
Company or such Restricted Subsidiary in connection with such Refinancing.
<PAGE>
23
"Permitted Refinancing Debt" means any Debt that Refinances any other
Debt, including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance costs,
related to such Refinancing, (b) the Average Life of such Debt is equal to or
greater than the Average Life of the Debt being Refinanced, (c) the Stated
Maturity of such Debt is no earlier than the Stated Maturity of the Debt being
Refinanced and (d) such Debt is subordinated in right of payment to Senior Debt
and the Securities to at least the same extent, if any, as the Debt being
Refinanced; provided, however, that Permitted Refinancing Debt shall not include
-------- -------
(x) Debt of a Subsidiary that Refinances Debt of the Company or (y) Debt of the
Company or a Restricted Subsidiary that Refinances Debt of an Unrestricted
Subsidiary.
"Person" means any individual, corporation, company (including any
limited liability company), partnership, joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
the payment of dividends, or as to the distribution of assets upon any voluntary
or involuntary liquidation or dissolution of such Person, over shares of any
other class of Capital Stock issued by such Person.
"principal" of any Debt (including the Securities) means the principal
amount of such Debt plus the premium, if any, on such Debt.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Company, as the case may be.
<PAGE>
24
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including Capital Stock in, and other securities of, any
other Person.
"Public Equity Offering" means an underwritten public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Purchase Money Debt" means Debt (a) consisting of the deferred
purchase price of property, conditional sale obligations, obligations under any
title retention agreement, other purchase money obligations and obligations in
respect of industrial revenue bonds, in each case where the maturity of such
Debt does not exceed the anticipated useful life of the asset being financed,
and (b) Incurred to finance the acquisition or construction by the Company or a
Restricted Subsidiary of such asset, including remodeling thereof and additions
and improvements thereto; provided, however, that such Debt is Incurred within
-------- -------
180 days after such acquisition of such asset by the Company or a Restricted
Subsidiary or completion of such construction, remodeling, addition or
improvement, as the case may be.
"Recapitalization" means the recapitalization of the Company effected
on the Issue Date, as described in the Offering Memorandum of Holding dated
April 12, 1998, including the Merger.
"Redeemable Stock" means, with respect to any Person, any Capital
Stock that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable, in either case at the option of the
holder thereof) or otherwise (a) matures or is mandatorily redeemable pursuant
to a sinking fund obligation or otherwise, (b) is or may become redeemable or
repurchaseable at the option of the holder thereof, in whole or in part, or (c)
is convertible or exchangeable, in either case at the option of the holder
thereof, for Debt or Disqualified Stock.
"Refinance" means, in respect of any Debt, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other Debt,
in exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
<PAGE>
25
"Related Business" means any business that is related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means the trustee, agent or representative expressly
authorized to act in such capacity, if any, for an issue of Senior Debt.
"Restricted Payment" means (a) any dividend or distribution (whether
made in cash, securities or other Property) declared or paid on or with respect
to any shares of Capital Stock of the Company or any Restricted Subsidiary
(including any payment in connection with any merger or consolidation with or
into the Company or any Restricted Subsidiary), except for any dividend or
distribution which is made solely to the Company or a Restricted Subsidiary
(and, if such Restricted Subsidiary is not a Wholly Owned Subsidiary, to the
other shareholders of such Restricted Subsidiary on a pro rata basis or on a
basis that results in the receipt by the Company or a Restricted Subsidiary of
dividends or distributions of greater value than it would receive on a pro rata
basis) or any dividend or distribution payable solely in shares of Capital Stock
(other than Disqualified Stock) of the Company; (b) the purchase, repurchase,
redemption, acquisition or retirement for value of any Capital Stock of the
Company or any Affiliate of the Company (other than from the Company or a
Restricted Subsidiary) or any securities exchangeable for or convertible into
any such Capital Stock, including the exercise of any option to exchange any
Capital Stock (other than for or into Capital Stock of the Company that is not
Disqualified Stock); (c) the purchase, repurchase, redemption, acquisition or
retirement for value, prior to any scheduled maturity, scheduled sinking fund or
mandatory redemption payment, any Subordinated Obligation (other than the
purchase, repurchase or other acquisition of any Subordinated Obligation
purchased in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
acquisition); or (d) any Investment (other than Permitted Investments) in any
Person.
"Restricted Subsidiary" means (a) any Subsidiary of the Company unless
such Subsidiary shall have been designated an Unrestricted Subsidiary as
permitted or required pursuant to Section 4.13 and (b) an Unrestricted
Subsidiary which is redesignated as a Restricted Subsidiary as permitted
pursuant to Section 4.13.
<PAGE>
26
"S&P" means Standard & Poor's Ratings Service or any successor to the
rating agency business thereof.
"Sale and Leaseback Transaction" means any arrangement relating to
Property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such Property to another Person and the Company or a
Restricted Subsidiary leases it from such Person.
"Securities Act" means the Securities Act of 1933.
"Senior Debt" of the Company means (a) all obligations consisting of
the principal, premium, if any, and accrued and unpaid interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company to the extent post-filing interest is
allowed in such proceeding) in respect of (i) Debt of the Company for borrowed
money, including Debt under the New Credit Facility and the Notes, and (ii) Debt
of the Company evidenced by notes, debentures, bonds or other similar
instruments permitted under this Indenture for the payment of which the Company
is responsible or liable; (b) all Capital Lease Obligations of the Company; (c)
all obligations of the Company (i) for the reimbursement of any obligor on any
letter of credit, bankers' acceptance or similar credit transaction, (ii) under
Hedging Obligations or (iii) issued or assumed as the deferred purchase price of
Property and all conditional sale obligations of the Company and all obligations
under any title retention agreement permitted under this Indenture; and (d) all
obligations of other Persons of the type referred to in clauses (a), (b) and (c)
for the payment of which the Company is responsible or liable as Guarantor;
provided, however, that Senior Debt shall not include (A) Debt of the Company
- -------- -------
that is by its terms subordinate or pari passu in right of payment to the
Securities, including any Subordinated Debt and Subordinated Obligations; (B)
any Debt Incurred in violation of the provisions of this Indenture; (C) accounts
payable or any other obligations of the Company to trade creditors created or
assumed by the Company in the ordinary course of business in connection with the
obtaining of materials or services (including Guarantees thereof or instruments
evidencing such liabilities); (D) any liability for Federal, state, local or
other taxes owed or owing by the Company; (E) any obligation of the Company to
any Subsidiary; or (F) any obligations with respect to any Capital Stock.
"Significant Subsidiary" means any Subsidiary that would be a
"Significant Subsidiary" of the Company
<PAGE>
27
within the meaning of Rule 1-02 under Regulation S-X promulgated by the
Commission.
"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 Debt" means the Securities and any other Debt of the
Company that specifically provides that such Debt is to rank pari passu with the
Securities in right of payment and is not subordinated by its terms to any Debt
or other obligation of the Company which is not Senior Debt.
"Subordinated Obligation" means any Debt of the Company (whether
outstanding on the Issue Date or thereafter Incurred) that specifically provides
that such Debt is to be subordinate or junior in right of payment to the
Securities.
"Subsidiary" means, in respect of any Person, any corporation,
company, association, partnership, joint venture or other business entity of
which more than 50% of the total voting power of shares of Capital Stock or
other interests (including partnership interests) entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled directly or
indirectly, by (a) such Person, (b) such Person and one or more Subsidiaries of
such Person or (c) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Subsidiary of the Company that
becomes a Subsidiary Guarantor pursuant to the 9 1/8% Indenture.
"Subsidiary Guaranty" means a Guarantee on the terms set forth in the
9 1/8% Indenture by a Subsidiary Guarantor of the Company's obligations with
respect to the Notes.
"Temporary Cash Investments" means any of the following: (a)
Investments in U.S. Government Obligations; (b) Investments in time deposit
accounts, certificates of deposit and money market deposits maturing within 90
days of the date of acquisition thereof issued by a bank or trust
<PAGE>
28
company which is organized under the laws of the United States of America or any
state thereof having capital, surplus and undivided profits aggregating in
excess of $500 million and whose long-term debt is rate "A-3" or "A-" or higher
according to Moody's or S&P (or such similar equivalent rating by at least one
"nationally recognized statistical rating organization" (as defined in Rule 436
under the Securities Act)); (c) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (a)
entered into with a bank meeting the qualifications described in clause (b)
above; (d) Investments in commercial paper, maturing not more than 90 days after
the date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America with a rating at the time as of which any Investment therein is made of
"P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P (or
such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)); (e) direct obligations (or certificates representing an ownership
interest in such obligations) of any state of the United States of America
(including any agency or instrumentality thereof) for the payment of which the
full faith and credit of such state is pledged and which are not callable or
redeemable at the issuer's option, provided, however, that (i) the long-term
-------- -------
debt of such state is rated "A-3" or "A-1" or higher according to Moody's or S&P
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)) and (ii) such obligations mature within 180 days of the date of
acquisition thereof; and (f) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(a) through (e) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
------
77bbbb) as in effect on the date of this Indenture except as required by Section
9.03 hereof; provided, however, that in the event the Trust Indenture Act of
-------- -------
1939 is amended after such date, "Trust Indenture Act" means, to the extent
-------------------
required by any such amendment, the Trust Indenture Act of 1939, as so amended.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
<PAGE>
29
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company in
existence on the Issue Date that is not a Restricted Subsidiary; (b) any
Subsidiary of an Unrestricted Subsidiary; and (c) any Subsidiary of the Company
that is designated after the Issue Date as an Unrestricted Subsidiary as
permitted or required pursuant to Section 4.13 and not thereafter redesignated
as a Restricted Subsidiary as permitted pursuant thereto.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary
all the Voting Stock of which (except directors' qualifying shares) is at such
time owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.
SECTION 1.02. Other Definitions.
------------------
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Bankruptcy Law".................................................. 6.01
"Change of Control Offer"......................................... 4.10
"Change of Control Purchase Price"................................ 4.10
"covenant defeasance option"...................................... 8.01(b)
"Custodian"....................................................... 6.01
"Event of Default"................................................ 6.01
</TABLE>
<PAGE>
30
<TABLE>
<S> <C>
"Excess Proceeds"................................................. 4.06
"Global Security"................................................. Appendix A
"legal defeasance option"......................................... 8.01(b)
"Legal Holiday"................................................... 11.08
"Offer Amount".................................................... 4.06
"Offer Period".................................................... 4.06
"pay the Securities".............................................. 10.03
"Paying Agent".................................................... 2.04
"Payment Blockage Notice"......................................... 10.03
"Payment Blockage Period"......................................... 10.03
"Prepayment Offer"................................................ 4.06
"Prepayment Offer Notice"......................................... 4.06
"Purchase Date"................................................... 4.06
"Registrar"....................................................... 2.04
"Successor Company"............................................... 5.01
</TABLE>
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.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
<PAGE>
31
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 Debt shall not be deemed to be subordinate or junior to
secured Debt merely by virtue of its nature as unsecured Debt;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP; and
(8) the principal amount of any Preferred Stock shall be the greater
of (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.
ARTICLE 2
The Securities
--------------
SECTION 2.01. Amount of Securities. The aggregate principal amount
---------------------
of Securities which may be authenticated and delivered under this Indenture
shall equal the liquidation preference of the Holding Preferred Stock or Company
Preferred Stock, as applicable, plus, without duplication, accumulated and
unpaid dividends on the Exchange Date (the "Exchange Amount") plus any
Additional Securities issued in lieu of cash interest.
Subject to Section 2.03, the Trustee shall authenticate Initial
Securities for original issue on the Exchange Date in the aggregate principal
amount equal to the Exchange Amount and shall authenticate Additional Securities
<PAGE>
32
sufficient to pay interest on outstanding Securities if the Company elects, as
provided in paragraph 1 of the Securities, to pay such interest in the form of
Additional Securities.
SECTION 2.02. Form and Dating. (a) Provisions relating to the
----------------
Initial Securities and the Exchange Securities are set forth in Appendix A,
which is hereby incorporated in and expressly made a part of this Indenture. The
Initial Securities of each series and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit 1 to Appendix A
which is hereby incorporated in and expressly made a part of this Indenture.
The Exchange Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A, 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 is subject, if any, or usage, provided that any such notation,
--------
legend or endorsement is in a form reasonably acceptable to the Company. Each
Security shall be dated the date of its authentication. The terms of the
Securities set forth in Exhibit 1 to Appendix A and Exhibit A are part of the
terms of this Indenture.
(b) Upon their original issuance, Rule 144A Securities shall be
issued in the form of one or more Global Notes registered in the name of the
Depository or its nominee and deposited with the Trustee, as custodian for the
Depository, duly executed by the Company and authenticated by the Trustee, for
credit by the Depository to the respective accounts of beneficial owners of the
Securities represented thereby (or such other accounts as they may direct).
Such Global Notes are collectively herein called the "Rule 144A Global Note".
Upon their original issuance, Regulation S Securities shall, to the extent
required pursuant to paragraph (C)(3)(ii)(B) of Rule 903 under Regulation S
under the Securities Act, be issued in the form of one or more temporary Global
Notes (the "Temporary Regulation S Global Notes") and, to the extent permitted
pursuant to paragraph (C)(3)(ii)(B) of such Rule 903, shall be issued initially
in the form of one or more permanent Global Notes (the "Permanent Regulation S
Global Notes"), in each case registered in the name of the Depository or its
nominee and deposited with the Trustee as custodian for the Depository, duly
executed by the Company and authenticated by the Trustee, for credit to the
Agent Member accounts at the Depository of Euroclear and/or Cedel for further
credit by Euroclear and Cedel, as the case may be, to the
<PAGE>
33
respective accounts of the beneficial owners of the Securities represented
thereby (or such other accounts as they may direct). Interests in the Temporary
Regulation S Global Notes may only be held by the Agent Members of the
Depository for Euroclear and Cedel.
SECTION 2.03. Execution and Authentication. Two Officers shall sign
-----------------------------
the Securities for the Company by manual or facsimile signature. The Company's
seal shall be impressed, affixed, imprinted or reproduced on the Securities
and may be in facsimile form.
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.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a written order of the
Company signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of the Company for the authentication and
delivery of such Securities, and the Trustee in accordance with such written
order of the Company shall authenticate and deliver such Securities.
A Security shall not be valid until an authorized officer or 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 may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. 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
---------------------------
in the Borough of Manhattan, the City of New York, 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
<PAGE>
34
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.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the Borough of Manhattan, the City of Mew
York) where the Securities may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
-------- -------
that no such designation or recision shall in any manner relieve the Company of
its obligation to maintain an office or agency in the Borough of Manhattan, the
City of New York, for such purposes. The Company will give written notice to the
Trustee of any such designation or recision and of any change in the location of
any such other office or agency.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of 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 incorporated Wholly Owned Subsidiaries may
act as Paying Agent, Registrar, co-registrar or transfer agent. The Company may
change any Paying Agent or Registrar upon notice to the Trustee but without
notice to any Holder.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.05. Paying Agent To Hold Money in Trust. No later than
------------------------------------
11:00 a.m., New York City time, on or prior to each due date of the principal
and interest on any Security, the Company shall deposit with the Paying Agent,
on such due date, a sum sufficient to pay such principal and interest then so
becoming due. The Company shall require each Paying Agent (other than the
Trustee) 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 Wholly Owned Subsidiary acts as Paying Agent,
<PAGE>
35
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 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. Replacement Securities. If a mutilated Security is
-----------------------
surrendered to the Registrar or if the Holder of a Security claims that such
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee and the Company. If required by
the Trustee or the Company, such Holder shall furnish an indemnity bond
sufficient in the judgment of the Company and the Trustee to protect the
Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from
any loss which any of them may suffer if a Security is replaced. The Company and
the Trustee may charge the Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
of mutilated, lost, destroyed or wrongfully taken Securities.
SECTION 2.08. 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>
36
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Securities
(or portions thereof) to be redeemed or maturing, as the case may be, and the
Paying Agent is not prohibited from paying such money to the Securityholders on
that date pursuant to the terms of this Indenture, then on and after that date
such Securities (or portions thereof) cease to be outstanding and interest on
them ceases to accrue.
SECTION 2.09. Temporary Securities. Until definitive Securities are
---------------------
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Every such temporary Security shall be
authenticated upon the same conditions and in substantially the same manner,
and with the same effect, as the definitive Securities. Without unreasonable
delay, the Company shall prepare and the Trustee shall authenticate definitive
Securities and deliver them in exchange for temporary Securities. Such exchange
shall be made by the Company at its own expense and without any charge therefor.
Until so exchanged, the temporary Securities shall in all respects be entitled
to the same rights, privileges and benefits under this Indenture as definitive
Securities authenticated and delivered hereunder.
SECTION 2.10. 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 and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancelation and deliver a certificate of such destruction to the Company, unless
the Company directs the Trustee to deliver canceled Securities to the Company.
If the Company shall acquire any of the Securities, such acquisition shall not
operate as a redemption or satisfaction of the Debt represented by such
Securities unless and until the same are delivered to the Trustee for
cancelation. The Company may
<PAGE>
37
not issue new Securities to replace Securities it has redeemed, paid or
delivered to the Trustee for cancelation.
SECTION 2.11. Defaulted Interest. If the Company defaults on a
-------------------
payment of interest on the Securities, the Company shall pay 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 to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid. Notwithstanding the foregoing,
any interest which is paid prior to the expiration of the grace period provided
for in Section 6.01(1) hereof shall be paid to the Holders of the Securities as
of the regular record date for which interest has not been paid.
SECTION 2.12. 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.
ARTICLE 3
Redemption
----------
SECTION 3.01. Notices to Trustee. If the Company redeems 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 whether such redemption is being made pursuant to paragraph 5(a) or
5(b) of the Securities.
In the event of a redemption pursuant to paragraph 5(a) of the
Securities, the Company shall give each notice to the Trustee provided for in
this Section at least 45 days before the redemption date unless the Trustee
consents to a shorter period. In the event of a redemption
<PAGE>
38
pursuant to paragraph 5(b) of the Securities, the Company shall give the notice
to the Trustee provided for in this Section no later than 5:00 p.m., New York
City time, on April 10, 1998. Any notice pursuant to this Section shall be
transmitted by facsimile and confirmed with a Trust Officer by telephone. Such
notice shall be accompanied by an Officers' Certificate and an Opinion of
Counsel from the Company to the effect that such redemption will comply with the
conditions herein. Such Officers' Certificate shall, in addition, specify the
redemption price of the Securities.
SECTION 3.02. Selection of Securities To Be Redeemed. If less than
---------------------------------------
all the Securities are to be redeemed at any time, selection of Securities for
redemption may be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Securities are
listed, or, if the Securities are not so listed, on a pro rata basis, by lot or
by such other method that the Trustee shall deem fair and appropriate (and in a
manner that complies with applicable legal requirements, if any). The Trustee
shall make the selection from outstanding Securities not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of
$1,000. 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 and, unless the Trustee is acting as such, the
Registrar, promptly of the Securities or portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. The Company shall mail a notice
---------------------
of redemption by first-class mail to each Holder of Securities to be redeemed
(i) in the case of a redemption under paragraph 5(a) of the Securities at least
30 days but not more than 60 days before a date for redemption of Securities,
and (ii) in the case of a redemption under paragraph 5(b) of the Securities on
April 10, 1998.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price, or the calculation thereof described in
paragraph 5 of the Securities;
(3) the name and address of the Paying Agent;
<PAGE>
39
(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 identification 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;
and
(7) 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 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.
In the event of a redemption pursuant to paragraph 5(b) of the
Securities, the Company will, on April 10, 1998, cause a notice of such
redemption to be sent at least once to the Dow Jones News Service or similar
business news service in the United States.
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, and from
and after such redemption date (unless the Company shall default on the payment
of the redemption price and accrued interest) such Securities shall cease to
bear interest. Upon surrender to the Paying Agent, such Securities shall be paid
at the redemption price stated in the notice, plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date that
is on or prior to the date of redemption). 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. No later than 11:00 a.m.,
----------------------------
New York City time, on the redemption date, the Company shall deposit with the
Paying Agent (or, if the Company or a Wholly Owned Subsidiary is the Paying
<PAGE>
40
Agent, shall segregate and hold in trust) money sufficient to pay the redemption
price of and accrued interest (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 redemption) on all Securities to be
redeemed on that date other than Securities or portions of Securities called for
redemption which have been delivered by the Company to the Trustee for
cancelation. All money earned on funds held in trust by the Trustee or any
Paying Agent and any excess or remaining funds shall be remitted to the Company.
In the event of a redemption pursuant to paragraph 5(b) of the Securities,
Holding will, on April 10, 1998, deposit with (and not withdraw) the Trustee (or
a paying agent designated by the Trustee) money sufficient to pay the redemption
price. The Trustee (or the paying agent) will invest such funds in cash or
Temporary Cash Investments as directed in writing by the Company pending
distribution to Holders on April 24, 1998. The Trustee (or the paying agent)
shall not be accountable or liable for any losses from the sale or depreciation
in value of such investments.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of the redemption price of and accrued interest, if any, on the
Securities that remains unclaimed for two years (or if then held by the Company
or a Wholly Owned Subsidiary in trust for the payment thereof), shall be
discharged from such trust, and, thereafter, Securityholders entitled to the
money must look to the Company for payment as general creditors; provided,
--------
however, that the Trustee or such Paying Agent before being required to make any
- -------
such repayment shall at the expense of the Company cause to be mailed to each
such Holder a notice that said moneys have not been so applied and that after a
date named therein any unclaimed balance of said moneys then remaining will be
returned to the Company.
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.
<PAGE>
41
ARTICLE 4
Covenants
---------
SECTION 4.01. Payment of Securities. The Company shall promptly pay
----------------------
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying 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. SEC Reports. Notwithstanding that the Company may not
------------
be subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the Commission and provide the Trustee, Holders
of Securities and, upon request, security analysts of prospective holders of the
Securities with such annual reports and such information, documents and other
reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and reports to be so filed and provided at the times specified for the
filing of such information, documents and reports under such Sections; provided,
--------
however, that the Company shall not be so obligated to file such information,
- -------
documents and reports with the Commission if the Commission does not permit such
filings. The Company shall file with the Commission and provide the Trustee,
Holders of Securities and, upon request, security analysts of prospective
holders of the Securities with the information, documents and reports described
herein whether or not the Exchange Offer Registration Statement has been filed
or declared effective.
SECTION 4.03. Limitation on Debt. The Company shall not, and shall
-------------------
not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Debt
unless, after giving pro forma effect to the application of the proceeds
thereof, no Default or Event of Default would occur as a consequence of such
Incurrence or be continuing following such Incurrence and either (a) after
giving effect to the
<PAGE>
42
Incurrence of such Debt and the application of the proceeds thereof, the
Consolidated Interest Coverage Ratio would be greater than 1.75 to 1.00 if such
Debt is Incurred from the Issue Date through April 15, 2000, and 2.00 to 1.00 if
such Debt is Incurred thereafter or (b) such Debt is Permitted Debt.
Notwithstanding paragraphs (j) and (k) of the definition of "Permitted
Debt", (a) the Company shall not, and shall not permit any Restricted Subsidiary
to, Incur any Debt pursuant to such paragraphs if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations unless such
Debt shall be subordinated to the Securities to at least the same extent as such
Subordinated Obligations and (b) the Company shall not permit any Restricted
Subsidiary to Incur any Debt pursuant to such paragraphs if the proceeds thereof
are used, directly or indirectly, to Refinance any Subordinated Obligations.
SECTION 4.04. Limitation on Restricted Payments. (a) The Company
---------------------------------
shall not make, and shall not permit any Restricted Subsidiary to make, directly
or indirectly, any Restricted Payment if at the time of, and after giving pro
forma effect to, such proposed Restricted Payment,
(i) a Default or Event of Default shall have occurred and be
continuing,
(ii) the Company could not Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of Section 4.03 or
(iii) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of
any Restricted Payment, if made other than in cash, to be based upon Fair
Market Value) would exceed an amount equal to the sum of:
(A) 50% of the aggregate amount of Consolidated Net Income
accrued during the period (treated as one accounting period) from the
beginning of the fiscal quarter during which the Issue Date occurs to
the end of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or if the aggregate
amount of Consolidated Net Income for such period shall be a deficit,
minus 100% of such deficit),
<PAGE>
43
(B) Capital Stock Sale Proceeds,
(C) the amount by which Debt of the Company Incurred after the
Issue Date is reduced on the Company's balance sheet upon the
conversion or exchange (other than by the Company or a Subsidiary of
the Company) subsequent to the Issue Date of any Debt (other than
Subordinated Obligations) of the Company for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash or
other Property distributed by the Company or any Restricted Subsidiary
upon such conversion or exchange), and
(D) an amount equal to the sum of (1) the net reduction in
Investments in any Person other than the Company or a Restricted
Subsidiary resulting from dividends, repayments of loans or advances
or other transfers of Property, in each case to the Company or any
Restricted Subsidiary from such Person, to the extent such dividends,
repayments or transfers do not increase the amount of Permitted
Investments permitted to be made pursuant to clause (i) of the
definition thereof and (2) the portion (proportionate to the Company's
equity interest in such Unrestricted Subsidiary) of the Fair Market
Value of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that the foregoing sum shall not exceed, in the
-------- -------
case of any Person, the amount of Investments previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person, and
(E) $7.5 million.
(b) Notwithstanding the foregoing limitation, the Company may:
(i) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with this Indenture; provided, however, that at the
-------- -------
time of such payment of such dividend, no other Default or Event of Default
shall have occurred and be continuing (or result therefrom); provided
--------
further, however, that such dividend shall be included in the calculation
------- -------
of the amount of Restricted Payments;
<PAGE>
44
(ii) purchase, repurchase, redeem, legally defease, acquire or
retire for value Capital Stock of the Company or Subordinated Obligations
in exchange for, or in an amount not in excess of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of the Company or an employee stock ownership plan or trust
established by the Company or any of its Subsidiaries for the benefit of
their employees); provided, however, that (1) such purchase, repurchase,
-------- -------
redemption, legal defeasance, acquisition or retirement shall be excluded
in the calculation of the amount of Restricted Payments and (2) the Capital
Stock Sale Proceeds from such exchange or sale shall be excluded from the
calculation pursuant to clause (a)(iii)(B) above;
(iii) purchase, repurchase, redeem, legally defease, acquire or
retire for value any Subordinated Obligations in exchange for, or in an
amount not in excess of the proceeds of the substantially concurrent sale
of, Permitted Refinancing Debt; provided, however, that such purchase,
-------- -------
repurchase, redemption, legal defeasance, acquisition or retirement shall
be excluded in the calculation of the amount of Restricted Payments;
(iv) purchase, repurchase, redeem, legally defease, acquire or
retire for value, or pay dividends or make loans to Holding to enable
Holding substantially concurrently therewith to purchase, repurchase,
redeem, legally defease, acquire or retire for value, shares of, or options
to purchase shares of, common stock of the Company or Holding from
employees or former employees of the Company, Holding or any of their
Subsidiaries (or their estates or beneficiaries thereof) upon death,
disability, retirement or termination pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board or Directors or the board of directors of
Holding, as the case may be, under which such individuals purchase or sell,
or are granted the option to purchase or sell, shares of such common stock;
provided, however, that (1) the aggregate amount of such purchases,
-------- -------
repurchases, redemptions, defeasances, acquisitions or retirements shall
not exceed $1.0 million in any year or $5.0 million during the term of the
Securities, except that (x) such amounts shall be increased by the
aggregate
<PAGE>
45
net amount of cash received by the Company after the Issue Date from the
sale of such shares to, or the exercise of options to purchase such shares
by, employees of the Company, Holding or any of their Subsidiaries and (y)
the Company may forgive or return Employee Notes without regard to the
limitation set forth in clause (iv)(1) above and such forgiveness or return
shall not be treated as a Restricted Payment for purpose of determining
compliance with such clause (iv)(1) and (2) such purchases, repurchases,
defeasances, acquisitions or retirements (but not forgiveness or return of
Employee Notes) shall be included in the calculation of the amount of
Restricted Payments;
(v) purchase or redeem Subordinated Obligations pursuant to asset
sale or change of control provisions contained in the governing instrument
relating thereto; provided, however, that (i) no offer or purchase
-------- -------
obligation may be triggered in respect of any such Subordinated Obligation
unless a corresponding obligation also arises with respect to the
Securities and (ii) in any event, no repurchase or redemption of any such
Subordinated Obligation may be consummated unless and until the Company
shall have satisfied all repurchase obligations with respect to any
required purchase offer made with respect to the Securities; provided,
--------
however, that such purchases or redemptions shall be included in the
-------
calculation of the amount of Restricted Payments; and
(vi) make payments to Helen Hudson Lovaas pursuant to the Merger
Agreement in an aggregate amount not to exceed $1.1 million in any fiscal
year or $3.3 million during the term of the Securities (plus, in each case,
interest due on the unpaid portion of such required payments in accordance
with the Merger Agreement); provided, however, that such payments shall be
-------- -------
excluded in the calculation of the amount of Restricted Payments.
(c) In computing Consolidated Net Income of the Company under
paragraph (a) above, (1) the Company shall use audited financial statements for
the portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (2) the Company shall be permitted to
rely in good faith on the financial statements
<PAGE>
46
and other financial data derived from the books and records of the Company that
are available on the date of determination. If the Company makes a Restricted
Payment which, at the time of the making of such Restricted Payment, would in
the good faith determination of the Company be permitted under the requirements
of this Indenture, such Restricted Payment shall be deemed to have been made in
compliance with this Indenture notwithstanding any subsequent adjustments made
in good faith to the Company's financial statements affecting Consolidated Net
Income of the Company for any period.
SECTION 4.05. Limitation on Restrictions on Distributions from
------------------------------------------------
Restricted Subsidiaries. The Company shall not, and shall not permit any
- ------------------------
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist any consensual restriction on the right of any Restricted
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock, or pay any Debt or other
obligation owed, to the Company or any other Restricted Subsidiary (except, with
respect to restrictions on dividends of non-cash Property, as permitted pursuant
to clause (ii) of the next sentence), (b) make any loans or advances to the
Company or any other Restricted Subsidiary or (c) transfer any of its Property
to the Company or any other Restricted Subsidiary. The foregoing limitations
will not apply (i) with respect to clauses (a), (b) and (c), to restrictions (A)
in effect on the Issue Date, (B) pursuant to the Credit Facility, (C) relating
to Debt of a Restricted Subsidiary and existing at the time it became a
Restricted Subsidiary if such restriction was not created in connection with or
in anticipation of the transaction or series of transactions pursuant to which
such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company or (D) which result from the Refinancing of Debt Incurred pursuant to an
agreement referred to in clause (i)(A) or (B) above or in clause (ii)(A) or (B)
below, provided such restriction is no less favorable to the holders of
Securities than those under the agreement evidencing the Debt so Refinanced, and
(ii) with respect to clause (c) only, to restrictions (A) relating to Debt that
is permitted to be Incurred and secured without also securing the Securities
equal and ratable treatment pursuant to Section 4.03 and Section 4.10 that limit
the right of the debtor to dispose of the Property securing such Debt, (B)
encumbering Property at the time such Property was acquired by the Company or
any Restricted Subsidiary, so long as such restriction relates solely to the
Property so acquired and was not created in connection with or in
<PAGE>
47
anticipation of such acquisition, (C) resulting from customary provisions
restricting subletting or assignment of leases or customary provisions in other
agreements that restrict assignment of such agreements or rights thereunder or
(D) customary restrictions contained in asset sale agreements limiting the
transfer of such Property pending the closing of such sale.
SECTION 4.06. Limitation on Asset Sales. (a) The Company shall not,
--------------------------
and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Sale unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the Property subject to such Asset Sale; (ii) at least 75% of
the consideration paid to the Company or such Restricted Subsidiary in
connection with such Asset Sale is in the form of cash or cash equivalents or
the assumption by the purchaser of liabilities of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Securities) as a result of which the Company and the Restricted Subsidiaries are
no longer obligated with respect to such liabilities; and (iii) the Company
delivers an Officers' Certificate to the Trustee certifying that such Asset Sale
complies with the foregoing clauses (i) and (ii).
(b) The Net Available Cash (or any portion thereof) from Asset Sales may
be applied by the Company or a Restricted Subsidiary, to the extent the Company
or such Restricted Subsidiary elects (or is required by the terms of any Debt):
(i) to prepay, repay, legally defease or purchase Senior Debt of the Company or
any Restricted Subsidiary (excluding, in any such case, Disqualified Stock and
Debt owed to the Company or an Affiliate of the Company); or (ii) to reinvest in
Additional Assets (including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by the Company or another
Restricted Subsidiary); provided, however, that in connection with any
-------- -------
prepayment, repayment, legal defeasance or purchase of Debt pursuant to clause
(i) above, the Company or such Restricted Subsidiary shall retire such Debt and
shall cause the related loan commitment (if any) to be permanently reduced by an
amount equal to the principal amount so prepaid, repaid, legally defeased or
purchased.
(c) Any Net Available Cash from an Asset Sale not applied in accordance
with the preceding paragraph within twelve months from the date of the receipt
of such Net Available Cash shall constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million
<PAGE>
48
(taking into account income earned on such Excess Proceeds, if any), the Company
will be required to make an offer to purchase (the "Prepayment Offer") the
Securities which offer shall be in the amount of the Excess Proceeds, on a pro
rata basis according to principal amount, at a purchase price equal to 100% of
the principal amount thereof plus accrued and unpaid interest thereon, if any,
to the purchase date (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 procedures (including prorating in the event of
oversubscription) set forth in this Indenture. To the extent that any portion of
the amount of Net Available Cash remains after compliance with the preceding
sentence and provided that all holders of Securities have been given the
opportunity to tender their Securities for purchase in accordance with this
Indenture, the Company or such Restricted Subsidiary may use such remaining
amount for any purpose permitted by this Indenture and the amount of Excess
Proceeds will be reset to zero.
(d)(1) Within five business days after the Company is obligated to
make a Prepayment Offer as described in the preceding paragraph, the Company
shall send a written notice, by first-class mail, to the Trustee and the Holders
of Securities (the "Prepayment Offer Notice"), accompanied by such information
regarding the Company and its Subsidiaries as the Company in good faith believes
will enable such Holders to make an informed decision with respect to such
Prepayment Offer. The Prepayment Offer Notice shall state (i) that the Company
is offering to purchase Securities pursuant to the provisions of this Indenture,
(ii) that any Security (or any portion thereof) accepted for payment (and duly
paid on the Purchase Date) pursuant to the Prepayment Offer shall cease to
accrue interest on the Purchase Date, (iii) that any Securities (or portions
thereof) not properly tendered shall continue to accrue interest, (iv) the
purchase price and purchase date, which shall be, subject to any contrary
requirements of applicable law, a Business Day no earlier than 30 days nor later
than 60 days after the date the Prepayment Offer Notice is mailed (the "Purchase
Date"), (v) the aggregate principal amount of Securities to be purchased, (vi) a
description of the procedures which Holders of Securities must follow in order
to tender their Securities and the procedures that Holders of Securities must
follow in order to withdraw an election to tender their Securities for payment
and (vii) all other instructions and materials necessary to enable Holders to
tender Securities pursuant to the Prepayment Offer.
<PAGE>
49
(2) Not later than the date upon which written notice of a Prepayment
Offer is delivered to the Trustee as provided above, the Company shall deliver
to the Trustee an Officers' Certificate as to (i) the amount of the Prepayment
Offer (the "Offer Amount"), (ii) the allocation of the Net Available Cash from
the Asset Sales pursuant to which such Prepayment Offer is being made and (iii)
the compliance of such allocation with the provisions of Section 4.06(a). On
such date or prior to the Purchase Date, the Company shall also irrevocably
deposit with the Trustee or with the Paying Agent (or, if the Company or a
Wholly Owned Subsidiary is the Paying Agent, shall segregate and hold in trust)
in cash or Temporary Cash Investments, maturing on the last day prior to the
Purchase Date or on the Purchase Date if funds are immediately available by open
of business, an amount equal to the Offer Amount to be held for payment in
accordance with the provisions of this Section. Upon the expiration of the
period for which the Prepayment Offer remains open (the "Offer Period"), the
Company shall deliver to the Trustee for cancelation the Securities or portions
thereof which have been properly tendered to and are to be accepted by the
Company. The Trustee or the Paying Agent shall, on the Purchase Date, mail or
deliver payment to each tendering Holder in the amount of the purchase price. In
the event that the aggregate purchase price of the Securities delivered by the
Company to the Trustee is less than the Offer Amount, the Trustee or the Paying
Agent shall deliver the excess to the Company immediately after the expiration
of the Offer Period for application in accordance with this Section.
(3) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Company or its agent 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, telex, 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. If at the expiration of the Offer Period the aggregate principal
amount of Securities surrendered by Holders exceeds the Offer Amount, the
Company shall select the Securities to be purchased on a pro rata basis (with
such adjustments as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000, or integral multiples thereof, shall be
purchased). Holders whose Securities are purchased
<PAGE>
50
only in part shall be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section 4.06. A Security
shall be deemed to have been accepted for purchase at the time the Trustee or
the Paying Agent mails or delivers payment therefor to the surrendering Holder.
(e) 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 as described
above. To the extent that the provisions of any securities laws or regulations
conflict with the provisions relating to the Prepayment Offer, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described above by virtue thereof.
SECTION 4.07. Limitation on Transactions with Affiliates. (a) The
-------------------------------------------
Company shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, conduct any business or enter into or suffer to exist any
transaction or series of transactions (including the purchase, sale, transfer,
assignment, lease, conveyance or exchange of any Property or the rendering of
any service) with, or for the benefit of, any Affiliate of the Company (an
"Affiliate Transaction"), unless (a) the terms of such Affiliate Transaction are
(i) set forth in writing, (ii) in the interest of the Company or such Restricted
Subsidiary, as the case may be, and (iii) no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could be
obtained in a comparable arm's-length transaction with a Person that is not an
Affiliate of the Company, (b) if such Affiliate Transaction involves aggregate
payments or value in excess of $2.5 million, the Board of Directors (including a
majority of the disinterested members of the Board of Directors, if any)
approves such Affiliate Transaction and, in its good faith judgment, believes
that such Affiliate Transaction complies with clauses (a) (ii) and (iii) of this
paragraph as evidenced by a Board Resolution promptly delivered to the Trustee
and (c) if such Affiliate Transaction involves aggregate payments or value in
excess of $5.0 million, the
<PAGE>
51
Company obtains a written opinion from an Independent Appraiser to the effect
that the consideration to be paid or received in connection with such Affiliate
Transaction is fair, from a financial point of view, to the Company or such
Restricted Subsidiary, as the case may be and a copy of the written opinion is
delivered to the Trustee.
(b) Notwithstanding the foregoing limitation, the Company or any
Restricted Subsidiary may enter into or suffer to exist the following:
(i) any transaction or series of transactions between the Company
and one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business; provided that no more than
--------
5% of the total voting power of the Voting Stock (on a fully diluted basis)
of any such Restricted Subsidiary is owned by an Affiliate of the Company
(other than a Restricted Subsidiary);
(ii) any Restricted Payment permitted to be made pursuant to Section
4.04;
(iii) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and employees of the Company or any of the Restricted Subsidiaries, so long
as the Board of Directors in good faith shall have approved the terms
thereof and deemed the services theretofore or thereafter to be performed
for such compensation to be fair consideration therefor;
(iv) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or such
Restricted Subsidiary, as the case may be; provided, that such loans and
--------
advances do not exceed $1.0 million in the aggregate at any one time
outstanding;
(v) the payment of fees and expenses in connection with the
Recapitalization pursuant to written agreements in effect on the Issue
Date;
(vi) the sale of common stock of the Company for cash; provided that
--------
the Company may receive Employee Notes in an aggregate principal amount not
in excess of $1.0 million at any one time outstanding;
<PAGE>
52
(vii) the payment of dividends in kind in respect of (i) the Mirror
Preferred Stock or (ii) any other Preferred Stock issued in compliance with
this Section; and
(viii) a proportionate split of, or a common stock dividend payable
on, the common stock of the Company.
SECTION 4.08. Limitation on Issuance or Sale of Capital Stock of
--------------------------------------------------
Restricted Subsidiaries. The Company shall not (a) sell, pledge, hypothecate or
- ------------------------
otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary or
(b) permit any Restricted Subsidiary to, directly or indirectly, issue or sell
or otherwise dispose of any shares of its Capital Stock, other than (i)
directors' qualifying shares, (ii) to the Company or a Wholly Owned Subsidiary
or (iii) a disposition of 100% of the shares of Capital Stock of a Restricted
Subsidiary that complies with Section 4.06.
SECTION 4.09. Repurchase at the Option of Holders Upon a Change of
----------------------------------------------------
Control. (a) Upon the occurrence of a Change of Control, each holder of
- --------
Securities shall have the right to require the Company to repurchase all or any
part of such holder's Securities pursuant to the offer described below (the
"Change of Control Offer") at a purchase price (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the purchase date (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date).
(b) Within 30 days following any Change of Control, the Company shall
(a) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (b) send, by first-class mail, with a copy to the Trustee, to each holder of
Securities, at such holder's address appearing in the Security Register, a
notice stating: (i) that a Change of Control has occurred and a Change of
Control Offer is being made pursuant to this Section and that all Securities
timely tendered will be accepted for payment; (ii) the Change of Control
Purchase Price and the purchase date, which shall be, subject to any contrary
requirements of applicable law, a business day no earlier than 30 days nor later
than 60 days from the date such notice is mailed; (iii) the circumstances and
relevant facts regarding the Change of Control (including information with
respect to pro forma historical income, cash flow and capitalization after
giving effect to the Change of
<PAGE>
53
Control); (iv) that any Security (or portion thereof) accepted for payment (and
duly paid on the Change of Control Payment Date) pursuant to the Change of
Control Offer shall cease to accrue interest on the Change of Control Payment
Date; (v) that any Securities (or portions thereof) not properly tendered shall
continue to accrue interest; (vi) the procedures that Holders of Securities must
follow in order to tender their Securities (or portions thereof) for payment and
the procedures that Holders of Securities must follow in order to withdraw an
election to tender Securities (or portions thereof) for payment; and (vii) all
other instructions and materials necessary to enable Holders to tender
Securities pursuant to the Change of Control Offer.
(c) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Company or its agent at the address specified in the notice at least three
Business Days prior to the Change of Control Payment 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 Change of Control Payment Date, a
telegram, telex, 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. Holders whose Securities are purchased only in part
shall be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered.
(d) On or prior to the Change of Control Payment Date, the Company
shall irrevocably deposit with the Trustee or with the Paying Agent (or, if the
Company or any of its Wholly Owned Subsidiaries is acting as the Paying Agent,
segregate and hold in trust) in cash an amount equal to the Change of Control
Payment payable to the Holders entitled thereto, to be held for payment in
accordance with the provisions of this Section.
(e) On the Change of Control Payment Date, the Company shall deliver
to the Trustee the Securities or portions thereof which have been properly
tendered to and are to be accepted by the Company for payment. The Trustee or
the Paying Agent shall, on the Change of Control Payment Date, mail or deliver
payment to each tendering Holder of the Change of Control Payment. In the event
that the aggregate Change of Control Payment is less than the amount delivered
by the Company to the Trustee or the Paying Agent,
<PAGE>
54
the Trustee or the Paying Agent, as the case may be, shall deliver the excess to
the Company immediately after the Change of Control Payment Date.
(f) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section. A Security shall
be deemed to have been accepted for purchase at the time the Trustee or the
Paying Agent mails or delivers payment therefor to the surrendering Holder.
Unless the Company defaults in the payment of the Change of Control Payment,
each Security accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest on and after the Change of Control Payment Date.
(g) The Company shall comply, to the extent applicable, with the
requirements of Rule 14(e) under the Exchange Act and any other securities laws
or regulations thereunder in connection with the purchase of Securities pursuant
to this Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.
SECTION 4.10. Limitation on Liens. The Company shall not, and shall
--------------------
not permit any Restricted Subsidiary to, directly or indirectly, Incur or suffer
to exist, any Lien (other than Permitted Liens) upon any of its Property
(including Capital Stock of a Restricted Subsidiary), whether owned at the Issue
Date or thereafter acquired, or any interest therein or any income or profits
therefrom, unless (i) if such Lien secures Subordinated Debt, the Securities are
secured on an equal and ratable basis with such Debt and (ii) if such Lien
secures Subordinated Obligations, such Lien shall be subordinated to a Lien
securing the Securities in the same Property as that securing such Lien to the
same extent as such Subordinated Obligations are subordinated to the Securities.
SECTION 4.11. 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
<PAGE>
55
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 TIA (S) 314(a)(4).
SECTION 4.12. 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 4.13. Designation of Restricted and Unrestricted
------------------------------------------
Subsidiaries. The Board of Directors may designate any Subsidiary of the
- -------------
Company which is not designated as a Restricted Subsidiary under the 9 1/8%
Indenture to be an Unrestricted Subsidiary if (a) the Subsidiary to be so
designated does not own any Capital Stock or Debt of, or own or hold any Lien on
any Property of, the Company or any other Restricted Subsidiary, (b) the
Subsidiary to be so designated is not obligated under any Debt, Lien or other
obligation that, if in default, would result (with the passage of time or notice
or otherwise) in a default on any Debt of the Company or of any Restricted
Subsidiary and (c) either (i) the Subsidiary to be so designated has total
assets of $1,000 or less or (ii) such designation is effective immediately upon
such entity becoming a Subsidiary of the Company. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company
will be classified as a Restricted Subsidiary; provided, however, that such
-------- -------
Subsidiary shall not be designated a Restricted Subsidiary and shall be
automatically classified as an Unrestricted Subsidiary if either of the
requirements set forth in clauses (x) and (y) of the immediately following
paragraph will not be satisfied after giving pro forma effect to such
classification. Except as provided in the first sentence of this paragraph, no
Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, (x) the Company could Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of Section 4.03 and (y) no Default
or Event of Default shall have occurred and be continuing or would result
therefrom.
Any such designation or redesignation by the Board of Directors will be
evidenced to the Trustee by filing with
<PAGE>
56
the Trustee a Board Resolution giving effect to such designation or
redesignation and an Officers' Certificate (a) certifying that such designation
or redesignation complies with the foregoing provisions and (b) giving the
effective date of such designation or redesignation, such filing with the
Trustee to occur within 45 days after the end of the fiscal quarter of the
Company in which such designation or redesignation is made (or, in the case of a
designation or redesignation made during the last fiscal quarter of the
Company's fiscal year, within 90 days after the end of such fiscal year).
SECTION 4.14. Limitation on Holding's Business. The Company shall use
---------------------------------
its best efforts to cause Holding not to, directly or indirectly, engage in any
business or activity other than the ownership of Capital Stock of the Company
and business activities incidental thereto.
ARTICLE 5
Successor Company
-----------------
SECTION 5.01. When Company May Merge or Transfer Assets. (a) The
------------------------------------------
Company shall not merge, consolidate or amalgamate with or into any other Person
(other than a merger of a Wholly Owned Subsidiary into the Company) or sell,
transfer, assign, lease, convey or otherwise dispose of all or substantially all
its Property in any one transaction or series of transactions unless: (i) the
Company shall be the surviving Person (the "Surviving Person") or the Surviving
Person (if other than the Company) formed by such merger, consolidation or
amalgamation or to which such sale, transfer, assignment, lease, conveyance or
disposition is made shall be a corporation organized and existing under the laws
of the United States of America, any State thereof or the District of Columbia;
(ii) the Surviving Person (if other than the Company) expressly assumes, by
supplemental indenture in form satisfactory to the Trustee, executed and
delivered to the Trustee by such Surviving Person, the due and punctual payment
of the principal of, and premium, if any, and interest on, all the Securities,
according to their tenor, and the due and punctual performance and observance of
all the covenants and conditions of this Indenture to be performed by the
Company; (iii) in the case of a sale, transfer, assignment, lease, conveyance or
other disposition of all or substantially all the Property of the Company, such
Property shall have been transferred as an entirety or virtually as an entirety
to one Person; (iv) immediately before and after giving effect
<PAGE>
57
to such transaction or series of transactions on a pro forma basis (and
treating, for purposes of this clause (iv) and clauses (v) and (vi) below, any
Debt which becomes, or is anticipated to become, an obligation of the Surviving
Person or any Restricted Subsidiary as a result of such transaction or series of
transactions as having been Incurred by the Surviving Person or such Restricted
Subsidiary at the time of such transaction or series of transactions), no
Default or Event of Default shall have occurred and be continuing; (v)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis, the Company or the Surviving Person, as the case may be,
would be able to Incur at least $1.00 of additional Debt under clause (a) of the
first paragraph of Section 4.03; provided, however, that this clause (v) shall
-------- -------
not apply to a merger between the Company and a Wholly Owned Subsidiary of the
Company or Holding incorporated in another state of the United States solely for
the purpose of reincorporating the Company as long as the total amount of Debt
of the Company and its Restricted Subsidiaries is not increased as a result
thereof; and (vi) the Company shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction and the supplemental indenture, if any, in respect thereto comply
with this Section and that all conditions precedent herein provided for relating
to such transaction have been satisfied and that the supplemental indenture, if
any, has been duly authorized, executed and delivered and is enforceable against
the Surviving Person.
(b) The Surviving Person shall succeed to, and be substituted for,
and may exercise every right and power of the Company under this Indenture, but
the predecessor Company in the case of a sale, transfer, assignment, lease,
conveyance or other disposition shall not be released from the obligation to pay
the principal of, and premium, if any, and interest on, the Securities.
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default. The following events shall be
------------------
"Events of Default":
(1) the Company defaults in any payment of inter est on the
Securities when the same becomes due and payable, whether or not such
payment shall be
<PAGE>
58
prohibited by Article 10, and such default continues for a period of 30
days;
(2) the failure to make the payment of any principal of or premium,
if any, on any of the Securities when the same become due and payable at
its Stated Maturity, upon acceleration, redemption, optional redemption,
upon required repurchase or otherwise, whether or not such payment shall be
prohibited by Article 10;
(3) the Company fails to comply with Article 5;
(4) the Company fails to comply with any other covenant or agreement
in the Securities or in this Indenture (other than a failure which is the
subject of the foregoing clause (1), (2) or (3)), or Holding engages at any
time, directly or indirectly, in any business or activity other than
ownership of Capital Stock of the Company and business activities
incidental thereto, and continuance of such failure, or occurrence, for a
period of 30 days after the notice specified below;
(5) default by the Company or any Restricted Subsidiary under any
Debt of the Company or any Restricted Subsidiary which results in
acceleration of the stated maturity of such Debt, or the failure to pay
such Debt at final maturity, in an aggregate amount greater than $7.5
million or its foreign currency equivalent at the time;
(6) any judgment or judgments for the payment of money in an
aggregate amount in excess of $7.5 million (or its foreign currency
equivalent at the time) shall be rendered against the Company or any
Restricted Subsidiary and shall not be waived, satisfied or discharged for
any period of 30 consecutive days during which a stay of enforcement shall
not be in effect;
(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;
<PAGE>
59
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property;
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary; or
(D) grants any similar relief under any foreign laws;
and in each such case the order or decree remains unstayed and in effect
for 60 days; or
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.
A Default under clause (4) is not an Event of Default until the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Securities notify the Company (and in the case of such notice by
Holders, the Trustee) in writing of such Default and the Company does not cure
such Default within the time specified after receipt of such notice. Such
notice must specify the
<PAGE>
60
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 and event which with the giving of notice or the lapse of
time would become an Event of Default, 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)) occurs and is continuing,
the Trustee by notice to the Company, or the Holders of at least 25% in
aggregate principal amount of the Securities then outstanding by notice to the
Company and the Trustee, may declare the principal amount of all the Securities
then outstanding, plus accrued but unpaid interest to be due and payable. Upon
such a declaration, such principal shall be due and payable immediately. If an
Event of Default specified in Section 6.01(7) or (8) occurs, the principal of
the Securities shall automatically and without any action by the Trustee or any
Holder, become immediately due and payable. The Holders of a majority in
aggregate principal amount of the outstanding Securities by notice to the
Trustee and the Company may rescind and annul any declaration of acceleration 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, premium or interest that has become due solely because of the
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 acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
<PAGE>
61
SECTION 6.04. Waiver of Defaults. The Holders of a majority in
-------------------
aggregate principal amount of the Securities by notice to the Trustee may waive,
on behalf of the Holders of all outstanding Securities, a past or an existing
Default and its consequences or compliance with any provision of this Indenture
or the Securities except (i) a Default in the payment of the principal of or
interest on a Security or (ii) a Default in respect of a provision that under
Section 9.02 cannot be amended without the consent of each Securityholder
affected. When a Default is waived, it is deemed cured and not to have occurred
for every purpose of this Indenture and the Securities, 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
--------------------
aggregate principal amount of the Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee with respect to the
Securities. 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 reasonable indemnity against all losses and
expenses caused by taking or not taking such action.
SECTION 6.06. Limitation on Suits. A Securityholder may not pursue
--------------------
any remedy with respect to this Indenture or the Securities unless:
(1) such Holder shall have previously given to the Trustee written
notice of a continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of the
Securities then outstanding shall have made a written request, and such
Holder of or Holders shall have offered reasonable indemnity, to the
Trustee to pursue such proceeding as trustee; and
(3) the Trustee has failed to institute such proceeding and has not
received from the Holders of at least a majority in aggregate principal
amount of the Securities outstanding a direction inconsistent with
<PAGE>
62
such request, within 60 days after such notice, request and offer.
The foregoing limitations on the pursuit of remedies by a
Securityholder shall not apply to a suit instituted by a Holder of Securities
for the enforcement of payment of the principal of or interest on such Security
on or after the applicable due date specified in such Security. A Securityholder
may not use this Indenture to prejudice the rights of another Securityholder or
to obtain a preference or priority over another Securityholder.
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 interest on the Securities held by such Holder, on
or after the respective due dates expressed in this 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
---------------------------
specified 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, its creditors or
its 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, is empowered to participate as a member,
voting or otherwise, of any official committee of creditors appointed in such
matter, and any Custodian in any such judicial proceeding is hereby authorized
by each Holder to make payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and its counsel, and any
other amounts due the Trustee under Section 7.07.
<PAGE>
63
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money 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 Debt 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, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
----------------------
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, the Company, a suit by a Holder pursuant to Section 6.07 or a suit by
Holders of more than 10% in aggregate principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
---------------------------------
extent it may lawfully do so) shall not
<PAGE>
64
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 (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 the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture, but shall not be obligated to verify the contents thereof.
(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;
<PAGE>
65
(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 and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
------------------
document reasonably believed by it to be genuine and to have been signed or
presented by the proper person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on 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
<PAGE>
66
agent (other than an agent who is an employee of the Trustee) 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 reasonably believes to be authorized or within
its rights or powers; provided, however, that the Trustee's conduct does not
-------- -------
constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel, and the written advice or
written 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 such advice or opinion of such
counsel.
(f) Unless otherwise specifically provided herein, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.
(g) The Company, the Paying Agent, the Registrar, the Trustee and any
agent of the Company, the Paying Agent, the Registrar or the Trustee may deem
and treat the Person in whose name any Security is registered as the absolute
owner of such Security for the purpose of receiving payment of or on account of
the principal of and, subject to the provisions of this Indenture, interest on
such Security and for all other purposes; and neither the Company, the Paying
Agent, the Registrar nor the Trustee nor any agent of the Company, the Paying
Agent, the Registrar or the Trustee shall be affected by any notice to the
contrary.
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-
registrar 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
<PAGE>
67
sale of the Securities or in the Securities other than the Trustee's certificate
of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
-------------------
continuing and if it is known to the employees of the Trustee with
responsibility for the Securities, the Trustee shall mail to each Securityholder
notice of the Default within 90 days after it is known to such employees of the
Trustee or written notice of it is received by the Trustee. Except in the case
of a Default in payment of principal of or interest on any Security, 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 May 15 beginning with May 15, 1999, and in any event
prior to July 15 in each year, the Trustee shall mail to each Securityholder a
brief report dated as of May 15 each year that complies with TIA (S) 313(a), if
and to the extent required by said subsection. The Trustee also shall comply
with TIA (S) 313(b).
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 from time to time reasonable compensation for its services. 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.
Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. The Company shall indemnify the Trustee against any and all loss,
liability or expense (including reasonable attorneys' fees, but excluding any
franchise taxes imposed on the Trustee and any taxes based on the income of the
Trustee) incurred by it in connection with the acceptance and administration of
this trust, including the reasonable costs and expenses of enforcing this
Indenture against the Company (including Section 7.07) and of defending itself
against any claim (including any claim asserted by the Company) and the
<PAGE>
68
performance of its duties hereunder. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee
to so notify the Company shall not relieve the Company of its obligations
hereunder, except to the extent such failure shall have materially prejudiced
the Company. The Company shall defend the claim and the Trustee shall cooperate
in the defense. If the Trustee is advised by counsel in writing that it may have
available to it defenses which are in conflict with the defenses available to
the Company, then the Trustee may have separate counsel and the Company shall
pay the reasonable fees and expenses of such counsel. The Company need not
reimburse any expense or indemnify against any loss, liability or expense
incurred by the Trustee or any of its agents, counsel, accountants or experts
which is judicially determined to be the result of the Trustee's or any such
agent's, counsel's, accountant's or expert's own wilful misconduct, negligence
or bad faith. The Company need not pay for any settlement made by the Trustee
without the Company's consent, such consent not to be unreasonably withheld or
delayed.
The Trustee's right to receive payment of any amounts due under this
Section 7.07 shall not be subordinated to any other liability or indebtedness of
the Company (even though the Securities may be so subordinated).
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.01(7) or (8), 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 aggregate
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;
<PAGE>
69
(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 aggregate 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 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 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of 10% in aggregate principal amount of the Securities may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
who has been a bona fide Holder of a Security for at least six months 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 or banking
association without any further act shall be the successor Trustee.
<PAGE>
70
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
such 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 (S) 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
(S) 310(b), subject to the penultimate paragraph thereof; provided, however,
-------- -------
that there shall be excluded from the operation of TIA (S) 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 (S) 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
--------------------------------------------------
Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship
listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be
subject to TIA (S) 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 2.07) 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 and the
Company irrevocably deposits with the Trustee funds 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
<PAGE>
71
Section 2.07), and if in either case the Company pays all other sums payable
hereunder by the Company, then this Indenture shall, subject to Sections
8.01(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel 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 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, 4.13 and 4.14 the operation of
Sections 6.01(4) (to the extent relating to such other Sections), 6.01(5),
6.01(6), 6.01(7) and 6.01(8) (but, in the case of Sections 6.01(6) and (7), with
respect only to Significant Subsidiaries), its obligations under Sections
5.01(a)(iv), 5.01(a)(v) and the related operation of Section 6.01(3) ("covenant
defeasance option"). 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 Sections 6.01(3) and 6.01(4) (with respect to the provisions of Articles 4
and 5 referred to in the immediately preceding paragraph) and Sections 6.01(5),
6.01(6), 6.01(7) and 6.01(8) (but, in the case of Sections 6.01(6) and (7), with
respect only to Significant Subsidiaries).
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, 7.07, 7.08, 8.05 and 8.06 and
Appendix A shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07 and 8.05 shall survive.
<PAGE>
72
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 of and interest
on the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity 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(6) or (7) 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 material
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 will not recognize income, gain or loss for Federal
income tax purposes as a result of such defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred;
<PAGE>
73
(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
Securityholders will not recognize income, gain or loss for Federal
income tax purposes as a result of such covenant defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such covenant defeasance
had not occurred; and
(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.
Opinions of Counsel required to be delivered to the Trustee may have
assumptions customary for opinions of the type required and counsel delivering
such Opinions of Counsel may rely on certificates of the Company or government
or other officials customary for opinions of the type required, including
certificates certifying as to matters of fact, including that various financial
covenants 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 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 request any money held by them for
the payment of principal or interest that remains unclaimed for two years (or if
then held by the Company or a Wholly Owned Subsidiary in trust for the payment
thereof), shall be discharged from such trust, and, thereafter, Securityholders
entitled to the
<PAGE>
74
money must look to the Company for payment as general creditors; provided,
--------
however, that the Trustee or such Paying Agent before being required to make
- -------
any such repayment, may at the expense of the Company cause to be mailed to each
such Holder a notice that said moneys have not been so applied and that after a
date named therein any unclaimed balance of said moneys then remaining will be
returned to the Company.
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 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;
<PAGE>
75
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities (provided 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 that would limit or terminate the
benefits available to any holder of Senior Debt of the Company (or
Representatives therefor) under Article 10;
(5) 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; or
(8) to make any change that does not adversely affect the rights of
any Securityholder in any material respect.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of Senior Debt then
outstanding unless the holders of such Senior Debt (or their Representative)
consent in writing to such change, it being understood that any amendment the
purpose of which is to permit the Incurrence of additional Debt shall not be
construed as impairing the rights of the holders of Senior Debt pursuant to such
subordination provisions.
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 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 aggregate
principal amount of the Securities. However,
<PAGE>
76
without the consent of each Holder of an outstanding Security affected thereby
an amendment or waiver may not:
(1) reduce the amount of Securities whose holders must consent to an
amendment or waiver,
(2) reduce the rate of or extend the time for payment of interest on
any Security,
(3) reduce the principal of or extend the Stated Maturity of any
Security,
(4) make any Security payable in money other than that stated in the
Security,
(5) impair the right of any holder of the Securities to receive
payment of principal of and interest on such holder's Securities on or
after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such holder's Securities,
(6) release any security interest that may have been granted in favor
of the holders of the Securities,
(7) reduce the premium payable upon the redemption or repurchase of
any Security, or change the time at which any Security may be redeemed, as
described under Article 3,
(8) reduce the premium payable upon a Change of Control or, at any
time after a Change of Control or Asset Sale has occurred, change the time
at which the Change of Control Offer or Prepayment Offer relating thereto
must be made or at which the Securities must be repurchased pursuant to
such Change of Control Offer, or
(9) make any change to the subordination provisions of this Indenture
that would adversely affect the holders of 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 may not make any change that adversely
affects the rights under Article 10 of any holder of Senior Debt then
outstanding unless the
<PAGE>
77
holders of such Senior Debt (or their Representative) consent in writing to such
change, it being understood that any amendment the purpose of which is to permit
the Incurrence of additional Debt shall not be construed as impairing the rights
of the holders of Senior Debt pursuant to such subordination provisions.
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 form a part of this Indenture
for all purposes and shall bind every Securityholder. An amendment or waiver
becomes effective upon the execution of such amendment or waiver by 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 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
<PAGE>
78
Trustee may require the Holder of the Security to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Security regarding the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
Failure to make the appropriate notation or to issue a new Security shall not
affect the validity of such amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any
---------------------------
amendment authorized pursuant to this Article 9 if such 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.
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 Securities are
subordinated obligations of the Company and that the Debt evidenced by the
Securities is subordinated in right of payment, to the extent and in the manner
provided in this Article 10, to the payment when due of all Senior Debt of the
Company and that the subordination is for the benefit of and enforceable by the
holders of such Senior Debt. The Securities shall in all respects rank pari
----
passu in right of payment with any future Subordinated Debt of the Company, and
- -----
only Senior Debt of the Company shall be senior to the Securities in
<PAGE>
79
accordance with the provisions set forth herein. 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, dissolution or winding up of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property:
(1) holders of Senior Debt of the Company shall be entitled to receive
payment in full in cash of such Senior Debt before Securityholders shall be
entitled to receive any payment of principal of or interest on the
Securities, except that Holders of Securities may receive and retain shares
of stock and any debt securities that are subordinated to Senior Debt to at
least the same extent as the Securities; and
(2) until such Senior Debt is paid in full in cash, any distribution
to which Securityholders would be entitled but for this Article 10 shall be
made to holders of such Senior Debt as their interests may appear.
SECTION 10.03. Default on Senior Debt. The Company may not pay the
-----------------------
principal of or interest on the Securities or make any deposit pursuant to
Section 8.01 and may not repurchase, redeem or otherwise retire any Securities
(collectively, "pay the Securities") if (a) any principal, premium or interest
in respect of any Senior Debt is not paid within any applicable grace period
(including at maturity) or (b) any other default on Senior Debt occurs and the
maturity of such Senior Debt is accelerated in accordance with its terms unless,
in either case, (i) the default has been cured or waived and any such
acceleration has been rescinded or (ii) such Senior Debt has been paid in full
in cash; provided, however, that the Company may pay the Securities without
-------- -------
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of each issue of Designated
Senior Debt. During the continuance of any default (other than a default
described in clause (a) or (b) of the preceding sentence) with respect to any
Designated Senior Debt pursuant to which the maturity thereof may be accelerated
immediately without further notice (except notice required to effect the
acceleration) or the expiration of any applicable grace period, the Company may
not pay the Securities for a period (a "Payment Blockage
<PAGE>
80
Period") commencing upon the receipt by the Company and the Trustee of written
notice of such default from the Representative of the holders of such Designated
Senior Debt specifying an election to effect a Payment Blockage Period (a
"Payment Blockage Notice") and ending 179 days thereafter (unless such Payment
Blockage Period is earlier terminated (a) by written notice to the Trustee and
the Company from the Representative which gave such Payment Blockage Notice, (b)
because such default is no longer continuing or (c) because such Designated
Senior Debt has been repaid in full in cash). Unless the holders of such
Designated Senior Debt or the Representative of such holders have accelerated
the maturity of such Designated Senior Debt and not rescinded such acceleration,
the Company may (unless otherwise prohibited as described in the first sentence
of this paragraph) resume payments on the Securities after the end of such
Payment Blockage Period. Not more than one Payment Blockage Notice with respect
to all issues of Designated Senior Debt may be given in any consecutive 360-day
period, irrespective of the number of defaults with respect to one or more
issues of Designated Senior Debt during such period.
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 shall promptly notify the holders of the Designated Senior Debt (or
their Representatives) of the acceleration. If payment of the Securities is
accelerated when any Designated Senior Debt is outstanding, the Company may not
pay the Securities until three Business Days after the Representatives of all
issues of Designated Senior Debt receive notice of such acceleration and,
thereafter, may pay the Securities only if this Indenture 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 Debt of the Company and pay it over
to them as their interests may appear.
SECTION 10.06. Subrogation. After all Senior Debt of the Company is
------------
paid in full in cash and until the Securities are paid in full, Securityholders
shall be subrogated to the rights of holders of such Senior Debt to receive
distributions applicable to such Senior Debt. A distribution made under this
Article 10 to holders of such Senior Debt which otherwise would have been made
to
<PAGE>
81
Securityholders is not, as between the Company and Securityholders, a payment
by the Company on such Senior Debt.
SECTION 10.07. Relative Rights. This Article 10 defines the relative
----------------
rights of Securityholders and holders of Senior Debt 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 the Securities in accordance with their terms; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default or an Event of Default, subject to the
rights of holders of Senior Debt 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 Debt of the Company to enforce the subordination
of the Debt 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 two
Business Days prior to the date of such payment, a Trust Officer receives notice
satisfactory to it that payments may not be made under this Article 10. The
Company, the Registrar or co-registrar, the Paying Agent, a Representative or a
holder of Senior Debt may give the notice; provided, however, that, if an issue
-------- -------
of Senior Debt 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
Debt of the Company 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 10 with respect to any Senior Debt of the Company which may at any time
be held by it, to the same extent as any other holder of such Senior
<PAGE>
82
Debt; 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 Debt 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 Securityholders 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 Debt 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
Debt 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 Debt
of the Company for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of such Senior Debt and
other Debt 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
evidence is required with respect to the right of any Person as a holder of
Senior Debt of the Company to participate in any payment
<PAGE>
83
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 Debt 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 Debt 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 Debt. The
-------------------------------------------------
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Debt 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 Debt of the Company shall be entitled by
virtue of this Article 10 or otherwise.
SECTION 10.16. Reliance by Holders of Senior Debt 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 Debt of the Company,
whether such Senior Debt 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 Debt and such holder of such Senior Debt shall be deemed conclusively to
have relied on such subordination provisions in acquiring and continuing to
hold, or in continuing to hold, such Senior Debt.
<PAGE>
84
ARTICLE 11
Miscellaneous
-------------
SECTION 11.01. 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. If any provision of this Indenture modifies or excludes any
provision of the TIA that may be so modified or excluded, the latter provision
shall be deemed to apply to this Indenture as so modified or to be excluded, as
the case may be.
SECTION 11.02. Notices. Any notice or communication shall be in
--------
writing and delivered in person or mailed by first-class mail or recognized
overnight courier or sent by facsimile (with a hard copy delivered in person or
by mail promptly thereafter) and addressed as follows:
if to the Company:
Hudson Respiratory Care Inc.
27711 Diaz Road
Temecula, California 92589
Attention: Jay R. Ogram
if to the Trustee:
(1) for payment, registration, transfer, exchange and tender of the
Securities:
By Hand:
-------
United States Trust Company of New York
111 Broadway
New York, NY 10006
Attention: Corporate Trust Window Lower Level
By Mail:
-------
United States Trust Company of New York
770 Broadway, 13th Floor
New York, NY 10003
Attention: Corporate Trust Services
Telephone No.: (800)548-6565
<PAGE>
85
(2) for all other communications relating to the Securities:
United States Trust Company of New York
Attention: Corporate Trust Administration -
Hudson RCI
114 West 47th Street, 25th Floor
New York, NY 10036
Telephone No.: (212) 852-1663
Telecopy No.: (212) 852-1626
The Company, on the one hand, or the Trustee, on the other hand, 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.
All such notices and communications shall be deemed to have been duly
received: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail with first-class postage prepaid, if
mailed; when receipt acknowledged, if sent by facsimile; and the next Business
Day after timely delivery to the courier, if sent by recognized overnight
courier guaranteeing next-day delivery. Notices to the Trustee will be deemed
effective only upon actual receipt.
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. Notices to the Trustee shall be effective only upon receipt.
SECTION 11.03. Communication by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA (S) 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 (S) 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
---------------------------------------------------
Upon any request or application by
<PAGE>
86
the Company to the Trustee to take or refrain from taking any action under this
Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 11.05. 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.
Any certificate or opinion of an Officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such Officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous, and provided that any such certificate or opinion names the Trustee
as an addressee and is furnished to the Trustee at the time of delivery of such
certificate or opinion. Any such certificate or Opinion of Counsel may
<PAGE>
87
be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company stating
that the information with respect to such factual matters is in the possession
of the Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous. Opinions of Counsel required to be delivered to the
Trustee may have qualifications customary for opinions of the type required and
counsel delivering such Opinions of Counsel may rely on certificates of the
Company or government or other officials customary for opinions of the type
required, including certificates certifying as to matters of fact, including
that various financial covenants have been complied with.
SECTION 11.06. When Securities Disregarded; Acts of Holder. In
--------------------------------------------
determining whether the Holders of the required principal amount of Securities
have concurred in any direction, waiver or consent, Securities owned by the
Company or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company shall be disregarded
and deemed not to be outstanding, except that, for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities which the Trustee knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at the
time shall be considered in any such determination.
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar. The
---------------------------------------------
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar, the Paying Agent and any co-registrar may make reasonable rules
for their functions.
SECTION 11.08. Legal Holidays. A "Legal Holiday" is a Saturday, a
---------------
Sunday or a day on which banking institutions are not required to be open in New
York City and Los Angeles. If a payment date is a Legal Holiday, payment shall
be made on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period. If a regular record date is a Legal
Holiday, the record date shall not be affected.
SECTION 11.09. Governing Law. THIS INDENTURE AND THE SECURITIES
--------------
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW.
<PAGE>
88
SECTION 11.10. 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 11.11. Successors. All agreements of the Company in this
-----------
Indenture and the Securities shall bind their successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any number
-------------------
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 11.13. Table of Contents; Headings. The table of contents,
----------------------------
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
SECTION 11.14. Separability Clause. In case any provision of this
--------------------
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 11.15. Benefits of Indenture. Nothing in this Indenture or
----------------------
in the Securities, express or implied, shall give to any Person, other than the
parties hereto, the holders of Senior Debt (subject to Article 10 hereof) and
<PAGE>
89
the Holders of the Securities and their successors, any benefit or any legal or
equitable right, remedy or claim under this Indenture or the Securities.
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
HUDSON RESPIRATORY CARE INC.,
by /s/ Richard W. Johansen
_____________________________
Name: Richard W. Johansen
Title: President and Chief
Executive Officer
by /s/ Jay R. Ogram
_____________________________
Name: Jay R. Ogram
Title: Chief Financial Officer
UNITED STATES TRUST COMPANY
OF NEW YORK
by /s/ James E. Logan
_____________________________
Name: James E. Logan
Title: Vice President
<PAGE>
EXHIBIT 4.3
EXECUTION COPY
HUDSON RESPIRATORY CARE INC.
$115,000,000
9 1/8% Senior Subordinated Notes due 2008
RIVER HOLDING CORP.
300,000 Shares of 11 1/2%
Senior Exchangeable PIK Preferred Stock due 2010
REGISTRATION AGREEMENT
New York, New York
April 7, 1998
Salomon Smith Barney
Salomon Brothers Inc
BT Alex. Brown Incorporated
c/o Salomon Brothers Inc
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Hudson Respiratory Care Inc., a California corporation (the "Company")
proposes to issue and sell to the several initial purchasers named in Schedule A
hereto (the "Purchasers"), upon the terms set forth in a purchase agreement
dated the date hereof (the "Purchase Agreement"), $115,000,000 aggregate
principal amount of the Company's 9 1/8% Senior Subordinated Notes due 2008 (the
"Notes"). In addition, River Holding Corp. ("Holding") proposes to issue and
sell to the Purchasers, upon the terms set forth in the Purchase Agreement,
300,000 shares of Holding's 11 1/2% Senior Exchangeable PIK Preferred Stock due
2010, $.01 par value per share (the "Holding Preferred Stock"). The Holding
Preferred Stock is exchangeable at Holding's option, subject to certain
conditions, in whole but not in part, for either (a) the Company's 11 1/2%
Subordinated Exchange Debentures due 2010 (the "Company Exchange Debentures") or
(b) the Company's 11 1/2% Senior Exchangeable PIK Preferred Stock due 2010 (the
"Company Preferred Stock" and, together with the Notes, the Holding Preferred
Stock and the Company Exchange Debentures, the "Securities"). As an inducement
to the Purchasers to enter into the Purchase Agreement and in satisfaction of a
condition to your obligations thereunder, the Company and Holding jointly and
severally agree with you, (i) for your benefit and (ii) for the benefit of the
<PAGE>
2
holders from time to time of the Securities (including the Purchasers) (each of
the foregoing a "Holder" and together the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without definition
------------
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:
"Act" means the Securities Act of 1933, as amended, and the rules and
---
regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person means any other person which,
---------
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control
of a person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such person whether by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Commission" means the Securities and Exchange Commission.
----------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations of the Commission promulgated thereunder.
"Exchange Indenture" means the indenture governing the Company
------------------
Exchange Debentures.
"Exchange Offer Registration Period" means the 180-day period
----------------------------------
following the consummation of the Registered Exchange Offer, exclusive of any
period during which any stop order shall be in effect suspending the
effectiveness of the Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means one or more registration
-------------------------------------
statements of the Company and Holding on an appropriate form under the Act with
respect to the Registered Exchange Offer, all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Exchanging Dealer" means any Holder (which may include the
-----------------
Purchasers) which is a broker-dealer electing to
<PAGE>
3
exchange Securities acquired for its own account as a result of market-making
activities or other trading activities for New Securities.
"Holder" has the meaning set forth in the preamble hereto.
------
"Indenture" means the Indenture relating to the Notes and the New
---------
Notes dated as of April 7, 1998, between Holding, the Company and United States
Trust Company of New York, as trustee, as the same may be amended from time to
time in accordance with the terms thereof.
"Initial Placement" means the issuance and sale of the Notes and the
-----------------
Holding Preferred Stock.
"Majority Holders" means the Holders of a majority of the aggregate
----------------
principal amount or liquidation preference, as applicable, of any securities
registered under a Registration Statement.
"Managing Underwriters" means the investment banker or investment
---------------------
bankers and manager or managers that shall administer an underwritten offering.
"New Company Preferred Stock" means preferred stock of the Company
---------------------------
identical in all material respects to the Company Preferred Stock (except that
the dividend rate step-up provisions and the transfer restrictions will be
modified or eliminated, as appropriate), to be issued pursuant to the
Certificate of Designation for the Company Preferred Stock.
"New Company Exchange Debentures" means exchange debentures of the
-------------------------------
Company identical in all material respects to the Company Exchange Debentures
(except that the interest rate step-up provisions and the transfer restrictions
will be modified or eliminated, as appropriate), to be issued pursuant to the
Exchange Indenture.
"New Holding Preferred Stock" means preferred stock of Holding
---------------------------
identical in all material respects to the Holding Preferred Stock (except that
the dividend rate step-up provisions and the transfer restrictions will be
modified or eliminated, as appropriate), to be issued pursuant to the
Certificate of Designation for the Holding Preferred Stock.
"New Notes" means notes of the Company identical in all material
---------
respects to the Notes (except that the interest rate step-up provisions and the
transfer
<PAGE>
4
restrictions will be modified or eliminated, as appropriate), to be issued
pursuant to the Indenture.
"New Securities" means collectively, the New Notes, New Holding
--------------
Preferred Stock and, if applicable, New Company Exchange Debentures and New
Company Preferred Stock
"Prospectus" means the prospectus included in any Registration
----------
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Securities or the New Securities, covered by such
Registration Statement, and all amendments and supplements to the Prospectus,
including post-effective amendments.
"Registered Exchange Offer" means the proposed offer or offers to the
-------------------------
Holders to issue and deliver to such Holders, in exchange for the Notes or the
Holding Preferred Stock (or, if the Holding Preferred Stock has been exchanged
therefor, Company Exchange Debentures or Company Preferred Stock), as
applicable, a like principal amount or liquidation preference, as applicable, of
applicable New Securities.
"Registration Securities" has the meaning set forth in Section 3(a)
-----------------------
hereof.
"Registration Statement" means any Exchange Offer Registration
----------------------
Statement or Shelf Registration Statement that covers any of the Securities or
the New Securities pursuant to the provisions of this Agreement, all amendments
and supplements to such registration statement, including, without limitation,
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Securities" has the meaning set forth in the preamble hereto.
----------
"Shelf Registration" means a registration effected pursuant to Section
------------------
3 hereof.
"Shelf Registration Period" has the meaning set forth in Section 3(b)
-------------------------
hereof.
"Shelf Registration Statement" means a "shelf" registration statement
----------------------------
of the Company and Holding pursuant to the provisions of Section 3 or Section 5
hereof which
<PAGE>
5
covers some of or all the Securities or New Securities, as applicable, on an
appropriate form under Rule 415 under the Act, or any similar rule that may be
adopted by the Commission, all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Transfer Agent" means Holding's transfer agent for the Holding
--------------
Preferred Stock and the New Holding Preferred Stock or, if the Holding Preferred
Stock has been exchanged therefor, the Company Preferred Stock and New Company
Preferred Stock.
"Trustee" means the trustee with respect to the Notes and the New
-------
Notes under the Indenture or, if the Holding Preferred Stock has been exchanged
therefor, the Company Exchange Debentures and New Company Exchange Debentures.
"underwriter" means any underwriter of securities in connection with
-----------
an offering thereof under a Shelf Registration Statement.
2. Registered Exchange Offer; Resales of New Securities by Exchanging
------------------------------------------------------------------
Dealers; Private Exchange. (a) The Company and Holding shall prepare and, not
- --------------------------
later than 60 days after the date of the original issuance of the Notes and the
Holding Preferred Stock, shall file with the Commission the Exchange Offer
Registration Statement with respect to the Registered Exchange Offer. The
Company and Holding shall use their best efforts to cause the Exchange Offer
Registration Statement to become effective under the Act within 150 days after
the date of the original issuance of the Notes and the Holding Preferred Stock.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company and Holding 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 New Securities (assuming
that such Holder is not an affiliate of the Company or Holding within the
meaning of the Act, acquires the New Securities in the ordinary course of such
Holder's business and has no arrangements with any person to participate in the
distribution of the New Securities and is not prohibited by any law or policy of
the Commission from participating in the Registered Exchange Offer) to trade
such New Securities from and after their receipt without any limitations or
restrictions under the Act and without
<PAGE>
6
material restrictions under the securities laws of the several states of the
United States.
(c) In connection with the Registered Exchange Offer, the Company and
Holding shall:
(i) mail to each Holder a copy of the Prospectus forming part of
the Exchange Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for not less than 30
days after the date notice thereof is mailed to the Holders (or longer if
required by applicable law);
(iii) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of New
York;
(iv) permit Holders to withdraw tendered Securities at any time
prior to the close of business, New York time, on the last business day on
which the Registered Exchange Offer shall remain open; and
(v) comply in all respects with all applicable laws.
(d) As soon as practicable after the close of the Registered
Exchange Offer, the Company and Holding shall:
(i) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee or the Transfer Agent, as the case may
be, for cancelation all Securities so accepted for exchange; and
(iii) cause the Trustee or the Transfer Agent, as the case may be,
promptly to authenticate and deliver to each Holder of Securities, New
Securities equal in principal amount or liquidation preference to the
Securities of such Holder so accepted for exchange.
(e) The Purchasers, the Company and Holding acknowledge that,
pursuant to current interpretations by the Commission's staff of Section 5 of
the Act, and in the absence of an applicable exemption therefrom, each
Exchanging Dealer is required to deliver a Prospectus in connection with a sale
of any New Securities received by
<PAGE>
7
such Exchanging Dealer pursuant to the Registered Exchange Offer in exchange for
Securities acquired for its own account as a result of market-making activities
or other trading activities. Accordingly, the Company and Holding shall:
(i) include the information set forth in Annex A hereto on the
cover of the Exchange Offer Registration Statement, in Annex B hereto in
the forepart of the Exchange Offer Registration Statement in a section
setting forth details of the Exchange Offer, in Annex C hereto in the
underwriting or plan of distribution section of the Prospectus forming a
part of the Exchange Offer Registration Statement, and in Annex D hereto in
the Letter of Transmittal delivered pursuant to the Registered Exchange
Offer; and
(ii) use their best efforts to keep the Exchange Offer Registration
Statement continuously effective under the Act during the Exchange Offer
Registration Period for delivery by Exchanging Dealers in connection with
sales of New Securities received pursuant to the Registered Exchange Offer,
as contemplated by Section 4(h) below.
(f) In the event that any Purchaser determines that it is not
eligible to participate in the Registered Exchange Offer with respect to the
exchange of Securities constituting any portion of an unsold allotment, at the
request of such Purchaser, the Company and Holding shall issue and deliver to
such Purchaser, in exchange for such Securities, a like principal amount or
liquidation preference of New Securities (which shall be subject to restrictions
on transfer under the Act and the securities laws of the several states of the
United States). The Company and Holding shall seek to cause the CUSIP Service
Bureau to issue the same CUSIP numbers for such New Securities as for New
Securities issued pursuant to the Registered Exchange Offer. The Company shall
cause such principal amount or liquidation preference of New Securities (which
shall not be subject to such restrictions on transfer) to be delivered to a
party purchasing such New Securities from such Purchaser registered under a
Shelf Registration Statement as contemplated by Section 3 hereof.
3. Shelf Registration. If, (i) because of any change in law or
-------------------
applicable interpretations thereof by the Commission's staff, the Company and
Holding are not permitted to effect the Registered Exchange Offer as
contemplated by Section 2 hereof, (ii) for any other reason the Exchange Offer
Registration Statement is not declared
<PAGE>
8
effective within 150 days after the Closing Date or the Registered Exchange
Offer is not consummated within 180 days after the Closing Date, (iii) any
Purchaser so requests with respect to Securities (or any New Securities received
pursuant to Section 2(f)) not eligible to be exchanged for New Securities in a
Registered Exchange Offer or, in the case of any Purchaser that participates in
any Registered Exchange Offer, such Purchaser does not receive freely tradable
New Securities, (iv) any Holder (other than a Purchaser) is not eligible to
participate in the Registered Exchange Offer or (v) in the case of any such
Holder that participates in the Registered Exchange Offer, such Holder does not
receive freely tradable New Securities in exchange for tendered securities,
other than by reason of such Holder being an affiliate of the Company or Holding
within the meaning of the Act (it being understood that, for purposes of this
Section 3, (x) the requirement that a Purchaser deliver a Prospectus containing
the information required by Items 507 and/or 508 of Regulation S-K under the Act
in connection with sales of New Securities acquired in exchange for such
Securities shall result in such New Securities being not "freely tradeable" and
(y) the requirement that an Exchanging Dealer deliver a Prospectus in connection
with sales of New Securities acquired in the Registered Exchange Offer in
exchange for Securities acquired as a result of market-making activities or
other trading activities shall not result in such New Securities being not
"freely tradeable"), the following provisions shall apply:
(a) The Company and Holding shall as promptly as practicable (but in
no event more than 30 days after so required or requested pursuant to this
Section 3), file with the Commission and thereafter shall use their best efforts
to cause to be declared effective under the Act a Shelf Registration Statement
relating to the offer and sale of the Securities or the New Securities, as
applicable, by the Holders from time to time in accordance with the methods of
distribution elected by such Holders and set forth in such Shelf Registration
Statement (such Securities or New Securities, as applicable, to be sold by such
Holders under such Shelf Registration Statement being referred to herein as
"Registration Securities"); provided, however, that, with respect to New
-------- -------
Securities received by a Purchaser in exchange for Securities constituting any
portion of an unsold allotment, the Company and Holding may, if permitted by
current interpretations by the Commission's staff, file a post-effective
amendment to the Exchange Offer Registration Statement containing the
information required by Regulation S-K Items 507 and/or 508, as applicable, in
satisfaction of its obligations under this paragraph (a) with respect thereto,
and any such Exchange Offer Registration Statement,
<PAGE>
9
as so amended, shall be referred to herein as, and governed by the provisions
herein applicable to, a Shelf Registration Statement.
(b) The Company and Holding shall use their best efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holders for a period of two
years after the later of (x) the date of the original issuance of the Notes and
the Holding Preferred Stock (or until one year after such date if such Shelf
Registration Statement is filed at the request of a Purchaser) and (y) the last
date on which any Affiliate of Holding or the Company, as applicable, was a
beneficial owner of the Securities or such shorter period that will terminate
when all the Securities or New Securities, as applicable, covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement (in any such case, such period being called the "Shelf Registration
Period"). The Company and Holding shall be deemed not to have used their best
efforts to keep the Shelf Registration Statement effective during the Shelf
Registration Period if either of them voluntarily takes any action that would
result in Holders of securities covered thereby not being able to offer and sell
such securities during that period, unless (i) such action is required by
applicable law or (ii) such action is taken by the Company or Holding in good
faith and for valid business reasons (not including avoidance of the Company's
or Holding's obligations hereunder), including the acquisition or divestiture of
assets, so long as the Company or Holding promptly thereafter complies with the
requirements of Section 4(k) hereof, if applicable.
4. Registration Procedures. In connection with any Shelf
------------------------
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company and Holding shall furnish to the Purchasers, prior to
the filing thereof with the Commission, a copy of any Shelf Registration
Statement and any Exchange Offer Registration Statement, each amendment
thereof and each amendment or supplement, if any, to the Prospectus
included therein and shall use their best efforts to reflect in each such
document, when so filed with the Commission, such comments as the
Purchasers or any Holder reasonably may propose.
(b) The Company and Holding shall ensure that (i) any Registration
Statement and any amendment thereto and any Prospectus forming part thereof
and any
<PAGE>
10
amendment or supplement thereto complies in all material respects with the
Act and the rules and regulations thereunder, (ii) any 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
Registration Statement, and any amendment or supplement to such Prospectus,
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.
(c) (1) The Company and Holding shall advise the Purchasers and, in
the case of a Shelf Registration Statement, the Holders of securities
covered thereby, and, if requested by you or any such Holder, confirm such
advice in writing:
(i) when a Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information.
(2) The Company and Holding shall advise the Purchasers and, in the
case of a Shelf Registration Statement, the Holders of securities covered
thereby, and, in the case of an Exchange Offer Registration Statement, any
Exchanging Dealer which has provided in writing to the Company and Holding
a telephone or facsimile number and address for notices, and, if requested
by the Purchasers or any such Holder or Exchanging Dealer, confirm such
advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Company or Holding of any
notification with respect to the suspension of the qualification of
the securities included therein for sale in any jurisdiction or the
<PAGE>
11
initiation or threatening of any proceeding for such purpose; and
(iii) of the happening of any event that requires the making of
any changes in the Registration Statement or the Prospectus so that,
as of such date, 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 case of the
Prospectus, in the light of the circumstances under which they were
made) not misleading (which advice shall be accompanied by an
instruction to suspend the use of the Prospectus until the requisite
changes have been made).
(d) The Company and Holding shall use their best efforts to obtain
the withdrawal of any order suspending the effectiveness of any
Registration Statement at the earliest possible time.
(e) The Company and Holding shall furnish to each Holder of
securities included within the coverage of any Shelf Registration
Statement, without charge, at least one copy of such Shelf Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, and, if the Holder so requests in writing, any
documents incorporated by reference therein and all exhibits thereto
(including those incorporated by reference therein).
(f) The Company and Holding shall, during the Shelf Registration
Period, deliver to each Holder of 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 and Holding consent to the
use of the Prospectus or any amendment or supplement thereto by each of the
selling Holders of securities in connection with the offering and sale of
the securities covered by the Prospectus or any amendment or supplement
thereto.
(g) The Company and Holding shall furnish to each Exchanging Dealer
which so requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules and, if the Exchanging Dealer so
requests in writing, any
<PAGE>
12
documents incorporated by reference therein and all exhibits thereto
(including those incorporated by reference therein).
(h) The Company and Holding shall, during the Exchange Offer
Registration Period, promptly deliver to each Exchanging Dealer, without
charge, as many copies of the Prospectus included in such Exchange Offer
Registration Statement and any amendment or supplement thereto as such
Exchanging Dealer may reasonably request for delivery by such Exchanging
Dealer in connection with a sale of New Securities received by it pursuant
to the Registered Exchange Offer; and the Company and Holding consent to
the use of the Prospectus or any amendment or supplement thereto by any
such Exchanging Dealer, as aforesaid.
(i) Prior to the Registered Exchange Offer or any other offering of
securities pursuant to any Registration Statement, the Company and Holding
shall register or qualify or cooperate with the Holders of securities
included therein and their respective counsel in connection with the
registration or qualification of such securities for offer and sale under
the securities or blue sky laws of such jurisdictions as any such Holder
reasonably requests in writing and do any and all other acts or things
necessary or advisable to enable the offer and sale in such jurisdictions
of the securities covered by such Registration Statement; provided,
--------
however, that the Company and Holding 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.
(j) The Company and Holding shall cooperate with the Holders of
Securities to facilitate the timely preparation and delivery of
certificates representing securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as Holders may request prior to
sales of securities pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company and Holding shall promptly prepare a post-
effective amendment to any Registration Statement or an amendment or
supplement to the related Prospectus or file any other
<PAGE>
13
required document so that, as thereafter delivered to purchasers of the
securities included therein, the Prospectus will not include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company and Holding shall provide CUSIP numbers
for the Securities or New Securities, as the case may be, registered under
such Registration Statement, and provide the Transfer Agent or the Trustee
(or the transfer agent for the Company Preferred Stock or the trustee under
the Exchange Indenture), as applicable, with printed certificates for such
Securities or New Securities, in a form, if requested by the applicable
Holder or Holder's Counsel, eligible for deposit with The Depository Trust
Company or any successor thereto under the Certificate of Designation for
the Holding Preferred Stock or the Indenture (or the certificate of
designation for the Company Preferred Stock or the Exchange Indenture), as
applicable.
(m) The Company and Holding shall use their best efforts to comply
with all applicable rules and regulations of the Commission to the extent
and so long as they are applicable to the Registered Exchange Offer or the
Shelf Registration and will make generally available to their security
holders a consolidated earnings statement (which need not be audited)
covering a twelve-month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter, as
soon as practicable after the end of such period, which consolidated
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
(n) The Company and Holding shall cause the Indenture and the
Exchange Indenture, as applicable, to be qualified under the Trust
Indenture Act of 1939, as amended, on or prior to the effective date of any
Shelf Registration Statement or Exchange Offer Registration Statement.
(o) The Company and Holding may require each Holder of securities to
be sold pursuant to any Shelf Registration Statement to furnish to the
Company and Holding such information regarding the Holder and the
distribution of such securities as the Company and
<PAGE>
14
Holding may from time to time reasonably require for inclusion in such
Registration Statement.
(p) The Company and Holding shall, if requested, promptly incorporate
in a Prospectus supplement or post-effective amendment to a Shelf
Registration Statement, such information as the Managing Underwriters and
Majority Holders reasonably agree should be included therein and shall make
all required filings of such Prospectus supplement or post-effective
amendment as soon as notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment.
(q) In the case of any Shelf Registration Statement, the Company and
Holding shall enter into such agreements (including underwriting
agreements) and take all other appropriate actions in order to expedite or
facilitate the registration or the disposition of the Securities, and in
connection therewith, if an underwriting agreement is entered into, cause
the same to contain indemnification provisions and procedures no less
favorable than those set forth in Section 7 hereof (or such other
provisions and procedures acceptable to the Majority Holders and the
Managing Underwriters, if any), with respect to all parties to be
indemnified pursuant to Section 7 hereof from Holders of Securities to the
Company and Holding.
(r) In the case of any Shelf Registration Statement, the Company and
Holding shall (i) make reasonably available for inspection by the Holders
of securities to be registered thereunder, any underwriter participating in
any disposition pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by the Holders or any such underwriter
all relevant financial and other records, pertinent corporate documents and
properties of the Company, Holding and their subsidiaries; (ii) cause the
Company's and Holding's officers, directors and employees to supply all
relevant information reasonably requested by the Holders or any such
underwriter, attorney, accountant or agent in connection with any such
Registration Statement as is customary for similar due diligence
examinations; provided, however, that any information that is designated in
-------- -------
writing by the Company and Holding, in good faith, as confidential at the
time of delivery of such information shall be kept confidential by the
Holders or any such underwriter, attorney, accountant or agent, unless such
disclosure is made in connection with a court proceeding or
<PAGE>
15
required by law, or such information becomes available to the public
generally or through a third party without an accompanying obligation of
confidentiality; (iii) make such representations and warranties to the
Holders of securities registered thereunder and the underwriters, if any,
in form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings; (iv) obtain opinions of
counsel to the Company and Holding (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the Managing
Underwriters, if any) addressed to each selling Holder and the
underwriters, if any, covering such matters as are customarily covered in
opinions requested in underwritten offerings and such other matters as may
be reasonably requested by such Holders and underwriters; (v) obtain "cold
comfort" letters (or, in the case of any person that does not satisfy the
conditions for receipt of a "cold comfort" letter specified in Statement on
Auditing Standards No. 72, an "agreed-upon procedures" letter) and updates
thereof from the independent certified public accountants of the Company
and Holding (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company and Holding or of any business
acquired by the Company and Holding for which financial statements and
financial data are, or are required to be, included in the Registration
Statement), addressed to each selling Holder of securities registered
thereunder and the underwriters, if any, in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with primary underwritten offerings; and (vi) deliver such
documents and certificates as may be reasonably requested by the Majority
Holders and the Managing Underwriters, if any, including those to evidence
compliance with Section 4(k) and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company
and Holding. The foregoing actions set forth in clauses (iii), (iv), (v)
and (vi) of this Section 4(r) shall be performed (A) on the effective date
of such Registration Statement and each post-effective amendment thereto
and (B) at each closing under any underwriting or similar agreement as and
to the extent required thereunder.
(s) In the case of any Exchange Offer Registration Statement, the
Company and Holding shall, if requested of a Purchaser by an Exchanging
Dealer, (i) obtain opinions of counsel to the Company and Holding (which
counsel and opinions (in form, scope and
<PAGE>
16
substance) shall be reasonably satisfactory to such Purchaser and its
counsel), addressed to such Purchaser, covering such matters as are
customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such Purchaser or its
counsel and (ii) obtain "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company and Holding (and,
if necessary, any other independent certified public accountants of any
subsidiary of the Company or Holding or of any business acquired by the
Company and Holding for which financial statements and financial data are,
or are required to be, included in the Registration Statement), addressed
to such Purchaser, in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with primary
underwritten offerings, or if requested by such Purchaser or its counsel in
lieu of a "cold comfort" letter, an agreed-upon procedures letter under
Statement on Auditing Standards No. 35, covering matters requested by such
Purchaser or its counsel. The foregoing actions, if requested as set forth
above, shall be performed (A) at the close of the Registered Exchange Offer
and (B) on the effective date of any post-effective amendment to the
Exchange Offer Registration Statement.
5. Additional Exchange Offer. In the event that for any reason the
--------------------------
shares of Company Preferred Stock or Company Exchange Debentures received by
Holders in exchange for Holding Preferred Stock or Company Preferred Stock
following the filing of the Exchange Offer Registration Statement or Shelf
Registration Statement are not freely tradeable, the Company will (i) prepare
and, not later than 30 days following such exchange, file a registration
statement with the Commission with respect to a registered offer to exchange
such Company Preferred Stock or Company Exchange Debentures, as the case may be,
for New Company Preferred Stock or New Company Exchange Debentures and (ii) use
its best efforts to cause such registration statement to become effective under
the Act as soon as practicable, but in any event within 90 days after the date
of such filing. Upon the effectiveness of such registration statement, the
Company shall promptly commence such exchange offer on the terms set forth in
Section 2. If, (i) because of any change in law or applicable interpretations
thereof by the Commission's staff, the Company is not permitted to effect such
registered exchange offer as contemplated by this Section 5, (ii) for any other
reason such exchange offer registration statement is not declared effective
within 120 days after such exchange or such registered
<PAGE>
17
exchange offer is not consummated within 150 days after such exchange, (iii) any
Purchaser so requests with respect to Company Preferred Stock or Company
Exchange Debentures not eligible to be exchanged for New Company Preferred Stock
or New Company Exchanged Debentures in such Registered Exchange Offer or, in the
case of any Purchaser that participates in such registered exchange offer, such
Purchaser does not receive freely tradable New Securities, (iv) any Holder
(other than a Purchaser) is not eligible to participate in such registered
exchange offer or (v) in the case of any such Holder that participates in such
registered exchange offer, such Holder does not receive freely tradable New
Securities in exchange for tendered securities, other than by reason of such
Holder being an Affiliate of the Company within the meaning of the Act, the
Company shall as promptly as practicable (but in no event more than 30 days
after so required or requested pursuant to this Section 5) file with the
Commission and thereafter shall use its best efforts to cause to be declared
effective under the Act a Shelf Registration Statement relating to the offer and
sale of the Company Preferred Stock or Company Exchange Debentures, in
accordance with the provisions of Section 3. The Company shall use its best
efforts to keep such Shelf Registration Statement continuously effective in
order to permit the Prospectus forming part thereof to be usable by Holders for
a period of two years after the later of (x) the date of the original issuance
of the Company Preferred Stock or Company Exchange Debentures, as applicable (or
until one year after such date if such Shelf Registration Statement is filed at
the request of a Purchaser and (y) the last date on which any Affiliate of the
Company was a beneficial owner of such Securities or such shorter period that
will terminate when all Securities covered thereby have been sold thereunder.
The Company shall be deemed not to have used its best efforts to keep such Shelf
Registration Statement effective during such period if it voluntarily takes any
action that would result in Holders of Securities covered thereby not being able
to offer and sell such Securities during that period, unless (i) such action is
required by applicable law or (ii) such action is taken by the Company in good
faith and for valid business reasons (not including avoidance of the Company's
obligations hereunder), including the acquisition or divestiture of assets, so
long as the Company promptly thereafter complies with the requirements of
Section 4(k) hereof, if applicable.
6. Registration Expenses. The Company and Holding shall bear all
----------------------
expenses incurred in connection with the performance of their obligations under
Sections 2, 3, 4 and 5 hereof and, (a) in the event of any Shelf Registration
Statement, will reimburse the Holders for the reasonable
<PAGE>
18
fees and disbursements of one firm or counsel (in addition to one local counsel
in each relevant jurisdiction) designated by the Majority Holders to act as
counsel for the Holders in connection therewith ("Holders' Counsel"), and (b) in
the case of any Exchange Offer Registration Statement, will reimburse the
Purchasers for the reasonable fees and disbursements of counsel acting in
connection therewith; provided, that the Company and Holding shall not be
--------
obligated to reimburse the Purchasers in excess of $10,000 in the aggregate
pursuant to this clause (b).
7. Indemnification and Contribution. (a) In connection with any
---------------------------------
Registration Statement, the Company and Holding agree, jointly and severally, to
indemnify and hold harmless each Holder of securities covered thereby (including
each Purchaser and, with respect to any Prospectus delivery as contemplated in
Section 4(h) hereof, each Exchanging Dealer), the directors, officers, employees
and agents of each such Holder and each other person, if any, who controls any
such Holder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Act, the
Exchange Act or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement as originally filed or in any amendment thereof, or in any preliminary
Prospectus or Prospectus, or in any amendment thereof or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and agrees to reimburse each such indemnified
party, as incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company and Holding will not be
-------- -------
liable in any case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company and Holding by or
on behalf of any such Holder specifically for inclusion therein; provided
--------
further, however, that the indemnity agreement contained in this Section 7(a)
- ------- -------
shall not inure to the benefit of any indemnified party to the extent that it is
determined by a final, non-appealable judgment that (i) any Registration
Statement or Prospectus, or any
<PAGE>
19
amendment thereof or supplement thereto, contained an untrue statement of a
material fact or omitted to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii) the
sale to the person asserting any such losses, claims, damages or liabilities was
an initial resale of New Securities by any Exchanging Dealer, (iii) any such
loss, claim, damage or liability of such indemnified party results from the fact
that there was not sent or given to such person, at or prior to the written
confirmation of the sale of such New Securities to such person, a copy of any
amended or supplemented Registration Statement or Prospectus and the Company or
Holding had previously furnished copies thereof to such Exchanging Dealer and
(iv) the amended or supplemented Registration Statement or Prospectus as amended
or supplemented corrected such untrue statement or omission.
This indemnity agreement will be in addition to any liability which
the Company and Holding may otherwise have.
The Company and Holding also agree to indemnify or contribute to
Losses (as defined below) of, as provided in Section 7(d), any underwriters of
Securities registered under a Shelf Registration Statement, their officers,
directors, employees and agents and each person who controls such underwriters
on substantially the same basis as that of the indemnification of the Purchasers
and the selling Holders provided in this Section 7(a) and shall, if requested by
any Holder, enter into an underwriting agreement reflecting such agreement, as
provided in Section 4(q) hereof.
(b) Each Holder of securities covered by a Registration Statement
(including each Purchaser and, with respect to any Prospectus delivery as
contemplated in Section 4(h) hereof, each Exchanging Dealer) severally and not
jointly agrees to indemnify and hold harmless the Company and Holding, each of
their directors and officers and each other person, if any, who controls the
Company or Holding within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
and Holding to each such Holder, but only with reference to written information
relating to such Holder furnished to the Company and Holding by or on behalf of
such Holder specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to any
liability which any such Holder may otherwise have.
<PAGE>
20
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 7, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to participate therein and, to
the extent it may wish, to assume the defense thereof with counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
-------- -------
satisfactory to the indemnified party. Notwithstanding the indemnifying party's
election to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees, costs
and expenses of such separate counsel if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party; provided that the indemnifying
party shall not be responsible for the expenses of more than one separate
counsel (in addition to one local counsel in each relevant jurisdiction) in any
one action. An indemnifying party will not, without the prior written consent
of the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim,
<PAGE>
21
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding. An indemnified
party will not, without the prior written consent of the indemnifying party,
which consent will not be unreasonably withheld, settle or compromise or consent
to the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 7 is unavailable to or insufficient to hold harmless an
indemnified party for any reason (other than as provided in paragraph (a)),
then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall have a joint and several obligation to contribute to
the aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which such indemnified party may be subject in such
proportion as is appropriate to reflect the relative benefits received by such
indemnifying party, on the one hand, and such indemnified party, on the other
hand, from the Initial Placement and the Registration Statement which resulted
in such Losses; provided, however, that in no case shall any Purchaser or any
-------- -------
subsequent Holder of any Security or New Security be responsible, in the
aggregate, for any amount in excess of the purchase discount or commission
applicable to such Security, or in the case of a New Security, applicable to the
Security which was exchangeable into such New Security, as set forth on the
cover page of the Final Memorandum, nor shall any underwriter be responsible for
any amount in excess of the underwriting discount or commission applicable to
the securities purchased by such underwriter under the Registration Statement
which resulted in such Losses. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the indemnifying party and the
indemnified party shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of such
indemnifying party, on the one hand, and such indemnified party, on the other
hand, in connection with the statements or omissions which resulted in such
Losses as well as any other relevant equitable considerations. Benefits
received by the Company and Holding shall be deemed to be equal to
<PAGE>
22
the sum of (x) the total net proceeds from the Initial Placement (before
deducting expenses) as set forth on the cover page of the Final Memorandum and
(y) the total amount of additional interest or dividend which the Company and
Holding were not required to pay as a result of registering the securities
covered by the Registration Statement which resulted in such Losses. Benefits
received by the Purchasers shall be deemed to be equal to the total purchase
discounts and commissions as set forth on the cover page of the Final
Memorandum, and benefits received by any other Holders shall be deemed to be
equal to the value of receiving Securities or New Securities, as applicable,
registered under the Act. Benefits received by any underwriter shall be deemed
to be equal to the total underwriting discounts and commissions, as set forth on
the cover page of the Prospectus forming a part of the Registration Statement
which resulted in such Losses. Relative fault shall be determined by reference
to whether any alleged untrue statement or omission relates to information
provided by the indemnifying party, on the one hand, or by the indemnified
party, on the other hand. The parties agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any other
method of allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this paragraph (d), no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 7,
each person who controls a Holder within the meaning of either the Act or the
Exchange Act and each director, officer, employee and agent of such Holder shall
have the same rights to contribution as such Holder, and each person who
controls the Company or Holding within the meaning of either the Act or the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company or Holding shall have the same rights
to contribution as the Company or Holding, subject in each case to the
applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 7 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder, the
Company, Holding or any underwriter or any of the officers, directors or
controlling persons referred to in this Section 7, and will survive the sale by
a Holder of securities covered by a Registration Statement.
<PAGE>
23
8. Miscellaneous.
--------------
(a) No Inconsistent Agreements. The Company and Holding have not, as
---------------------------
of the date hereof, entered into, nor shall they, on or after the date hereof,
enter into, any agreement with respect to their securities that is inconsistent
with the rights granted to the Holders herein or otherwise conflicts with the
provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
-----------------------
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company and Holding have obtained
the written consent of the Holders of at least a majority of the then
outstanding aggregate principal amount or Liquidation preference, as the case
may be, of Securities (or, after the consummation of any Exchange Offer in
accordance with Section 2 hereof, of New Securities); provided that, with
--------
respect to any matter that directly or indirectly affects the rights of any
Purchaser hereunder, the Company and Holding shall obtain the written consent of
each such Purchaser against which such amendment, qualification, supplement,
waiver or consent is to be effective. Notwithstanding the foregoing (except the
foregoing proviso), a waiver or consent to departure from the provisions hereof
with respect to a matter that relates exclusively to the rights of Holders whose
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 the
Majority Holders, determined on the basis of securities being sold rather than
registered under such Registration Statement.
(c) Notices. All notices and other communications provided for or
--------
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such
Holder to the Company and Holding in accordance with the provisions of
this Section 8(c), which address initially is, with respect to each
Holder, the address of such Holder maintained by the registrar under
the Indenture, Exchange Indenture, the Certificate of Designation of
the Holding Preferred Stock and the Certification of Designation for
the Company Preferred Stock, with a copy in like manner to Salomon
Brothers Inc by fax (212-783-2823) and
<PAGE>
24
confirmed by mail to it at Seven World Trade Center, New York, New
York 10048;
(2) if to you, initially at the address set forth in the Purchase
Agreement; and
(3) if to the Company or Holding, initially at their addresses
set forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given when received.
The Purchasers, the Company or Holding notice to the other may
designate additional or different addresses for subsequent notices or
communications.
(d) Successors and Assigns. This Agreement shall inure to the
-----------------------
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent by
the Company, Holding or subsequent Holders of Securities and/or New Securities.
The Company and Holding hereby agree to extend the benefits of this Agreement to
any Holder of Securities and/or New Securities and any such Holder may
specifically enforce the provisions of this Agreement as if an original party
hereto.
(e) Counterparts. This Agreement may be executed in any number of
-------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(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 INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO
THE CONFLICT OF LAW PROVISIONS THEREOF).
(h) Severability. In the event that any one of more of the
-------------
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all the rights and privileges of the
parties shall be enforceable to the fullest extent permitted by law.
<PAGE>
25
(i) Securities Held by the Company, Holding, etc. Whenever the
---------------------------------------------
consent or approval of Holders of a specified percentage of principal amount of
Securities or New Securities is required hereunder, Securities or New
Securities, as applicable, held by the Company, Holding or their Affiliates
(other than subsequent Holders of Securities or New Securities if such
subsequent Holders are deemed to be Affiliates solely by reason of their
holdings of such Securities or New Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
<PAGE>
26
Please confirm that the foregoing correctly sets forth the agreement
between the Company, Holding and you.
Very truly yours,
HUDSON RESPIRATORY CARE, INC.
By: /s/ Richard W. Johansen
__________________________
Name: Richard W. Johansen
Title: President and Chief
Executive Officer
By: /s/ Jay R. Ogram
__________________________
Name: Jay R. Ogram
Title: Chief Financial
Officer
RIVER HOLDING CORP.
By: /s/ Charles P. Rullman
__________________________
Name: Charles P. Rullman
Title: President
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written
SALOMON BROTHERS INC
BT ALEX. BROWN INCORPORATED
By: SALOMON BROTHERS INC
By: /s/ H. Allen Bouch
_______________________
Name: H. Allen Bouch
Title: Director
<PAGE>
EXHIBIT 5.1
RIORDAN & McKINZIE
300 South Grand Avenue, Suite 2900
Los Angeles, California 90071
June 5, 1998
6-849-003
Hudson Respiratory Care Inc.
27711 Diaz Road
Post Office Box 9020
Temecula, California 92589-9020
Re: Hudson Respiratory Care Inc. -- Senior Subordinated Notes
due 2008 -- Registration Statement on Form S-4
-----------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Hudson Respiratory Care Inc., a California
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Securities Act") of, and the offer to
exchange, the Company's 9 1/8% Senior Subordinated Notes due 2008 to be
registered with the Securities and Exchange Commission (the "Commission") (the
"Exchange Notes"), for its outstanding 9 1/8% Senior Subordinated Notes due
2008. This opinion is delivered to you in connection with the Registration
Statement on Form S-4 (the "Registration Statement") for the aforementioned
Exchange Notes and exchange offer, filed as of the date hereof with the
Commission under the Securities Act. Capitalized terms used herein without
definition shall have the meanings given to them in the Registration Statement.
In rendering this opinion, we have examined copies identified to our
satisfaction as being copies of the Indenture, attached as an exhibit to the
Registration Statement, and originals, counterparts or copies identified to our
satisfaction as being true copies of such other documents as we have deemed
necessary or appropriate to render the opinions given below. We have assumed
the authenticity of all documents submitted to us as originals and the
conformity to authentic original documents of all documents submitted to us as
certified, conformed or photostatic copies.
We have investigated such questions of law for the purpose of
rendering this opinion as we have deemed necessary. We express no opinion with
respect to compliance with state securities laws or with respect to any state or
federal fraudulent conveyance statutes.
<PAGE>
Hudson Respiratory Care Inc.
June 5, 1998
Page 2
Based upon the foregoing and subject to the qualifications, exceptions
and limitations set forth herein, we are of the opinion that, when the Indenture
shall become qualified under the Trust Indenture Act of 1939, as amended, and
when the Exchange Notes shall have been duly executed, authenticated and
delivered in accordance with the Indenture and the exchange offer contemplated
by the Registration Statement, the Exchange Notes will be legally issued and
fully paid and constitute the legally valid and binding obligations of the
Company, except as may be limited by (i) bankruptcy, reorganization, insolvency
or other similar laws of general application affecting the rights and remedies
of creditors and secured parties and (ii) the discretion of the courts in
applying equitable principles.
To the extent that the obligations of the Company under the Indenture
may be dependent upon such matters, we assume for purposes of this opinion that
the Trustee is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization; that the Trustee is duly qualified to
engage in the activities contemplated by the Indenture; that the Indenture has
been duly authorized, executed and delivered by the Trustee and constitutes the
valid, binding and enforceable obligation of the Trustee; that the Trustee is in
compliance, generally and with respect to acting as a trustee under the
Indenture, with all applicable laws and regulations; and that the Trustee has
the requisite corporate and legal power and authority to perform its obligations
under the Indenture.
We advise you that certain members of this firm own interests,
directly or indirectly, in a partnership which owns a majority of the stock of
the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus which is a part of the Registration Statement.
Very truly yours,
Riordan & McKinzie
<PAGE>
EXHIBIT 10.1
EXECUTION COPY
CREDIT AGREEMENT
dated as of April 7, 1998
among
HUDSON RESPIRATORY CARE INC.,
RIVER HOLDING CORP.,
The Lenders Party Hereto,
SALOMON BROTHERS INC,
as Arranger, Advisor and Syndication Agent,
and
BANKERS TRUST COMPANY,
as Administrative Agent and Collateral Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
Definitions
SECTION 1.01. Defined Terms.......................................... 1
SECTION 1.02. Terms Generally........................................ 27
ARTICLE II
The Credits
SECTION 2.01. Commitments............................................ 27
SECTION 2.02. Loans.................................................. 28
SECTION 2.03. Borrowing Procedure.................................... 29
SECTION 2.04. Notes and Records...................................... 29
SECTION 2.05. Fees................................................... 30
SECTION 2.06. Interest on Loans...................................... 31
SECTION 2.07. Default Interest....................................... 31
SECTION 2.08. Alternate Rate of Interest............................. 32
SECTION 2.09. Termination and Reduction of Commitments............... 32
SECTION 2.10. Conversion and Continuation of Borrowings.............. 33
SECTION 2.11. Repayment of Term Borrowings........................... 34
SECTION 2.12. Prepayment............................................. 34
SECTION 2.13. Mandatory Prepayments.................................. 35
SECTION 2.14. Reserve Requirements................................... 37
SECTION 2.15. Change in Legality..................................... 38
SECTION 2.16 Indemnity.............................................. 39
SECTION 2.17. Pro Rata Treatment..................................... 39
SECTION 2.18. Sharing of Setoffs..................................... 39
SECTION 2.19. Payment................................................ 40
SECTION 2.20. Taxes.................................................. 40
SECTION 2.21. Assignment of Commitments Under Certain
Circumstances; Duty to Mitigate........................ 42
SECTION 2.22. Swingline Loans........................................ 43
SECTION 2.23. Letters of Credit...................................... 45
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers................................... 48
SECTION 3.02. Authorization.......................................... 48
SECTION 3.03. Enforceability......................................... 49
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SECTION 3.04. Governmental Approvals and Licenses.................... 49
SECTION 3.05. Financial Statements................................... 49
SECTION 3.06. No Material Adverse Change............................. 50
SECTION 3.07. Title to Properties; Possession Under Leases........... 50
SECTION 3.08. Subsidiaries........................................... 50
SECTION 3.09. Litigation; Compliance with Laws....................... 50
SECTION 3.10. Default in Material Agreements......................... 51
SECTION 3.11. Federal Reserve Regulations............................ 51
SECTION 3.12. Investment Company Act; Public Utility Holding
Company Act............................................ 51
SECTION 3.13. Use of Proceeds........................................ 51
SECTION 3.14. Tax Returns............................................ 51
SECTION 3.15. No Material Misstatements.............................. 52
SECTION 3.16. Employee Benefit Plans................................. 52
SECTION 3.17. Environmental Matters.................................. 52
SECTION 3.18. Insurance.............................................. 53
SECTION 3.19. Security Documents..................................... 53
SECTION 3.20. Location of Real Property and Leased Premises.......... 54
SECTION 3.21. Labor Matters.......................................... 54
SECTION 3.22. Solvency............................................... 54
SECTION 3.23. Year 2000.............................................. 54
ARTICLE IV
Conditions of Lending
SECTION 4.01. All Credit Events...................................... 54
SECTION 4.02. First Credit Event..................................... 55
ARTICLE V
Affirmative Covenants
SECTION 5.01. Existence; Businesses and Properties................... 58
SECTION 5.02. Insurance.............................................. 59
SECTION 5.03. Payment of Taxes....................................... 60
SECTION 5.04. Financial Statements, Reports, etc..................... 61
SECTION 5.05. Litigation and Other Notices........................... 62
SECTION 5.06. Employee Benefits...................................... 62
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections............................................ 62
SECTION 5.08. Use of Proceeds........................................ 63
SECTION 5.09. Compliance with Environmental Laws..................... 63
SECTION 5.10. Preparation of Environmental Reports................... 63
SECTION 5.11. Further Assurances..................................... 63
SECTION 5.12. Mortgaged Property Casualty and Condemnation........... 64
</TABLE>
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ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness........................................... 67
SECTION 6.02. Liens.................................................. 68
SECTION 6.03. Investments, Loans and Advances........................ 69
SECTION 6.04. Mergers, Consolidations, Sales of Assets and
Acquisitions........................................... 70
SECTION 6.05. Dividends and Distributions; Restrictions on Ability
of Subsidiaries to Pay Dividends....................... 70
SECTION 6.06. Transactions with Affiliates........................... 72
SECTION 6.07. Business of Holding, Borrower and Subsidiaries......... 72
SECTION 6.08. Capital Expenditures................................... 72
SECTION 6.09. Debt/Adjusted EBITDA Ratio............................. 73
SECTION 6.10. Minimum EBITDA......................................... 73
SECTION 6.11. Interest Coverage Ratio................................ 73
SECTION 6.12. Fixed Charge Coverage Ratio............................ 74
SECTION 6.13. Modification of Certain Agreements..................... 74
ARTICLE VII
Defaults and Remedies
SECTION 7.01. Events of Default...................................... 75
ARTICLE VIII
The Agents
SECTION 8.01. Appointment of Administrative and Collateral Agent..... 77
SECTION 8.02. Limitations on Liabilities............................. 77
SECTION 8.03. Acting at the Direction of the Required Lenders........ 78
SECTION 8.04. Resignation of the Administrative Agent or the
Collateral Agent....................................... 78
SECTION 8.05. Other Transactions..................................... 78
SECTION 8.06. Reimbursement and Indemnity............................ 78
SECTION 8.07. No Reliance............................................ 79
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices................................................ 79
SECTION 9.02. Survival of Agreement.................................. 80
SECTION 9.03. Effectiveness; Termination............................. 80
SECTION 9.04. Successors and Assigns................................. 80
SECTION 9.05. Expenses; Indemnity.................................... 83
SECTION 9.06. Right of Setoff........................................ 84
</TABLE>
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<S> <C> <C>
SECTION 9.07. Applicable Law......................................... 84
SECTION 9.08. Waivers; Amendment..................................... 84
SECTION 9.09. Interest Rate Limitation............................... 86
SECTION 9.10. Entire Agreement....................................... 86
SECTION 9.11. WAIVER OF JURY TRIAL................................... 86
SECTION 9.13. Counterparts........................................... 87
SECTION 9.14. Headings............................................... 87
SECTION 9.15. Jurisdiction; Consent to Service of Process............ 87
SECTION 9.16. Confidentiality........................................ 87
Annexes
- -------
Annex 1 - Initial Loan Commitments and Term Loan Commitments
Annex 2 - Administrative Information
Annex 3 - Description of the Recapitalization
Schedules
- ---------
Schedule 1.01(a) - Existing Letters of Credit
Schedule 1.01(b) - Mortgaged Properties
Schedule 1.01(c) - Subsidiary Guarantors
Schedule 3.07(b) - Exceptions to Compliance with Leases
Schedule 3.07(c) - Condemnation Proceedings
Schedule 3.08 - Subsidiaries
Schedule 3.09 - Litigation
Schedule 3.17 - Environmental Matters
Schedule 3.18 - Insurance
Schedule 3.19(d) - Mortgage Filing Offices
Schedule 3.20(a) - Owned Real Properties
Schedule 3.20(b) - Leased Real Properties
Schedule 4.02(b) - Local Counsel
Schedule 6.01(a) - Indebtedness to be Paid
Schedule 6.02(a) - Existing Liens
Exhibits
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Exhibit A - Administrative Questionnaire
Exhibit B - Form of Term Note
Exhibit C - Form of Revolving Credit Note
Exhibit D - Form of Swingline Note
Exhibit E - Form of Borrowing Request
Exhibit F - Form of Continuation/Conversion Request
Exhibit G - Form of Letter of Credit Request
Exhibit H - Form of Assignment and Acceptance
Exhibit I - Form of Security Agreement
Exhibit J - Form of Pledge Agreement
Exhibit K - Form of Mortgage
Exhibit L - Form of Holding Guarantee Agreement
Exhibit M - Form of Subsidiary Guarantee Agreement
Exhibit N - Form of Indemnity, Subrogation and Contribution
Agreement
</TABLE>
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<TABLE>
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Page
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<S> <C> <C>
Exhibit O - Form of Pricing Adjustment Certificate
Exhibit P - Form of Riordan & McKinzie, special California counsel
to Holding and the Borrower
Exhibit Q - Form of Opinion of Richards & O'Neil, special New York
counsel for Holding and Borrower
Exhibit R - Form of Opinion of Borrower's Local Counsel
</TABLE>
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<PAGE>
EXHIBIT 10.1
CREDIT AGREEMENT dated as of April 7, 1998, among HUDSON
RESPIRATORY CARE INC., a California corporation (the "Borrower"),
RIVER HOLDING CORP., a Delaware corporation ("Holding"), the
Lenders (as defined in Article I), SALOMON BROTHERS INC, as
Arranger, Advisor and Syndication Agent (in such capacity, the
"Syndication Agent"), and BANKERS TRUST COMPANY, a New York
banking corporation, as swingline lender (in such capacity, the
"Swingline Lender"), and as issuing bank (in such capacity, the
"Issuing Bank"), and as administrative agent (in such capacity,
the "Administrative Agent") and as collateral agent (in such
capacity, the "Collateral Agent") for the Lenders.
The Borrower has requested the Lenders to extend credit in the form of (a)
Term Loans (such term and each other capitalized term used but not defined
herein having the meaning given it in Article I) on the Closing Date, in an
aggregate principal amount not in excess of $40,000,000, and (b) Revolving Loans
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
$60,000,000. The Borrower has requested the Swingline Lender to extend credit,
at any time and from time to time prior to the Revolving Credit Maturity Date,
in the form of Swingline Loans. The Borrower has requested the Issuing Bank to
issue letters of credit, in an aggregate face amount at any time outstanding not
in excess of $7,500,000, to support obligations incurred in the ordinary course
of business by the Borrower and its Subsidiaries. The proceeds of the Loans are
to be used solely as set forth in Section 3.13.
The Lenders and the Swingline Lender are willing to extend such credit to
the Borrower and the Issuing Bank is willing to issue letters of credit for the
account of the Borrower on the terms and subject to the conditions set forth
herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms shall have the meanings specified below:
"ABR Borrowing" means a Borrowing comprised of ABR Loans.
"ABR Loan" means any ABR Term Loan or ABR Revolving Loan.
"ABR Revolving Loan" means any Revolving 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" means a Borrowing comprised of ABR Term Loans.
"ABR Term Loan" means any Term Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
<PAGE>
"Acquisition Agreement" means the Amended and Restated Merger
Agreement, dated as of March 15, 1998, among Holding, River Acquisition Corp.,
the Borrower and the Sellers, as amended and otherwise modified from time to
time with the consent of the Agents.
"Adjusted EBITDA" means, with respect to the Borrower and its
Subsidiaries for the four most recently completed fiscal quarters for which
financial statements are available, EBITDA on a consolidated basis after giving
effect to all Asset Acquisitions or Stock Acquisitions consummated during such
period on a pro forma basis (as if such acquisitions were made on the first day
of such period), plus the pro forma cost savings for such period calculated,
without duplication (a) in accordance with Regulation S-X under the Securities
Exchange Act of 1934, as amended, and (b) good faith estimates by management and
approved by the Agents of the results of determined events which have been
notified to the Agents in writing in reasonable detail and do not exceed 20% of
the reported EBITDA of the acquired business for previous four quarters.
"Adjusted Eurodollar Rate" means, 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 Eurodollar
Rate in effect for such Interest Period and (b) Statutory Reserves.
"Adjusted Working Capital" means, for any date, current assets (other
than cash and cash equivalent investments) less current liabilities (other than
current maturities of long-term debt).
"Administrative Agent" has the meaning assigned thereto in the
Preamble hereto.
"Administrative Agent Fees" has the meaning assigned thereto in
Section 2.05(b).
"Administrative Questionnaire" means an Administrative Questionnaire
in the form of Exhibit A.
"Affiliate" means, 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.
"Affiliate Transactions" has the meaning assigned thereto in Section
6.06.
"Aggregate Revolving Credit Exposure" means the aggregate amount of
the Lenders' Revolving Credit Exposures.
"Alternate Base Rate" means, for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day
plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. If for any reason the Administrative Agent shall have determined (which
determination shall be conclusive absent manifest error) that it is unable to
ascertain the Base CD Rate or the Federal Funds Effective Rate or both for any
reason, including the inability or failure of the Administrative Agent to obtain
sufficient quotations in accordance with the terms of the definition thereof,
the Alternate Base Rate shall be determined without regard to clause (b) or (c),
or both, of the preceding sentence, as appropriate, 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, the Base CD Rate or the Federal Funds
Effective Rate shall be effective on the effective date of such change in the
Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
The term "Prime Rate" means the rate of interest per
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<PAGE>
annum publicly announced from time to time by the Administrative Agent as its
prime rate in effect at its principal office in New York City; each change in
the Prime Rate shall be effective on the date such change is publicly announced
as being effective. The term "Base CD Rate" means the sum of (a) the product of
(i) the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the
Assessment Rate. The term "Federal Funds Effective Rate" means, 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 that is a Business Day,
the average of the quotations for the day for such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
"Applicable Percentage" of any Revolving Credit Lender at any time
means the percentage of the Total Revolving Credit Commitment represented by
such Lender's Revolving Credit Commitment. In the event the Revolving Credit
Commitments shall have expired or been terminated, the Applicable Percentages
shall be determined on the basis of the Revolving Credit Commitments most
recently in effect.
"Assessment Rate" means for any date the annual rate (rounded upwards,
if necessary, to the next 1/100 of 1%) most recently estimated by the
Administrative Agent as the then current net annual assessment rate that will be
employed in determining amounts payable by the Administrative Agent to the
Federal Deposit Insurance Corporation (or any successor thereto) for insurance
by such Corporation (or such successor) of time deposits made in dollars at the
Administrative Agent's domestic offices.
"Asset Acquisition" means a purchase, lease or other acquisition of
all or substantially all of the Assets of any person or of a division or
business of any person.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions) by Holding, the Borrower or any Restricted Subsidiary, including
any disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (a) any
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares) or (b) any other Assets of the Borrower or any Restricted
Subsidiary outside of the ordinary course of business of the Borrower or such
Restricted Subsidiary (other than, in the case of clauses (a) and (b) above, (i)
any disposition by a Restricted Subsidiary to the Borrower or by the Borrower or
a Restricted Subsidiary to a wholly owned Subsidiary, (ii) any disposition
effected in compliance with Section 6.04). "Asset Disposition" shall not
include any Sale/Leaseback Transaction.
"Assets" means property of any person other than capital stock, or
warrants, instruments or rights convertible into capital stock, of any person.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an assignee, and accepted by the Administrative Agent, in
the form of Exhibit or such other form as shall be approved by the
Administrative Agent.
"Average Life" means, as of any date of determination, with respect to
any Debt or Preferred Stock, the quotient obtained by dividing (a) the sum of
the product of the numbers of years (rounded to the nearest one-twelfth of one
year) from the date of determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by (b) the sum of
all such payments.
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<PAGE>
"Board" means the Board of Governors of the Federal Reserve System of
the United States of America.
"Borrower" has the meaning assigned thereto in the Preamble hereto.
"Borrowing" means a group of Loans of a single Type made by the
Lenders on a single date and as to which a single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower in accordance with
the terms of Section 2.03 or Section 2.22(b), as the case may be, and
substantially in the form of Exhibit E.
"Business Day" means any day other than a Saturday, Sunday or day on
which banks in New York City and Los Angeles are authorized or required by law
to close.
"Capital Expenditures" means capital expenditures of the Borrower and
its Subsidiaries determined in accordance with GAAP.
"Capital Lease Obligations" of any person means 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 the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Capital Stock" mean, with respect to any person, any shares or other
equivalents (however designated) of corporate stock, partnership interests or
any other participants, rights, warrants, options or other interests in the
nature of any equity interest in such person, including Preferred Stock, but
excluding any debt security convertible or exchangeable into such equity
interest.
"Casualty" has the meaning assigned thereto in Section 5.12(a).
"Casualty Proceeds" has the meaning assigned thereto in Section
5.12(a).
"Change of Control" means the occurrence of any of the following
events:
(a) prior to the first Public Equity Offering that results in a Public
Market, the Permitted Holders cease to be the "beneficial owners" (as defined in
Rule 13d-3 under the Exchange Act, except that a person will be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of a majority of the voting power of the
Voting Stock of the Borrower, whether as a result of the issuance of securities
of the Borrower, any merger, consolidation, liquidation or dissolution of the
Borrower, any direct or indirect transfer of securities by the Permitted Holders
or otherwise (for purposes of this clause, the Permitted Holders will be deemed
to beneficially own any Voting Stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation") so long
as the Permitted Holders beneficially own, directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of such parent
corporation); or
(b) after the first Public Equity Offering that results in a Public
Market, any "person" or "group" (as such terms are used in Sections 13(d)(3) and
14(d)(2) of the Exchange Act or any successor provisions to either of the
foregoing), including any group acting for the
4
<PAGE>
purpose of acquiring, holding, voting or disposing of securities within the
meaning of Rule 13d-5(b)(1) under the Exchange Act, other than any one or more
of the Permitted Holders, becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act, except that a person will be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of 25% or more of the voting power of the
Voting Stock of the Borrower; provided, however, that the Permitted Holders are
the "beneficial owners" (as defined in Rule 13d-3 under the Exchange Act, except
that a person will be deemed to have "beneficial ownership" of all shares that
any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, in the
aggregate of a lesser percentage of the total voting power of all classes of the
Voting Stock of the Borrower than such other person or group (for purposes of
this clause, such person or group shall be deemed to beneficially own any Voting
Stock of a specified corporation held by a parent corporation so long as such
person or group beneficially owns, directly or indirectly, in the aggregate a
majority of the voting power of the Voting Stock of such parent corporation); or
(c) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets of
the Borrower and the Restricted Subsidiaries, considered as a whole (other than
a disposition of such assets as an entirety or virtually as an entirety to a
wholly owned Subsidiary or one or more Permitted Holders) shall have occurred,
or the Borrower merges, consolidates or amalgamates with or into any other
person (other than one or more Permitted Holders) or any other person (other
than one or more Permitted Holders) merges, consolidates or amalgamates with or
into the Borrower, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Borrower is reclassified into or exchanged for
cash, securities or other Property, other than any such transaction where (i)
the outstanding Voting Stock of the Borrower is reclassified into or exchanged
for Voting Stock of the surviving corporation and (ii) the holders of the Voting
Stock of the Borrower immediately prior to such transaction own, directly or
indirectly, not less than a majority of the Voting Stock of the surviving
corporation immediately after such transaction and in substantially the same
proportion as before the transaction; or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election or appointment by such Board or whose nomination
for election by the shareholders of the Borrower was approved by a vote of 66-
2/3% of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors then in office;
(e) the shareholders of the Borrower shall have approved any plan of
liquidation or dissolution of the Borrower; or
(d) any transaction or series of related transactions constituting a
"change of control" or other similar occurrence under documentation evidencing
or governing any Indebtedness of the Borrower or its Restricted Subsidiaries of
$2,500,000 or more which results in an obligation of the Borrower or any
Restricted Subsidiary to prepay, purchase, offer to purchase, redeem or defease
such Indebtedness.
"Closing Date" means the date (which shall be on or prior to April 16,
1998) of the first Credit Event.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
5
<PAGE>
"Collateral" means all the "Collateral" as defined in any Security
Document and shall also include the Mortgaged Properties.
"Collateral Agent" has the meaning assigned thereto in the Preamble
hereto.
"Commitment" means, with respect to any Lender, such Lender's
Revolving Credit Commitment, Term Loan Commitment and Swingline Commitment.
"Commitment Fee" has the meaning assigned thereto in Section 2.05(a).
"Condemnation" has the meaning assigned thereto in Section 5.12(b).
"Condemnation Proceeds" has the meaning assigned thereto in Section
5.12(b).
"Confidential Information Memorandum" means the Confidential
Information Memorandum of the Borrower dated February 16, 1998.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Borrower and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent Incurred by the Borrower or its Restricted Subsidiaries, (a) interest
expense attributable to capital leases, (b) amortization of Indebtedness
discount and debt issuance cost, including commitment fees, (c) capitalized
interest, (d) non-cash interest expenses, (e) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (f) net costs associated with Hedging Obligations (including
amortization of fees), (g) dividends and other distributions on Disqualified
Stock, (h) Preferred Stock dividends in respect of all Preferred Stock of
Restricted Subsidiaries held by persons other than the Borrower or a wholly
owned Subsidiary (to the extent paid in cash), (i) interest Incurred in
connection with Investments in discontinued operations, (j) interest accruing on
any Indebtedness of any other person to the extent such Indebtedness is
Guaranteed by the Borrower or any Restricted Subsidiary and (k) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any person (other than the Borrower) in connection with Indebtedness Incurred
by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss)
of the Borrower and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income (a) any net income (loss)
of any person (other than the Borrower) if such person is not a Restricted
Subsidiary, except that (i) subject to the exclusion contained in clause (d),
the Borrower's equity in the net income of any such person for such period shall
be included in such Consolidated Net Income up to the aggregate amount of cash
distributed by such person during such period to the Borrower or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the limitations
contained in clause (c)) and (ii) the Borrower's equity in a net loss of any
such person other than an Unrestricted Subsidiary for such period shall be
included in determining such Consolidated Net Income, (b) for the purposes of
Section 6.06 only, any net income (loss) of any person acquired by the Borrower
or any of its consolidated Subsidiaries in a pooling of interests transaction
for any period prior to the date of such acquisition, (c) any net income (but
not loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject
to restrictions, directly or indirectly, on the payment of dividends or the
making of distributions, directly or indirectly, to the Borrower, except that
subject to the exclusion contained in clause (d), the Borrower's equity in the
net income of any such Restricted Subsidiary for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash distributed
by such Restricted Subsidiary during such period to the Borrower or another
Restricted Subsidiary
6
<PAGE>
as a dividend or other distribution (subject, in the case of a dividend or other
distribution to another Restricted Subsidiary, to the limitation contained in
this clause), (d) any gain (but not loss) realized upon the sale or other
disposition of any Property of the Borrower or any of its consolidated
Subsidiaries (including pursuant to any Sale and Leaseback Transaction) which is
not sold or otherwise disposed of in the ordinary course of business; provided,
that any tax benefit or tax liability resulting therefrom shall be excluded in
calculated such Consolidated Net Income, (e) any extraordinary gain or loss;
provided, that any tax benefit or tax liability resulting therefrom shall be
excluded in calculated such Consolidated Net Income, (f) the cumulative effect
of a change in accounting principles, (g) any non-cash compensation expense
realized for grants of performance shares, stock options or other stock awards
to officers, directors and employees of the Borrower or any Restricted
Subsidiary, (h) compensation expense realized with respect to periods prior to
the Closing Date in respect of payments under the Borrower's 1994 Amended and
Restated Equity Participation Plan, and (i) Contingent Acquisition-Related
Payments.
"Contingent Acquisition-Related Payments" means
(a) payments to the Sellers pursuant to the Acquisition Agreement in
an aggregate amount not to exceed $1,100,000 in any fiscal year or
$3,300,000 in the aggregate after the Closing Date while any Loans are
outstanding (plus, in each case, interest due on the unpaid portion of such
required payment in accordance with the Acquisition Agreement); and
(b) compensation expense, to the extent accrued in 1998, related to
contingent payments to existing managers of the Borrower pursuant to the
Acquisition Agreement in an aggregate amount not in excess of $2,400,000.
"Continuation/Conversion Request" means a continuation/conversion
request delivered by the Borrower to the Administrative Agent, in the form of
Exhibit or such other form as shall be approved by the Administrative Agent.
"Control" means 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 the terms "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Credit Documents" means this Agreement, the Letters of Credit, the
Notes, the Subsidiary Guarantee Agreement, Holding Guarantee Agreement, the
Security Documents and the Indemnity, Subrogation and Contribution Agreement.
"Credit Event" has the meaning assigned thereto in Section 4.01.
"Credit Parties" means the Borrower and the Guarantors.
"Debt" means, with respect to any person, all Indebtedness of such
person of the types referred to in clauses (a), (b), (c), (d), (e), (f) and (h)
of the definition of "Indebtedness".
"Debt/Adjusted EBITDA Ratio" means, as of any date with respect to the
Borrower and its consolidated Restricted Subsidiaries, (a) the total amount of
Debt of the Borrower and its consolidated Restricted Subsidiaries as of such
date, to (b) Adjusted EBITDA of the Borrower and its consolidated subsidiaries
for the period of four fiscal quarters most recently ended for which financial
statements are available.
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<PAGE>
"Default" means any event or condition which upon notice, lapse of
time or both would constitute an Event of Default.
"Disqualified Stock" means, with respect to any person, Redeemable
Stock of such person as to which (i) the maturity, (ii) mandatory redemption or
(iii) redemption, repurchase, conversion or exchange at the option of the holder
thereof occurs, or may occur, on or prior to the first anniversary of the Term
Loan Maturity Date; provided, however, that Redeemable Stock of such person that
-------- -------
would not otherwise be characterized as Disqualified Stock under this definition
shall not constitute Disqualified Stock (a) if such Redeemable Stock is
convertible or exchangeable into Debt or Disqualified Stock solely at the option
of the issuer thereof or (b) solely as a result of provisions thereof giving
holders thereof the right to require such person to repurchase or redeem such
Redeemable Stock upon the occurrence of a "change of control" occurring prior to
the first anniversary of the Term Loan Maturity Date, if (x) such repurchase
obligation may not be triggered in respect of such Redeemable Stock unless a
mandatory prepayment obligation also arises with respect to the Loans and (y) no
such repurchase or redemption is permitted to be consummated unless and until
such person shall have satisfied all mandatory prepayment obligations with
respect to the Loans.
"dollars" or "$" means lawful money of the United States of America.
"Domestic Subsidiaries" means all Restricted Subsidiaries incorporated
or organized under the laws of the United States of America, any State thereof
or the District of Columbia.
"EBITDA" means, for any period, an amount equal to, for the Borrower
and its consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net
Income for such period, plus the following to the extent reducing Consolidated
Net Income for such period: (i) the provision for taxes based on income or
profits or utilized in computing net loss, (ii) Consolidated Interest Expense,
(iii) depreciation, (iv) amortization and (v) any other non-cash items (other
than any such non-cash item to the extent that it represents an accrual of or
reserve for cash expenditures in any future period), minus (b) all non-cash
items increasing Consolidated Net Income for such period (other than any such
non-cash item to the extent that it will result in the receipt of cash payments
in any future period). Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization of, a
Restricted Subsidiary 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 Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Borrower by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its shareholders.
"Employee Notes" means promissory notes of employees of the Borrower,
Holding or their Subsidiaries payable to the Borrower or Holding and received in
connection with the substantially concurrent purchase of Capital Stock of the
Borrower or Holding by such employees.
"environment" means 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.
"Environmental Claim" means any written accusation, allegation, notice
of violation, claim, demand, order, directive, cost recovery action or other
cause of action by, or on
8
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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 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" means any and all applicable present 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 management,
Release or threatened Release of any Hazardous Material or to health and safety
matters, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. (S)(S) 9601 et seq. (collectively
"CERCLA"), the Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42
U.S.C. (S)(S) 6901 et seq., the Federal Water Pollution Control Act, as amended
by the Clean Water Act of 1977, 33 U.S.C. (S)(S) 1251 et seq., the Clean Air Act
of 1970, as amended 42 U.S.C. (S)(S) 7401 et seq., the Toxic Substances Control
Act of 1976, 15 U.S.C. (S)(S) 2601 et seq., the Occupational Safety and Health
Act of 1970, as amended, 29 U.S.C. (S)(S) 651 et seq., the Emergency Planning
and Community Right-to-Know Act of 1986, 42 U.S.C. (S)(S) 11001 et seq., the
Safe Drinking Water Act of 1974, as amended, 42 U.S.C. (S)(S) 300(f) et seq.,
the Hazardous Materials Transportation Act, 49 U.S.C. (S)(S) 5101 et seq., and
any similar or implementing state or local law, and all amendments or
regulations promulgated under any of the foregoing.
"Environmental Permit" means any permit, approval, authorization,
certificate, license, variance, filing or permission required by or from any
Governmental Authority pursuant to any Environmental Law.
"Environmental Property" has the meaning assigned thereto in Section
3.17(a).
"Equity Issuance" means the issuance by Holding or the Borrower of
any equity interests therein, or the issuance or sale by Holding or the Borrower
of any instrument or obligation convertible into or exchangeable for, or giving
any person any right, option or warrant to acquire from Holding or the Borrower
any equity interests therein or any such convertible or exchangeable instrument
or obligation, but excluding the Excluded Shares.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the 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.
"ERISA Event" means (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder, with respect to a Plan; (b)
the adoption of any amendment to a Plan that would require the provision of
security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c)
the existence with respect to any Plan of an "accumulated funding deficiency"
(as defined in Section 412 of the Code or Section 302 of
9
<PAGE>
ERISA), whether or not waived; (d) the filing pursuant to Section 412(d) of the
Code or Section 303(d) of ERISA of an application for a waiver of the minimum
funding standard with respect to any Plan; (e) the incurrence of any liability
under Title IV of ERISA with respect to the termination of any Plan or the
withdrawal or partial withdrawal of the Borrower or any of its ERISA Affiliates
from any Plan or Multiemployer Plan; (f) the receipt by the Borrower or any
ERISA Affiliate from the PBGC or a plan administrator of any notice relating to
the intention to terminate any Plan or Plans or to appoint a trustee to
administer any Plan; (g) the receipt by the Borrower or any ERISA Affiliate of
any notice concerning the imposition of Withdrawal Liability or a determination
that a Multiemployer Plan is, or is expected to be, insolvent or in
reorganization, within the meaning of Title IV of ERISA; (h) the occurrence of a
"prohibited transaction" with respect to which the Borrower or any of its
Subsidiaries is a "disqualified person" (within the meaning of Section 4975 of
the Code) or with respect to which the Borrower or any such Subsidiary could
otherwise be liable; and (i) any other event or condition with respect to a Plan
or Multiemployer Plan that could reasonably be expected to result in liability
of the Borrower.
"Eurodollar Borrowing" means a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Loan" means any Eurodollar Revolving Loan or Eurodollar
Term Loan.
"Eurodollar Rate" means, with respect to any Eurodollar Borrowing, the
rate (rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar
deposits approximately equal in principal amount to the Administrative Agent's
portion of such Eurodollar Borrowing and for a maturity comparable to such
Interest Period are offered to the principal New York office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 10:00 a.m., New York time, two Business Days prior to
the commencement of such Interest Period.
"Eurodollar Revolving Loan" means any Revolving Loan bearing interest
at a rate determined by reference to the Adjusted Eurodollar Rate in accordance
with the provisions of Article II.
"Eurodollar Term Borrowing" means a Borrowing comprised of Eurodollar
Term Loans.
"Eurodollar Term Loan" means any Term Loan bearing interest at a rate
determined by reference to the Adjusted Eurodollar Rate in accordance with the
provisions of Article II.
"Event of Default" has the meaning assigned thereto in Section 7.01.
"Excess Cash Flow" for any period, means EBITDA for such period, less
the sum of
(a) (i) permitted Capital Expenditures, (ii) Taxes, (iii) cash
consideration paid for Permitted Acquisitions (but excluding cash
consideration funded by a Borrowing under the Revolving Credit
Commitments), (iv) Consolidated Interest Expense, (v) increases in Adjusted
Working Capital for such period, (vi) scheduled and mandatory payments of
Debt, (vii) payments pursuant to Section 6.05(a)(i)(A) in connection with
purchases of Excluded Shares, (viii) Contingent Acquisition-Related
Payments, (ix) compensation payments made in such period in respect of
amounts excluded from the definition of "Consolidated Net Income" by virtue
of clause (h) thereof, and (x) dividends paid with
10
<PAGE>
respect to the Borrower's Exchangeable Preferred Stock to the extent
permitted by Section 6.05(a)(ii), in each case to the extent made in cash
during such period;
plus the sum of
(b) (i) decreases in Adjusted Working Capital for such period, (ii)
refunds of taxes paid in prior periods, and (iii) proceeds to the Borrower
or any Restricted Subsidiary of any Indebtedness referred to in Section
6.01(f), in each case to the extent received in cash or cash equivalents
during such period.
"Exchangeable Preferred Stock" means (a) with respect to the Borrower,
300,000 shares of the Borrower's 11 1/2% Senior PIK Preferred Stock due 2010,
liquidation preference $100 per share, and (b) with respect to Holding, 300,000
Shares of Holding's 11 1/2% Senior Exchangeable PIK Preferred Stock Due 2010
(Liquidation Preference $100 Per Share).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Shares" means Capital Stock of Holding or the Borrower
issued to a Subsidiary of the Borrower or to an employee stock ownership plan or
trust established by the Borrower or any of its Subsidiaries for the benefit of
their employees.
"Existing Letters of Credit" means each Letter of Credit previously
issued for the account of the Borrower that (a) is outstanding on the Closing
Date and (b) is listed on Schedule 1.01(a).
"Fair Market Value" means, with respect to any Property, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction.
"Fee Letter" means the Fee Letter dated February 3, 1998, among the
Borrower, the Administrative Agent and the Syndication Agent.
"Fees" means the Commitment Fees, the fees described in Section
2.05(c), the Administrative Agent's Fees, the L/C Participation Fees and the
Issuing Bank Fees.
"Financial Officer" means the Chief Executive Officer or the Chief
Financial Officer of the Borrower.
"Fixed Charge Coverage Ratio" means, with respect to the Borrower and
its Restricted Subsidiaries for any period of four consecutive fiscal quarters,
the ratio of (a) EBITDA for such period, to (b) the sum of Capital Expenditures
paid in cash, Consolidated Interest Expense, scheduled amortizations of Debt,
taxes paid or due and payable, and dividends or other distributions on the
Capital Stock of such person paid in cash (other than to the Borrower or another
Restricted Subsidiary), in each case for such period.
"Foreign Subsidiary" means any Subsidiary that is not a Domestic
Subsidiary.
"Freeman Spogli" means Freeman Spogli & Co. Incorporated, a Delaware
corporation.
"GAAP" means generally accepted accounting principles applied on a
consistent basis.
11
<PAGE>
"Governmental Authority" means any Federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body.
"Guarantee" of or by any person means 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, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness of the payment of such
Indebtedness or (c) 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; provided, however, that the
term "Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business.
"Guarantee Agreements" means Holding Guarantee Agreement and the
Subsidiary Guarantee Agreement.
"Guarantors" means Holding and the Subsidiary Guarantors.
"Hazardous Materials" means all explosive or radioactive substances or
wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or
gaseous wastes, including petroleum or petroleum distillates, asbestos or
asbestos containing materials, polychlorinated biphenyls ("PCBs") or PCB-
containing materials or equipment, radon gas, infectious or medical wastes and
all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Obligations" means, with respect to any person, all
obligations of such person in respect of Interest Rate Agreements, foreign
currency exchange agreements or other interest or exchange rate hedging
arrangements.
"Holding" has the meaning assigned thereto in the Preamble hereto.
"Holding Guarantee Agreement" means Holding Guarantee Agreement,
substantially in the form of Exhibit , made by Holding in favor of the
Collateral Agent for the benefit of the Secured Parties.
"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
Subsidiary at the time it becomes a Subsidiary. Any Indebtedness issued at a
discount (including Indebtedness on which interest is payable through the
issuance of additional Indebtedness) shall be deemed incurred at the time of
original issuance of the Indebtedness at the initial accreted amount thereof.
"Indebtedness" of any person means, without duplication, (a) all
obligations of such person for borrowed money or with respect to deposits or
advances of any kind held by it, (b) all obligations of such person evidenced by
bonds, debentures, notes or similar instruments, (c) financings of accounts
receivable, (d) all obligations of such person under 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 (excluding trade accounts payable and accrued obligations
incurred in the ordinary course of business), (f) all
12
<PAGE>
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 (measured as the fair market value of such
property, (g) all Guarantees by such person of Indebtedness of others (measured
by the amount for which such person would be liable), (h) all Capital Lease
Obligations of such person , (i) all net Hedging Obligations of such person and
(j) all obligations of such person as an account party in respect of letters of
credit and bankers' acceptances (other than trade letters of credit and trade
bankers' acceptances). The Indebtedness of any person shall include the
Indebtedness of any partnership in which such person is a general partner.
"Indebtedness to be Paid" has the meaning assigned thereto in Section
6.01(b).
"Indemnitee" has the meaning assigned thereto in Section 9.05(b).
"Indemnity, Subrogation and Contribution Agreement" means the
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit , among the Borrower, the Subsidiary Guarantors and the Collateral
Agent.
"Interest Payment Date" means, with respect to any 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 prepayment of such Borrowing
or conversion of such Borrowing to a Borrowing of a different Type.
"Interest Period" means
(a) as to any Eurodollar Borrowing, the period commencing on the date
of such Borrowing 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 (or, if Interest Periods of such duration
shall be available from each Lender, 9 or 12 months) thereafter, as the
Borrower may elect and
(b) as to any ABR Borrowing, the period commencing on the date of such
Borrowing and ending on the earlier of (i) the next succeeding March 31,
June 30, September 30 or December 31, and (ii) the Revolving Credit
Maturity Date or the Term Loan Maturity Date, as applicable,
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, in the case of a Eurodollar Borrowing only, 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 Rate Agreement" means, for any person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect against fluctuations in interest
rates.
"Investment" by any person means any direct or indirect loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidence
13
<PAGE>
of Indebtedness issued by, any other person. In determining the amount of any
Investment made by transfer of any Property other than cash, such Property shall
be valued at its Fair Market Value at the time of such Investment.
"Issuing Bank" has the meaning assigned thereto in the Preamble hereto
and Section 2.23(i).
"Issuing Bank Fees" has the meaning assigned thereto in Section
2.05(d).
"L/C Commitment" means the commitment of the Issuing Bank to issue
Letters of Credit pursuant to Section 2.23.
"L/C Disbursement" means a payment or disbursement made by the Issuing
Bank pursuant to a Letter of Credit.
"L/C Exposure" means 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 L/C Exposure of any Revolving Credit Lender at any time means
its Applicable Percentage of the aggregate L/C Exposure at such time.
"L/C Participation Fee" has the meaning assigned thereto in Section
2.05(c).
"Lenders" means (a) the financial institutions listed on Annex 2
(other than any such financial institution that has ceased to be a party hereto
pursuant to an Assignment and Acceptance) and (b) any financial institution that
has become a party hereto pursuant to an Assignment and Acceptance. Unless the
context clearly indicates otherwise, the term "Lenders" shall include the
Swingline Lender.
"Letter of Credit" means any letter of credit issued pursuant to
Section 2.23 and any Existing Letter of Credit.
"Letter of Credit Request" means a letter of credit issuance,
extension or amendment request delivered by the Borrower to the Administrative
Agent, in the form of Exhibit or such other form as shall be approved by the
Administrative Agent and the applicable Issuing Bank.
"Lien" means, 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 purchase option, call or
similar right of a third party with respect to such securities.
"Loans" means the Revolving Loans, the Term Loans and the Swingline
Loans.
"Margin Stock" has the meaning assigned thereto in Regulation U.
"Material Adverse Effect" means (a) a materially adverse effect on the
business, assets, operations, prospects or condition, financial or otherwise, of
the Borrower and the Subsidiaries, taken as a whole, (b) impairment of the
ability of the Borrower or any other Credit Party to perform any of its
obligations under any Credit Document to which it is or will be a party, which
impairment is material with respect to the Borrower and the other Credit Parties
14
<PAGE>
taken as a whole, or (c) impairment of the rights of or benefits available to
the Lenders under any Credit Document, which impairment is material with respect
to the Borrower and the other Credit Parties taken as a whole, to the Borrower,
or to a Material Subsidiary.
"Material Subsidiary" means a Restricted Subsidiary that, as of the
end of the most recent fiscal quarter for which financial statements are
available accounted for 10% or more of the Borrower's consolidated (i) total
assets, (ii) shareholders' equity,(iii) operating income (calculated for the
four most recently completed fiscal quarters for which financial statements are
available), or (iv) revenues (calculated for the four most recently completed
fiscal quarters for which financial statements are available), determined in
each case in accordance with GAAP.
"Moody's" means Moody's Investors Service, Inc.
"Mortgaged Properties" means the owned real properties and leasehold
and subleasehold interests of the Credit Parties specified on Schedule 1.01(b).
"Mortgages" means 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(k) or pursuant to Section 5.11,
each substantially in the form of Exhibit K.
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Net Cash Proceeds" means, with respect to any Prepayment Event,
(a) all cash or readily marketable cash equivalents received
(including by way of sale, discounting or payment of a note, installment
receivable or other instrument or obligation, but excluding any other
consideration received in the form of assumption by the acquiree of Indebtedness
or other obligations relating to such properties or assets or received in any
other noncash form) therefrom by such person, as part of the consideration for
such Prepayment Event, if applicable) received by or on behalf of Holding, the
Borrower or any Restricted Subsidiary in respect of such Prepayment Event, less
(b) the sum of
(i) the amount, if any, of all taxes (other than taxes based on
income) payable by Holding, the Borrower or any Restricted Subsidiary
in connection with such Prepayment Event and the Borrower's good-faith
best estimate of the amount of all taxes based on income payable in
connection with such Prepayment Event,
(ii) in the case of a Prepayment Event that is a Restricted
Asset Disposition, (A) the amount of any expense or reasonable reserve
established in accordance with GAAP against any liabilities associated
with the assets sold or disposed of and retained by the Borrower or
any Restricted Subsidiary (including (1) liabilities under any
indemnification obligations to the acquiror, (2) liabilities with
respect to representations and warranties, (3) liabilities retained
by the Borrower or such Restricted Subsidiary, and (4) employee
termination and similar costs relating to such disposition), provided
that the amount of any subsequent reduction of such reserve (other
than in connection with a payment in respect of any such liability)
shall be deemed to be Net Cash Proceeds of a Prepayment Event
occurring on the date of such reduction, and (B) the amount applied to
15
<PAGE>
repay any Indebtedness (other than the Loans) to the extent such
Indebtedness is required by its terms to be repaid as a result of such
Prepayment Event,
(iii) fees, commissions and expenses (including, in the case of
Casualty Proceeds and Condemnation Proceeds, the costs of adjustment
and condemnation proceedings) and other costs paid by Holding, the
Borrower or any Restricted Subsidiary in connection with such
Prepayment Event (other than those payable to the Borrower or any
Affiliate of the Borrower), in each case only to the extent not
already deducted in arriving at the amount referred to in clause (a);
and
(iv) all distributions and other payments made to minority
interest holders in Subsidiaries of such person or joint ventures as a
result of such Prepayment Event.
Notwithstanding the foregoing,
(a) no proceeds of any Restricted Asset Disposition of fixed or
capital assets, no Casualty Proceeds and no Condemnation Proceeds shall
constitute Net Cash Proceeds, to the extent that such proceeds held by the
Borrower or any Restricted Subsidiary to be reinvested, or are reinvested,
in other fixed or capital assets within one year of such Restricted Asset
Disposition; provided, that (i) at any time when the aggregate amount of
such proceeds from Restricted Asset Disposition held for reinvestment
exceeds $10,000,000 at any one time, such excess shall immediately
constitute Net Cash Proceeds, and (ii) at any time when an Event of Default
of type described in Section 7.01(b) or (c) shall have occurred and be
continuing, such proceeds shall immediately constitute Net Cash Proceeds to
the extent that the Borrower has not entered into binding agreements to
acquire assets with such proceeds, and
(b) there shall be excluded from Net Cash Proceeds up to $200,000 of
net proceeds of a single Equity Issuance to be made no more than 90 days
after the Closing Date.
"New Lending Office" has the meaning assigned thereto in Section
2.20(e).
"Non-U.S. Lender" has the meaning assigned thereto in Section 2.20(e).
"Notes" means the Term Notes, the Revolving Credit Notes and the
Swingline Notes.
"Obligations" means all obligations defined as "Obligations" in the
Guarantee Agreements and the Security Documents.
"Other Taxes" has the meaning assigned thereto in Section 2.20(b).
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA.
"Perfection Certificate" means the Perfection Certificate
substantially in the form of Annex 2 to the Security Agreement.
"Permitted Acquisition" means an Asset Acquisition or a Stock
Acquisition not in the ordinary course of the Borrower's business which in
either case satisfies each of the following conditions:
16
<PAGE>
(a) the Administrative Agent shall receive at least 15 days prior
written notice of such proposed Permitted Acquisition, which notice shall
include a detailed description of such proposed Permitted Acquisition and
the business rationale for such acquisition, and including, in the case of
a Stock Acquisition, financial statements of the Target;
(b) in the case of an Asset Acquisition, such assets shall comprise a
business, or assets of a business, of a type which is the same line of
business as the Borrower, or which is a related or complementary business
to that of the Borrower; and in the case of a Stock Acquisition, the
business of the Target shall be of a type which is the same line of
business as a the Borrower, or which is a related or complementary business
to that of the Borrower; provided, however, that (i) no such acquisition
would require the Administrative Agent or any Lender to obtain regulatory
or third party approvals in connection with the exercise of its rights and
remedies under this Agreement or any other Credit Documents other than
approvals required for the exercise of such rights and remedies with
respect to the Borrower prior to such Permitted Acquisition; and (ii) no
such acquisition would result in a material increase in the regulatory
burdens and obligations of the Borrower and its Subsidiaries taken as a
whole;
(c) in the case of a Stock Acquisition, after giving effect thereto,
the Target will either be merged with and into the Borrower, or shall be a
wholly owned Subsidiary of the Borrower;
(d) in the case of a Stock Acquisition, such Permitted Acquisition
shall be consensual and shall have been approved by the Target's board of
directors;
(e) no additional Indebtedness or Guarantees, and no other material
liabilities outside the ordinary course of business, shall be incurred,
assumed or otherwise be reflected on a consolidated balance sheet of the
Borrower after giving effect to such Permitted Acquisition, except (i)
Indebtedness permitted under Section 6.01 and operating leases, and (ii)
Debt Incurred in contemplation of such acquisition for the purposed of
financing such acquisitions consisting of:
(A) Revolving Loans, the aggregate principal amount of which,
when added to the aggregate outstanding principal amount of all other
Revolving Loans made to finance Permitted Acquisitions, shall not to
exceed $40,000,000 at any one time outstanding; and
(B) unsecured subordinated Debt, in form and substance
satisfactory to the Syndication Agent in all respects which is
permitted pursuant to Section 6.01(h);
(f) the sum of all amounts paid or payable in connection with any
single Permitted Acquisition (including all transaction costs and all
Indebtedness, liabilities and Guarantees and other contingent obligations
incurred or assumed in connection therewith (whether or not reflected on a
consolidated balance sheet of the Borrower) after giving effect to the
Permitted Acquisition) shall not exceed $30,000,000;
(g) in the case of
(i) a Stock Acquisition, the Target shall not have, and
17
<PAGE>
(ii) in the case of an Asset Acquisition for which the
consideration paid is $5,000,000 or more, the acquired assets if
considered as a stand-alone entity on a pro forma basis would not
have,
reported negative EBITDA for the four most recently completed fiscal quarters
for which financial statements are available preceding the date of the Permitted
Acquisition, as determined based upon the Target's audited financial statements
for its most recently completed fiscal year and its most recent interim
financial period completed within 60 days prior to the date of consummation of
such Permitted Acquisition;
(h) the business and assets acquired in such Permitted Acquisition
shall be free and clear of all Liens (other than Permitted Encumbrances);
(i) promptly following the closing of any Permitted Acquisition, the
Collateral Agent will be granted a first priority perfected Lien (subject
to Liens permitted pursuant to Section 6.02) in all assets acquired
pursuant thereto, and the Borrower (and, in the case of a Stock
Acquisition, the Target) shall have executed such documents and taken such
actions as may be required by the Collateral Agent in connection therewith;
(j) concurrently with delivery of the notice referred to in clause
(a), the Borrower shall have delivered to the Administrative Agent, a pro
forma consolidated balance sheet of the Borrower and its Subsidiaries (the
"Acquisition Pro Forma"), based on recent financial data, which shall be
complete and shall accurately and fairly represent the assets, liabilities,
financial condition and results of operations of the Borrower and its
Subsidiaries in accordance with GAAP consistently applied, but taking into
account such Permitted Acquisition and the funding of all Loans in
connection therewith, and such Acquisition Pro Forma shall reflect that;
(i) the Pro Forma Debt/Pro Forma EBITDA Ratio shall not exceed
the following amounts as of the date of such acquisition:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
ACQUISITION PRO FORMA DEBT/PRO FORMA EBITDA RATIO
OCCURRING IN
FISCAL
QUARTER
ENDING
NEAREST TO
- ----------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31 5.75:1.00 5.00:1.00 4.25:1.00 3.50:1.00 3.25:1.00 3.25:1.00
- ----------------------------------------------------------------------------------------------------
June 30 6.00:1:00 5.75:1.00 4.75:1.00 4.00:1.00 3.50:1.00 3.25:1.00
- ----------------------------------------------------------------------------------------------------
September 30 6.00:1:00 5.75:1.00 4.75:1.00 4.00:1.00 3.50:1.00 3.25:1.00
- ----------------------------------------------------------------------------------------------------
December 31 5.75:1.00 5.00:1.00 4.25:1.00 3.50:1.00 3.25:1.00 3.25:1.00
- ----------------------------------------------------------------------------------------------------
</TABLE>
and thereafter, 3.25:1.00.
(ii) on a pro forma basis, no Event of Default shall have
occurred and be continuing or would result after giving effect to such
Permitted Acquisition and the Borrower would have been in compliance
with the financial covenants set forth in Section 6.09 through Section
6.12 with a look-back for pro-forma compliance (the "Acquisition
Projections");
(k) the Borrower shall have delivered financial projections covering
the 5-year period commencing on the date of such Permitted Acquisition
based upon historical
18
<PAGE>
financial data of a recent date, taking into account such Permitted
Acquisition prepared in a manner consistent with the financial projections
delivered to the Agents in connection with the closing of this Agreement
(the "Closing Projections");
(l) the Borrower shall have delivered a certificate of a Financial
Officer of the Borrower to the effect that: (i) the Borrower will be
solvent upon the consummation of the Permitted Acquisition; (ii) the
Acquisition Pro Forma fairly presents the financial condition of the
Borrower and its Subsidiaries (on a consolidated basis) as of the date
thereof after giving effect to the Permitted Acquisition; and (iii) the
Acquisition Projections are reasonable estimates of the future financial
performance of the Borrower subsequent to the date thereof prepared in a
manner consistent with the Closing Projections of the Borrower (and, in
the case of a Stock Acquisition, the Target) and show that the Borrower
shall continue to be in compliance with the financial covenants set forth
in Section 6.09 through Section 6.12 for the 5-year period thereafter;
(m) except where substantially all of the consideration for such
acquisition consists of Capital Stock of the Borrower, on or prior to the
date of such Permitted Acquisition, the Administrative Agent shall have
received, in form and substance satisfactory to the Administrative Agent,
all opinions, certificates, lien search results and other documents
reasonably requested by the Administrative Agent;
(n) the Administrative Agent and the Lenders shall have received Phase
I reports (reasonably satisfactory in scope and substance to the Agents)
with respect to any owned property to be acquired; and
(o) at the time of such Permitted Acquisition and after giving effect
thereto, no Default or Event of Default shall have occurred and be
continuing.
"Permitted Holder" means Helen Hudson Lovaas, any member of senior
management of the Borrower or Holding on the Closing Date, Freeman Spogli or any
successor entity thereof controlled by the principals of Freeman Spogli and any
entity controlled by, or under common control with, Freeman Spogli.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America), in
each case maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, a
rating of A1/P1 from S&P and from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within one year from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of any commercial bank organized
under the laws of the United States of America or any State thereof that
has a combined capital and surplus and undivided profits of not less than
$250,000,000;
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(d) other investment instruments approved in writing by the Required
Lenders and offered by financial institutions which have a combined capital
and surplus and undivided profits of not less than $250,000,000; and
(e) interests in mutual funds which invest primarily in instruments
described in clauses (a), (b) and (c).
"Permitted Purchase Money Lien" means (a) purchase money and similar
Liens existing on the Closing Date or (b) Liens applicable to real property,
improvements thereto or equipment or other Property acquired or constructed
after the Closing Date by the Borrower or any Restricted Subsidiary; provided
that (i) such security interests are incurred, and the Indebtedness secured
thereby is created, no later than 12 months after such acquisition (or
completion of construction), and (ii) such security interests do not apply to
any other property or assets of the Borrower or any Subsidiary.
"person" means any natural person, corporation, business trust, joint
venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"Plan" means 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 or Section 307 of ERISA, and in respect of which the 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" means the Pledge Agreement, substantially in the
form of Exhibit , between the Borrower, Holding, the Subsidiaries party thereto
and the Collateral Agent for the benefit of the Secured Parties.
"Preferred Stock" means any Capital Stock of a person, however
designated, which entitles the holder thereof to a preference with respect to
the payment of dividends, or as to the distribution of assets upon any voluntary
or involuntary liquidation or dissolution of such person, over shares of any
other class of Capital Stock issued by such person.
"Prepayment Event" means any Incurrence of Debt of the Borrower or any
Subsidiary, any Equity Issuance, any Restricted Asset Disposition, any
Restricted Sale/Leaseback Transaction, any Casualty or any Condemnation.
"Pricing Adjustment" shall mean, for any day, with respect to any Loan
or with respect to the Commitment Fees, as the case may be, the Pricing
Adjustment set forth below, based upon the Debt/Adjusted EBITDA Ratio as of the
date of determination:
<TABLE>
<CAPTION>
CATEGORY 2
CATEGORY 1 DEBT/ADJUSTED EBITDA CATEGORY 3
DEBT/ADJUSTED EBITDA RATIO DEBT/ADJUSTED
RATIO LESS THAN 4.0:1.0 AND EBITDA RATIO
GREATER THAN OR EQUAL TO GREATER THAN OR EQUAL TO LESS THAN 3.5:1.0
4.0:1.0 3.5:1.0
------------------------ ------------------------ -----------------
<S> <C> <C> <C>
Commitment Fees 0% .0625% .125%
ABR Loans 0% .250% .500%
Eurodollar Loans 0% .250% .500%
</TABLE>
Each change in the Pricing Adjustment resulting from a change in the
Debt/Adjusted EBITDA Ratio shall become effective with respect to all
outstanding Loans and Commitments
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<PAGE>
on the Business Day after the date of receipt by the Administrative Agent of the
financial statements and certificates required by Section 5.04(a) or (b)
indicating such change until the date immediately preceding the next date of
delivery of such financial statements and certificates indicating another such
change. Notwithstanding the foregoing,
(i) the Pricing Adjustment shall be 0% for 12 months after the
Closing Date,
(ii) at any time during which the Borrower has failed to deliver the
financial statements and certificates required by Section 5.04(a) or (b),
the Debt/Adjusted EBITDA Ratio shall be deemed to be in Category 1 for
purposes of determining the Pricing Adjustment; and
(iii) at any time after the occurrence and during the continuance of
an Event of Default relating to Section 7.01(b), (c), or (d) (but only with
respect to breaches of the covenants contained in Section 6.09 through
Section 6.12), the Debt/Adjusted EBITDA Ratio shall be deemed to be in
Category 1 for purposes of determining the Pricing Adjustment.
"Pricing Adjustment Certificate" means an pricing adjustment
certificate delivered by the Borrower to the Administrative Agent, in the form
of Exhibit or such other form as shall be approved by the Administrative Agent.
"Pro Forma Debt/Pro Forma EBITDA Ratio" means, as of any date with
respect to the Borrower and its consolidated Restricted Subsidiaries, (a) the
total amount of Debt of the Borrower and its consolidated Restricted
Subsidiaries as of such date (after giving effect to any Debt assumed or
Incurred in connection with a proposed acquisition), to (b) Pro Forma EBITDA of
the Borrower and its consolidated subsidiaries for the four most recently
completed fiscal quarters for which financial statements are available.
"Pro Forma EBITDA" means, with respect to the Borrower and its
Subsidiaries for the most recently completed period of four fiscal quarters for
which financial statements are available, EBITDA on a consolidated basis after
giving effect to
(a) a proposed Asset Acquisition or Stock Acquisition on a pro forma
basis (as if such acquisition has been made on the first day of such
period), and
(b) all Asset Acquisitions or Stock Acquisitions consummated during
such period on a pro forma basis (as if such acquisitions were made on the
first day of such period),
plus the pro forma cost savings for such period calculated, without duplication
(a) in accordance with Regulation S-X under the Securities Exchange Act of 1934,
as amended, and (b) good faith estimates by management and approved by the
Agents of the results of determined events which have been notified to the
Agents in writing in reasonable detail and do not exceed 20% of the reported
EBITDA of the acquired business for previous four quarters.
"Property" means, with respect to any person, any interest of such
person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including Capital Stock in, and other securities of, any
other person.
"Public Equity Offering" means an underwritten public offering of
common stock of the Borrower pursuant to an effective registration statement
under the Securities Act.
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<PAGE>
"Recapitalization" has the meaning specified in Annex 3, and includes
any other transactions incidental thereto.
"Recapitalization Agreements" means the Acquisition Agreement, and any
other agreement, instrument or other document to be entered into or delivered
by, between or among the Borrower, the Sellers and any of their respective
Affiliates in connection with the Recapitalization, as each such agreement,
instrument or document may be amended, modified or supplemented from time to
time in accordance with the terms thereof and hereof.
"Redeemable Dividend" means, for any dividend with respect to
Redeemable Stock, the quotient of the dividend divided by the difference between
one and the maximum statutory federal income tax rate (expressed as a decimal
number between 1 and 0) then applicable to the issuer of such Redeemable Stock.
"Redeemable Stock" means, with respect to any person, any Capital
Stock that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable, in either case at the option of the
holder thereof,) or otherwise (a) matures or is mandatorily redeemable pursuant
to a sinking fund obligation or otherwise, (b) is or may become redeemable or
repurchaseable at the option of the holder thereof, in whole or in part, or (c)
is convertible or exchangeable, in either case at the option of the holder
thereof, for Debt or Disqualified Stock.
"Redemption Amount" has the meaning given such term in Section
4.02(t).
"Refinancing Indebtedness" means Indebtedness that is Incurred to
refund, refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and "refinanced"
shall have a correlative meaning) any Indebtedness existing on the Closing Date
or Incurred in compliance with this Agreement ((including (a) Indebtedness of
the Borrower that refinances Indebtedness of any Restricted Subsidiary (to the
extent permitted in this Agreement), (b) Indebtedness of any Restricted
Subsidiary that refinances Indebtedness of another Restricted Subsidiary, and
(c) Indebtedness that refinances Refinancing Indebtedness); provided, however,
that (i) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being refinanced, (ii) the Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being refinanced and (iii) such Refinancing Indebtedness is Incurred in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to or less than the aggregate principal
amount (or if issued with original issue discount, the aggregate accreted value)
then outstanding of the Indebtedness being refinanced, plus fees, underwriting
discounts and other costs and expenses incurred in connection with such
Refinancing Indebtedness; provided further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary that
is not a Subsidiary Guarantor that refinances Indebtedness of the Borrower or
(y) Indebtedness of the Borrower or a Restricted Subsidiary that refinances
Indebtedness of an Unrestricted Subsidiary.
"Register" has the meaning given such term in Section 9.04(d).
"Regulation G" means Regulation G of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation U" means Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
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<PAGE>
"Regulation X" means Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulatory Shares" means, with respect to any person, shares of such
person required to be issued as qualifying shares to directors or persons
similarly situated or shares issued to persons other than the Borrower or a
wholly owned subsidiary of the Borrower in response to regulatory requirements
of foreign jurisdictions pursuant to a resolution of the Board of Directors of
such person, so long as such shares do not exceed 1% of the total outstanding
shares of Capital Stock of such person and any owners of such shares irrevocably
waive or agree to remit to the Borrower any dividends or distributions payable
in respect of such shares.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
depositing, dispersing, emanating or migrating of any Hazardous Material in,
into, onto or through the environment.
"Remedial Action" means (a) "remedial action" as such term is defined
in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any
Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat,
abate or in any other way address any Hazardous Material in the environment;
(ii) prevent the Release or threat of Release, or minimize the further Release
of any Hazardous Material so it does not migrate or endanger or threaten to
endanger public health, welfare or the environment; or (iii) perform studies and
investigations in connection with, or as a precondition to, clause (i) or (ii).
"Repayment Date" has the meaning given such term in Section 2.11.
"Required Lenders" means, at any time, Lenders having Loans (excluding
Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit
Commitments and Term Loan Commitments representing at least a majority of the
sum of all Loans outstanding (excluding Swingline Loans), L/C Exposure,
Swingline Exposure and unused Revolving Credit Commitments and Term Loan
Commitments at such time.
"Responsible Officer" of any corporation means any executive officer
or Financial Officer of such corporation and any other officer or similar
official thereof responsible for the administration of the obligations of such
corporation in respect of this Agreement.
"Restricted Asset Disposition" means any sale, transfer, lease or
other disposition of any asset of the Borrower or any Subsidiary other than an
Unrestricted Asset Disposition.
"Restricted Payment" has the meaning assigned thereto in Section
6.05(a).
"Restricted Sale/Leaseback Transaction" means any Sale/Leaseback
Transaction other than an Unrestricted Sale/Leaseback Transaction.
"Restricted Subsidiary" means any Subsidiary of the Borrower other
than an Unrestricted Subsidiary.
"Revolving Credit Borrowing" means a Borrowing comprised of Revolving
Loans.
"Revolving Credit Commitment" means, with respect to each Lender, the
commitment of such Lender to make Revolving Loans hereunder as set forth on
Annex I, or in the Assignment and Acceptance pursuant to which such Lender
assumed its Revolving Credit Commitment, as applicable, as the same may be (a)
reduced from time to time pursuant to
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<PAGE>
Section 2.09 and (b) reduced or increased from time to time pursuant to
assignments by or to such Lender pursuant to Section 9.04.
"Revolving Credit Exposure" means, with respect to any Lender at any
time, the aggregate principal amount at such time of all outstanding Revolving
Loans of such Lender, plus the aggregate amount at such time of such Lender's
L/C Exposure, plus the aggregate amount at such time of such Lender's Swingline
Exposure.
"Revolving Credit Lender" means a Lender with a Revolving Credit
Commitment.
"Revolving Credit Maturity Date" means March 31, 2004.
"Revolving Credit Note" means a promissory note of the Borrower,
substantially in the form of Exhibit C, evidencing Revolving Loans.
"Revolving Loans" means the revolving loans made by the Lenders to the
Borrower pursuant to clause (b) of Section 2.01. Each Revolving Loan shall be a
Eurodollar Revolving Loan or an ABR Revolving Loan.
"S&P" means Standard & Poor's Ratings Service.
"Sale/Leaseback Transactions" means any arrangement, directly or
indirectly, with any person whereby it shall sell or transfer any property, real
or personal, used or useful in its business, 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.
"Secured Parties" has the meaning assigned thereto in the Security
Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement, substantially in
the form of Exhibit I, between the Borrower, the Subsidiaries party thereto and
the Collateral Agent for the benefit of the Secured Parties.
"Security Documents" means the Mortgages, the Security Agreement, the
Pledge Agreement 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.
"Sellers" means Helen Hudson Lovaas and the other shareholders of the
Borrower immediately before the Recapitalization.
"Senior Subordinated Notes" means the Borrower's 9 1/8% Senior
Subordinated Notes due 2008.
"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).
"Statutory Reserves" means 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
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<PAGE>
the maximum reserve percentages (including any marginal, special, emergency or
supplemental reserves) expressed as a decimal established by the Board and any
other banking authority, domestic or foreign, to which the Administrative Agent
or any Lender (including any branch, Affiliate, or other fronting office making
or holding a Loan) is subject (a) with respect to the Base CD Rate, for new
negotiable nonpersonal time deposits in dollars of over $100,000 with maturities
approximately equal to three months, and (b) with respect to the Adjusted
Eurodollar Rate, for Eurocurrency Liabilities (as defined in Regulation D of the
Board). Such reserve percentages shall include those imposed pursuant to such
Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency
Liabilities and 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 such Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Stock Acquisition" means an acquisition of Capital Stock of any
person other than in the ordinary course of the Borrower's business.
"Subordinated Obligation" means any Indebtedness of the Borrower or
any Subsidiary (whether outstanding on the Closing Date or thereafter Incurred)
which is subordinate or junior in right of payment to the Notes or the
applicable Guarantee pursuant to a written agreement to that effect.
"subsidiary" means, 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, owned, controlled or held, or (b) that is, at the time any
determination is made, otherwise Controlled, by Holding or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Subsidiary" means any subsidiary of the Borrower.
"Subsidiary Guarantee Agreement" means the Subsidiary Guarantee
Agreement, substantially in the form of Exhibit , made by the Subsidiary
Guarantors in favor of the Collateral Agent for the benefit of the Secured
Parties.
"Subsidiary Guarantor" means each Subsidiary listed on Schedule
1.01(c), and each other Subsidiary that is or becomes a party to a Subsidiary
Guarantee Agreement.
"Swingline Commitment" means the commitment of the Swingline Lender to
make loans pursuant to Section 2.22, as the same may be reduced from time to
time pursuant to Section 2.09 .
"Swingline Exposure" means at any time the aggregate principal amount
at such time of all outstanding Swingline Loans. The Swingline Exposure of any
Revolving Credit Lender at any time shall equal its Applicable Percentage of the
aggregate Swingline Exposure at such time.
"Swingline Lender" has the meaning assigned thereto in the Preamble
hereto.
"Swingline Loan" means any loan made by the Swingline Lender pursuant
to Section 2.22.
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<PAGE>
"Swingline Note" means a promissory note evidencing Swingline Loans,
executed and delivered as provided in Section 2.22 in substantially the form of
Exhibit .
"Syndication Agent" has the meaning assigned thereto in the Preamble.
"Target" means a person whose Capital Stock is the subject of a
proposed Permitted Acquisition.
"Taxes" has the meaning assigned thereto in Section 2.20(a).
"Term Borrowing" means a Borrowing comprised of Term Loans.
"Term Loan Commitment" means, with respect to each Lender, the
commitment of such Lender to make Term Loans hereunder as set forth on Annex 1,
or in the Assignment and Acceptance pursuant to which such Lender assumed its
Term Loan Commitment, as applicable, as the same may be (a) reduced from time to
time pursuant to Section 2.09 and (b) reduced or increased from time to time
pursuant to assignments by or to such Lender pursuant to Section 9.04.
"Term Loan Maturity Date" means March 31, 2004.
"Term Loans" means the term loans made by the Lenders to the Borrower
pursuant to Section 2.01. Each Term Loan shall be a Eurodollar Term Loan or an
ABR Term Loan.
"Term Note" means a promissory note of the Borrower, substantially in
the form of Exhibit , evidencing Term Loans.
"Three-Month Secondary CD Rate" means, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day shall not be a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not be so reported
on such day or such next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of major money center
banks in New York City received at approximately 10:00 a.m., New York City time,
on such day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Administrative Agent from three New York City negotiable
certificate of deposit dealers of recognized standing selected by it.
"Total Revolving Credit Commitment" means, at any time, the aggregate
amount of the Revolving Credit Commitments, as in effect at such time.
"Transaction Costs" means commitment fees, financing fees, advisory
fees, underwriting fees and discounts, and other out-of-pocket fees and expenses
relating to the Recapitalization, excluding any expenses of the Sellers which
are deducted from the Redemption Amount.
"Transactions" has the meaning assigned thereto in Section 3.02.
"Transferee" has the meaning assigned thereto in Section 2.20(a).
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<PAGE>
"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 Eurodollar Rate and the Alternate Base Rate.
"Unrestricted Asset Disposition" means, on a consolidated basis with
respect to the Borrower or any wholly owned Restricted Subsidiary, any sale,
transfer, lease or other disposition of any inventory, cash, Permitted
Investment, or obsolete or unusable Property of the Borrower or any Subsidiary
in the ordinary course of business and not otherwise in violation of this
Agreement.
"Unrestricted Sale/Leaseback Transaction" mean any Sale/Leaseback
Transaction which does not involve a sale or transfer of property which is owned
by the Borrower or its Restricted Subsidiaries on the Closing Date (or any
replacements thereof).
"Unrestricted Subsidiary" means (i) any Subsidiary of the Borrower
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors of the Borrower in the manner provided below and (ii)
any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Borrower may designate any Subsidiary of the Borrower (including any newly
acquired or newly formed Subsidiary of the Borrower) to be an Unrestricted
Subsidiary; provided, however, that (A) such Subsidiary and none of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Borrower or any other Subsidiary of the Borrower
that is not a Subsidiary of the Subsidiary to be so designated, and (B) the
Subsidiary to be so designated has total consolidated assets of $1,000 or less.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof.
"wholly owned Subsidiary" of any person means a Restricted Subsidiary
of which securities (except for Regulatory Shares) or other ownership interests
representing 100% of the equity or 100% of the ordinary voting power or 100% of
the general partnership interests are, at the time any determination is being
made, owned, controlled or held by the Borrower or one or more wholly owned
Subsidiaries of the Borrower or by the Borrower and one or more wholly owned
Subsidiaries of the Borrower.
"Withdrawal Liability" means 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.
"Work" has the meaning assigned thereto in Section 5.12(e).
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, Annexes, Exhibits and Schedules
shall be deemed references to Articles and Sections of, and Annexes, 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 Credit Document means 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
27
<PAGE>
in effect from time to time; provided, however, that for purposes of determining
compliance with the covenants contained in Article VI, all accounting terms
herein shall be interpreted and all accounting determinations hereunder shall be
made in accordance with GAAP as in effect on the date of this Agreement and
applied on a basis consistent with the application used in the financial
statements referred to in Section 3.05(a).
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, (a) to make a single Term Loan to the
Borrower on the Closing Date in a principal amount not to exceed its Term Loan
Commitment, and (b) to make Revolving Loans to the 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 Revolving Credit
Commitment of such Lender in accordance with the terms hereof, in an aggregate
principal amount at any time outstanding that will not result in (i) such
Lender's Revolving Credit Exposure exceeding (ii) such Lender's Revolving Credit
Commitment. Within the limits set forth in clause (b) of the preceding sentence
and subject to the terms, conditions and limitations set forth herein, the
Borrower may borrow, pay or prepay and reborrow Revolving Loans. Amounts paid
or prepaid in respect of Term Loans may not be reborrowed.
SECTION 2.02. Loans. (a) Each Loan (other than Swingline Loans) shall
be made as part of a Borrowing consisting of Loans made by the Lenders ratably
in accordance with their applicable Revolving Credit Commitments; provided,
however, that the failure of any Lender to make any Loan shall not in itself
relieve any other Lender of its obligation to lend hereunder (it being
understood, however, that no Lender shall be responsible for the failure of any
other Lender to make any Loan required to be made by such other Lender). Except
for Loans deemed made pursuant to Section 2.02(e) or pursuant to Section
2.22(e)), the Loans comprising any Borrowing shall be in an aggregate principal
amount that is (i) in the case of Eurodollar Loans, an integral multiple of
$1,000,000 and not less than $3,500,000, (ii) in the case of ABR Loans, an
integral multiple of $100,000 and not less than $1,000,000 or (ii) equal to the
remaining available balance of the applicable Commitments.
(b) Subject to Sections 2.08 and 2.15, each Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
pursuant to Section 2.03. Each Lender may at its option make any Eurodollar
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 Borrower to repay such Loan in accordance with the terms of
this Agreement and the applicable Note. Borrowings of more than one Type may be
outstanding at the same time; provided, however, that the Borrower shall not be
entitled to request any Borrowing that, if made, would result in more than five
Eurodollar Borrowings outstanding hereunder at any time. For purposes of the
foregoing, Borrowings having different Interest Periods, regardless of whether
they commence on the same date, shall be considered separate Borrowings.
(c) Except with respect to Loans made pursuant to Section 2.02(e),
each Lender shall make each Loan to be made by it hereunder on the proposed date
thereof by wire transfer of immediately available funds to such account in New
York City as the Administrative Agent may designate not later than 11:00 a.m.,
New York City time, and the Administrative Agent shall by 12:00 (noon), New York
City time, credit the amounts so received to an account in the name of
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<PAGE>
the Borrower and designated by the Borrower in the applicable Borrowing Request
or, if a Borrowing shall not occur on such date because any condition precedent
herein specified shall not have been met, return the amounts so received to the
respective Lenders.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's portion of such Borrowing,
the Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with clause (c) and the Administrative Agent may, in reliance upon
such assumption, make available to the Borrower on such date a corresponding
amount. If the Administrative Agent shall have so made funds available then, to
the extent that such Lender shall not have made such portion available to the
Administrative Agent, such Lender and the Borrower severally agree to repay to
the Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative Agent
at (i) in the case of the Borrower, the interest rate applicable at the time to
the Loans comprising such Borrowing and (ii) in the case of such Lender, for the
first such day, the Federal Funds Effective Rate, and for each day thereafter,
the Alternate Base Rate. If such Lender shall repay to the Administrative Agent
such corresponding amount, such amount shall constitute such Lender's Loan as
part of such Borrowing for purposes of this Agreement.
(e) If the Issuing Bank shall not have received from the Borrower the
payment required to be made by Section 2.23(e) within the time specified in such
Section, the Issuing Bank will promptly notify the Administrative Agent of the
L/C Disbursement and the Administrative Agent will promptly notify each
Revolving Credit Lender of such L/C Disbursement and its Applicable Percentage
thereof. Each Revolving Credit Lender shall pay by wire transfer of immediately
available funds to the Administrative Agent not later than 2:00 p.m., New York
City time, on such date (or, if such Revolving Credit Lender shall have received
such notice later than 12:00 (noon), New York City time, on any day, not later
than 10:00 a.m., New York City time, on the immediately following Business Day),
an amount equal to such Lender's Applicable Percentage of such L/C Disbursement
(it being understood that such amount shall be deemed to constitute an ABR
Revolving Loan of such Lender and such payment shall be deemed to have reduced
the L/C Exposure), and the Administrative Agent will promptly pay to the Issuing
Bank amounts so received by it from the Revolving Credit Lenders. The
Administrative Agent will promptly pay to the Issuing Bank any amounts received
by it from the Borrower pursuant to Section 2.23(e) prior to the time that any
Revolving Credit Lender makes any payment pursuant to this clause; any such
amounts received by the Administrative Agent thereafter will be promptly
remitted by the Administrative Agent to the Revolving Credit Lenders that shall
have made such payments and to the Issuing Bank, as their interests may appear.
If any Revolving Credit Lender shall not have made its Applicable Percentage of
such L/C Disbursement available to the Administrative Agent as provided above,
such Lender and the Borrower severally agree to pay interest on such amount, for
each day from and including the date such amount is required to be paid in
accordance with this clause to but excluding the date such amount is paid, to
the Administrative Agent for the account of the Issuing Bank at (i) in the case
of the Borrower, a rate per annum equal to the interest rate applicable to
Revolving Loans pursuant to Section 2.06(a), and (ii) in the case of such
Lender, for the first such day, the Federal Funds Effective Rate, and for each
day thereafter, the Alternate Base Rate.
SECTION 2.03. Borrowing Procedure. In order to request a Borrowing
(other than a Swingline Loan or a deemed Borrowing pursuant to Section 2.02(e),
as to which this Section shall not apply), the Borrower shall hand deliver or
telecopy to the Administrative Agent a duly completed Borrowing Request (a) in
the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before a proposed Borrowing, and (b) in
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the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one
Business Day before a proposed Borrowing. Each Borrowing Request shall be
irrevocable, shall be signed by or on behalf of the Borrower and shall specify
the following information: (i) whether the Borrowing then being requested is to
be a Term Borrowing or a Revolving Credit Borrowing, and whether such Borrowing
is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such
Borrowing (which shall be a Business Day), (iii) 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)); (iv) the amount of such
Borrowing; and (v) if such Borrowing is to be a Eurodollar Borrowing, the
Interest Period with respect thereto; 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. The initial
Borrowing shall be an ABR Borrowing. 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 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. The Administrative Agent shall
promptly advise the applicable Lenders of any notice given pursuant to this
Section, and of each Lender's portion of the requested Borrowing.
SECTION 2.04 Notes and Records. (a) The Revolving Loans, Term Loans
and Swingline Loans made by each Lender shall be evidenced by a Revolving Credit
Note, Term Note and Swingline Note, respectively, duly executed on behalf of the
Borrower, dated the Closing Date, payable to the order of such Lender in a
principal amount equal to such Lender's Revolving Credit Commitment, in the case
of its Revolving Credit Note, such Lender's Term Commitment, in the case of its
Term Note or such Lender's Swingline Commitment, in the case of its Swingline
Note. The outstanding principal balance of each Loan, as evidenced by such a
Note, shall be payable (i) in the case of a Swingline Loan, on the last day of
the Interest Period applicable to such Loan and on the Revolving Credit Maturity
Date, (ii) in the case of a Revolving Loan, on the Revolving Credit Maturity
Date and (iii) in the case of a Term Loan, as provided in Section 2.11.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower 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 such Lender from time to
time under this Agreement. Each Lender shall, and is hereby authorized by the
Borrower to, endorse on the schedule attached to each Note delivered to such
Lender (or on a continuation of such schedule attached to such Note and made a
part thereof), or otherwise to record in such Lender's internal records, an
appropriate notation evidencing the date and amount of each Loan from such
Lender, each payment and prepayment of principal of any such Loan, each payment
of interest on any such Loan and the other information provided for on such
schedule; provided, however, that the failure of any Lender to make such a
notation or any error therein shall not in any manner affect the obligation of
the Borrower to repay the Loans made by such Lender in accordance with the terms
of this Agreement and the applicable Note.
(c) The Administrative Agent shall maintain accounts in which it will
record (i) the amount of each Loan made hereunder, the Type thereof and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Lender
hereunder and (iii) the amount of any sum received by the Administrative Agent
hereunder from the Borrower or any Guarantor and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to clauses
(b) and (c) shall be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Lender
or the Administrative Agent to maintain such
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<PAGE>
accounts or any error therein shall not in any manner affect the obligations of
the Borrower to repay the Loans in accordance with their terms.
SECTION 2.05. Fees. (a) The Borrower agrees to pay to each Lender,
through the Administrative Agent, on March 31, June 30, September 30 and
December 31 (beginning on June 30, 1998) and on each date on which any
Commitment of such Lender shall expire or be terminated as provided herein, a
commitment fee (a "Commitment Fee") of 0.50% per annum less the applicable
Pricing Adjustment on the average daily excess of the aggregate amount of the
Revolving Credit Commitments over the aggregate amount of the Revolving Credit
Exposures during the preceding quarter (or other period commencing with the date
of acceptance by the Borrower of the Commitment of such Lender or ending with
the Revolving Credit Maturity Date or the date on which the Commitments of such
Lender shall expire or be terminated). All Commitment Fees shall be computed on
the basis of the actual number of days elapsed in a year of 360 days. The
Commitment Fee due to each Lender shall begin to accrue on the date of execution
of this Agreement and shall cease to accrue on the date on which the Commitment
of such Lender shall expire or be terminated as provided herein. For purposes
of calculating Commitment Fees only, no portion of the Revolving Credit
Commitments shall be deemed utilized under Section 2.17 as a result of
outstanding Swingline Loans.
(b) The Borrower agrees to pay to the Administrative Agent, for its
own account, the administrative fees set forth in the Fee Letter at the times
and in the amounts specified therein (the "Administrative Agent Fees").
(c) The Borrower agrees to pay to the Administrative Agent, for
payment to the other Lenders (to the extent applicable), on the Closing Date,
the other fees specified in the Fee Letter, and the Administrative Agent shall
pay to each Lender on the Closing Date that portion of such fees that shall be
owing to such Lender.
(d) The Borrower agrees to pay (i) to each Revolving Credit Lender,
through the Administrative Agent, on March 31, June 30, September 30 and
December 31 of each year and on the date on which the Revolving Credit
Commitment of such Lender shall be terminated as provided herein, a fee (an "L/C
Participation Fee") calculated on such Lender's Applicable Percentage of the
average daily aggregate 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 the date on which all Letters of Credit have been cancelled or
have expired and the Revolving Credit Commitments of all Lenders shall have been
terminated) at a rate equal to the applicable margin from time to time used to
determine the interest rate on Revolving Credit Borrowings comprised of
Eurodollar Loans pursuant to Section 2.06, and (ii) to the Issuing Bank with
respect to each Letter of Credit an administrative fee payable to the Issuing
Bank equal to the greater of (a) for the period from and after the date of
issuance thereof (or, with respect to Existing Letters of Credit, for the period
from and after the Closing Date), 1/4 of 1% per annum of the maximum amount
available from time to time to be drawn under such Letter of Credit, in each
case calculated in arrears on and through the last day of each Fiscal Quarter
and on the basis of a 360-day year and the actual number of days elapsed and (b)
$500, and payable on the Business Day immediately succeeding such date of
calculation in immediately available funds, and (iii) the standard issuance,
drawing and amendment fees specified from time to time by the Issuing Bank (the
"Issuing Bank Fees"). All L/C Participation Fees and Issuing Bank Fees shall be
computed on the basis of the actual number of days elapsed in a year of 360
days.
All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders, except that the
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Issuing Bank Fees shall be paid directly to the Issuing Bank. Once paid, none of
the Fees shall be refundable under any circumstances.
SECTION 2.06. Interest on Loans. (a) Subject to the provisions of
Section 2.07, the Loans comprising each ABR Borrowing, including each Swingline
Loan, 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 the Alternate
Base Rate is 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 1.25% less the applicable Pricing Adjustment.
(b) Subject to the provisions of 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 Eurodollar Rate for the Interest Period in effect for such
Borrowing plus 2.25% less the applicable Pricing Adjustment.
(c) Interest shall accrue from and including the first day of an
Interest Period to but excluding the last day of such Interest Period. Interest
on each Loan 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 Adjusted Eurodollar Rate for each Interest Period or day within an
Interest Period, as the case may be, shall be determined by the Administrative
Agent, and such determination shall be conclusive absent manifest error.
SECTION 2.07. Default Interest. If the 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, or under any other Credit Document,
the Borrower shall on demand from time to time pay interest, to the extent
permitted by law, on such defaulted amount to but excluding the date of actual
payment (after as well as before judgment) (a) in the case of overdue principal,
at the rate otherwise applicable to such Loan pursuant to Section 2.06(a) plus
2.00% per annum and (b) in all other cases, at a rate per annum (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) equal to the sum of the Alternate Base Rate plus
2.00%.
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 any Lender shall have determined that
dollar deposits in the principal amounts of the Loans comprising such Borrowing
are not generally available to it in the Eurodollar interbank market, or that
the rates at which such dollar deposits are being offered will not adequately
and fairly reflect the cost to such Lender of making or maintaining its
Eurodollar Loan during such Interest Period, or that the Administrative Agent
shall have determined that reasonable means do not exist for ascertaining the
Adjusted Eurodollar Rate as soon as practicable thereafter, the affected Lender
shall give written or telecopy notice thereof to the Administrative Agent,
and/or the Administrative Agent shall, give written or telecopy notice thereof
to the Borrower and the Lenders. In the event of any such determination, until
the affected Lender or the Administrative Agent, as the case may be, shall have
given notice that the circumstances giving rise to such notice no longer exist,
any request by the Borrower for a Eurodollar Borrowing pursuant to Section 2.03
or 2.10, from the affected Lender or the Lenders, as the case may be, shall be
deemed to be a request for an ABR Borrowing. Each determination by such Lender
or the Administrative Agent hereunder shall be conclusive absent manifest error.
SECTION 2.09. Termination and Reduction of Commitments. (a) The Term
Loan Commitments hereunder shall terminate on the earliest of (i) the date on
which the
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Borrower informs the Lenders that it has decided not to proceed with the
Recapitalization, (ii) the date on which the Acquisition Agreement is terminated
in accordance with its terms or (iii) 5:00 p.m., New York City Time, April 30,
1998, if the initial Credit Event is not made on or before such date. The
Revolving Credit Commitments, the Swingline Commitment and the L/C Commitment
shall automatically terminate on the earliest of (i) the Revolving Credit
Termination Date, (ii) the date on which the Borrower informs the Lenders that
it has decided not to proceed with the Recapitalization, (iii) the date on which
the Acquisition Agreement is terminated in accordance with its terms or (iv)
5:00 p.m., New York City Time, April 16, 1998, if the initial Credit Event shall
not have occurred by such time.
(b) Upon at least three Business Days' prior irrevocable written or
telecopy notice to the Administrative Agent, the Borrower may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Term Loan Commitments or the Revolving Credit Commitments; provided,
however, that (i) each partial reduction of the Term Loan Commitments or the
Revolving Credit Commitments shall be in (1) an integral multiple of $1,000,000
and in a minimum amount of $1,000,000 or (2) in the full remaining amount of the
Term Loan Commitments or the Revolving Credit Commitments, as the case may be,
and (ii) the Total Revolving Credit Commitment shall not be reduced to an amount
that is less than the sum of the Aggregate Revolving Credit Exposure at the
time. In addition, if no Term Loans are outstanding, the Revolving Credit
Commitments shall automatically be reduced by the amount of any mandatory
prepayment that would otherwise have been applied to the prepayment of Term
Loans pursuant to Section 2.13(g).
(c) Each reduction in the Term Loan Commitments or the Revolving
Credit Commitments hereunder shall be made ratably among the Lenders in
accordance with their respective applicable Commitments. The Borrower shall pay
to the Administrative Agent for the account of the applicable Lenders, on the
date of each termination or reduction, the Commitment Fees on the amount of the
Commitments so terminated or reduced accrued to but excluding the date of such
termination or reduction.
SECTION 2.10. Conversion and Continuation of Borrowings. The Borrower
shall have the right at any time by delivery of a Continuation/Conversion
Request (or by telephonic notice promptly confirmed by delivery of a
Continuation/Conversion Request) to the Administrative Agent (a) not later than
11:00 a.m., New York City time, one Business Day prior to conversion, to convert
any Eurodollar Borrowing into an ABR Borrowing, (b) not later than 11:00 a.m.,
New York City time, three Business Days prior to conversion or continuation, to
convert any ABR Borrowing into a Eurodollar Borrowing or to continue any
Eurodollar Borrowing as a Eurodollar Borrowing for an additional Interest
Period, and (c) not later than 11:00 a.m., New York City time, three Business
Days prior to conversion, to convert the Interest Period with respect to any
Eurodollar 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
Lenders in accordance with the respective principal amounts of the Loans
comprising the converted or continued Borrowing;
(ii) if less than all the outstanding principal amount of any
Borrowing shall be converted or continued, then each resulting Borrowing
shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b)
regarding the principal amount and maximum number of Borrowings of the
relevant Type;
(iii) each conversion shall be effected by each Lender and the
Administrative Agent by recording for the account of such Lender the new
Loan of such Lender resulting
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<PAGE>
from such conversion and reducing the Loan (or portion thereof) of such
Lender being converted by an equivalent principal amount; accrued interest
on any Eurodollar Loan (or portion thereof) being converted shall be paid
by the Borrower at the time of conversion;
(iv) if any Eurodollar Borrowing is converted at a time other than
the end of the Interest Period applicable thereto, the Borrower shall pay,
upon demand, any amounts due to the Lenders pursuant to Section 2.16;
(v) any portion of a Borrowing maturing or required to be repaid in
less than one month may not be converted into or continued as a Eurodollar
Borrowing;
(vi) any portion of a Eurodollar Borrowing that cannot be converted
into or continued as a Eurodollar 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 Borrowing;
(vii) no Interest Period may be selected for any Eurodollar Term
Borrowing that would end later than a Repayment 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 with Interest Periods ending on or prior to such Repayment Date
and (B) the ABR Term Borrowings would not be at least equal to the
principal amount of Term Borrowings to be paid on such Repayment Date;
(viii) no Interest Period applicable to a Revolving Loan may end
later than the Revolving Credit Maturity Date, and no Interest Period
applicable to a Term Loan may end later than the Term Loan Maturity Date;
and
(ix) upon notice to the Borrower from the Administrative Agent given
at the request of the Required Lenders, after the occurrence and during the
continuance of a Default or Event of Default, no outstanding Loan may be
converted into, or continued as, a Eurodollar Loan.
Each notice pursuant to this Section shall be irrevocable and shall refer
to this Agreement and specify (A) the identity and amount of the Borrowing that
the Borrower requests be converted or continued, (B) whether such Borrowing is
to be converted to or continued as a Eurodollar Borrowing or an ABR Borrowing,
(C) if such notice requests a conversion, the date of such conversion (which
shall be a Business Day) and (D) if such 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 Borrower shall be
deemed to have selected an Interest Period of one month's duration. The
Administrative Agent shall advise the Lenders of any notice given pursuant to
this Section and of each Lender's portion of any converted or continued
Borrowing. If the Borrower shall not have given notice in accordance with this
Section to continue any Borrowing into a subsequent Interest Period (and shall
not otherwise have given notice in accordance with this Section to convert such
Borrowing), such Borrowing shall, at the end of the Interest Period applicable
thereto (unless repaid pursuant to the terms hereof), automatically be continued
into a new Interest Period as an ABR Borrowing.
SECTION 2.11. Repayment of Term Borrowings. (a) The principal of the
Term Borrowings shall be payable in quarterly installments on the following
dates (each such date being called a "Repayment Date") in the following amounts:
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
DATE AMOUNT OF REPAYMENT
- ---------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000
- ---------------------------------------------------------------------------------------------
June 30 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000
- ---------------------------------------------------------------------------------------------
September 30 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000
- ---------------------------------------------------------------------------------------------
December 31 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000
- ---------------------------------------------------------------------------------------------
</TABLE>
(b) Each payment of Term Borrowings pursuant to this Section shall be
accompanied by accrued interest on the principal amount paid to but excluding
the date of payment.
SECTION 2.12. Prepayment. (a) The Borrower shall 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
Administrative Agent before 11:00 a.m., New York City time; provided, however,
that each partial prepayment shall be in an amount that is an integral multiple
of $1,000,000 and not less than $1,000,000.
(b) Optional prepayments of Term Loans shall be applied (i) first, to
scheduled amortization payments due within 12 calendar months thereafter, and
(ii) second, pro rata against the remaining scheduled installments of principal
due in respect of the Term Loans.
(c) Each notice of prepayment 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 Borrower to prepay such Borrowing by the
amount stated therein on the date stated therein. All prepayments under this
Section shall be subject to Section 2.16 but otherwise without premium or
penalty. All prepayments under this Section shall be accompanied by accrued
interest on the principal amount being prepaid to the date of payment.
SECTION 2.13. Mandatory Prepayments. (a) In the event of any
termination of all the Revolving Credit Commitments, the Borrower shall repay or
prepay all its outstanding Revolving Credit Borrowings and all outstanding
Swingline Loans on the date of such termination. In the event of any partial
reduction of the Revolving Credit Commitments, then (i) at or prior to the
effective date of such reduction, the Administrative Agent shall notify the
Borrower and the Revolving Credit Lenders of the Aggregate Revolving Credit
Exposure after giving effect thereto and (ii) if the Aggregate Revolving Credit
Exposure would exceed the Total Revolving Credit Commitment after giving effect
to such reduction or termination, then the Borrower shall, on the date of such
reduction or termination, repay or prepay Revolving Credit Borrowings or
Swingline Loans (or a combination thereof) in an amount sufficient to eliminate
such excess.
(b) With respect to any Restricted Asset Disposition, not later than
the earliest of (i) the third Business Day following the completion of any
Restricted Asset Disposition if the Borrower does not intend to reinvest the Net
Cash Proceeds thereof, as set forth in the definition of Net Cash Proceeds, (ii)
promptly after the date on which the Borrower determines not to reinvest the Net
Cash Proceeds thereof as set forth in the definition of Net Cash Proceeds, and
(iii) the first anniversary of the date thereof, the Borrower shall apply 100%
of the Net Cash Proceeds, if any, received with respect thereto to prepay
outstanding Term Loans and/or reduce the Revolving Credit Commitment in
accordance with Section 2.13(g).
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(c) In the event and on each occasion that
(i) an Equity Issuance occurs as part of an initial public
offering of the Capital Stock of the Borrower, the Borrower shall,
substantially simultaneously with (and in any event not later than the
third Business Day next following) the occurrence of such Equity
Issuance, apply Net Cash Proceeds therefrom in an amount equal to 50%
of the net cash proceeds of the Capital Stock sold in such initial
public offering (whether or not all such Capital Stock is offered by
the Borrower) to prepay outstanding Term Loans and/or reduce the
Revolving Credit Commitment in accordance with Section 2.13(g);
provided, however, that the remaining portion of such Net Cash
Proceeds shall be applied either (A) pursuant to Section 6.05(a)(iii)
for the redemption of Exchangeable Preferred Stock (including accreted
PIK liquidation preference) or (B) to prepay outstanding Term Loans
and/or reduce the Revolving Credit Commitment in accordance with
Section 2.13(g); and
(ii) an Equity Issuance occurs other than as part of an initial
public offering of the Capital Stock of the Borrower, the Borrower
shall, substantially simultaneously with (and in any event not later
than the third Business Day next following) the occurrence of such
Equity Issuance, apply 100% of the Net Cash Proceeds therefrom to
prepay outstanding Term Loans and/or reduce the Revolving Credit
Commitment in accordance with Section 2.13(g).
(d) Beginning with the fiscal year ending nearest to December 31,
1999, no later than the earlier of (i) 90 days after the end of each fiscal year
of the Borrower, and (ii) the date on which the financial statements with
respect to such period are delivered pursuant to Section 5.04(a), the Borrower
shall prepay outstanding Term Loans in accordance with Section 2.13(g) in an
aggregate principal amount equal to 75% (or 50%, for fiscal years for which the
Debt/Adjusted EBITDA Ratio for such fiscal year is less than 5:1) of Excess Cash
Flow for the fiscal year then ended.
(e) In the event that any Credit Party or any subsidiary of a Credit
Party shall receive Net Cash Proceeds from the Incurrence of Debt of the
Borrower or any of its Subsidiaries (other than any proceeds of Debt permitted
pursuant to Section 6.01), the Borrower shall, substantially simultaneously with
(and in any event not later than the third Business Day next following) the
receipt of such Net Cash Proceeds by the Borrower or such Subsidiary, apply an
amount equal to 100% of such Net Cash Proceeds to prepay outstanding Term Loans
and/or reduce the Revolving Credit Commitment in accordance with Section
2.13(g).
(f) In the event that there shall occur any Casualty or Condemnation
and, pursuant to Section 5.12, the Casualty Proceeds or Condemnation Proceeds,
as the case may be, are required to be used to prepay the Term Loans, then the
Borrower shall apply an amount equal to 100% of such Casualty Proceeds or
Condemnation Proceeds, as the case may be, to prepay outstanding Term Loans
and/or reduce the Revolving Credit Commitment in accordance with Section
2.13(g).
(g) Mandatory prepayments under this Agreement shall be applied pro
rata against the remaining scheduled installments of principal due in respect of
the Term Loans under Section 2.11. If no Term Loans are outstanding, the
Revolving Credit Commitments shall be permanently reduced by an amount equal to
the amount of such mandatory prepayment and, if required by Section 2.13(a), to
prepay Revolving Loans.
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(h) The Borrower shall deliver to the Administrative Agent, at the
time of each prepayment required under this Section, (i) a certificate signed by
a Responsible Officer of the Borrower setting forth in reasonable detail the
calculation of the amount of such prepayment and (ii) to the extent practicable,
at least three days prior written notice of such prepayment. Each notice of
prepayment shall specify the prepayment date, the Type of each Loan being
prepaid and the principal amount of each Loan (or portion thereof) to be
prepaid. All prepayments of Borrowings under this Section shall be subject to
Section 2.16, but shall otherwise be without premium or penalty.
(i) Amounts to be applied pursuant to this Section to the prepayment
of Term Loans and Revolving Loans shall be applied, as applicable, first to
reduce outstanding ABR Term Loans and ABR Revolving Loans. Any amounts
remaining after each such application shall, at the option of the Borrower, be
applied to prepay Eurodollar Term Loans or Eurodollar Revolving Loans, as the
case may be, immediately and/or shall be deposited in the Prepayment Account (as
defined below). The Administrative Agent shall apply any cash deposited in the
Prepayment Account (i) allocable to Term Loans to prepay Eurodollar Term Loans
and (ii) allocable to Revolving Loans to prepay Eurodollar Revolving Loans, in
each case on the last day of their respective Interest Periods (or, at the
direction of the Borrower, on any earlier date) until all outstanding Term Loans
or Revolving Loans, as the case may be, have been prepaid or until all the
allocable cash on deposit with respect to such Loans has been exhausted. For
purposes of this Agreement, the term "Prepayment Account" means an account
established by the Borrower with the Administrative Agent and over which the
Administrative Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal for application in accordance with this clause.
The Administrative Agent will, at the request of the Borrower, invest amounts on
deposit in the Prepayment Account in Permitted Investments that mature prior to
the last day of the applicable Interest Periods of the Eurodollar Term
Borrowings or Eurodollar Revolving Borrowings to be prepaid, as the case may be;
provided, however, that (i) the Administrative Agent shall not be required to
make any investment that, in its sole judgment, would require or cause the
Administrative Agent to be in, or would result in any, violation of any law,
statute, rule or regulation and (ii) the Administrative Agent shall have no
obligation to invest amounts on deposit in the Prepayment Account if a Default
or Event of Default shall have occurred and be continuing. The Borrower shall
indemnify the Administrative Agent for any losses relating to the investments so
that the amount available to prepay Eurodollar Borrowings on the last day of the
applicable Interest Period is not less than the amount that would have been
available had no investments been made pursuant thereto. Other than any
interest earned on such investments, the Prepayment Account shall not bear
interest. Interest or profits, if any, on such investments shall be deposited
in the Prepayment Account and reinvested and disbursed as specified above. If
the maturity of the Loans has been accelerated pursuant to Article VII, the
Administrative Agent may, in its sole discretion, apply all amounts on deposit
in the Prepayment Account to satisfy any of the Obligations. The Borrower
hereby grants to the Administrative Agent, for its benefit and the benefit of
the Issuing Bank, the Swingline Lender and the Lenders, a security interest in
the Prepayment Account to secure the Obligations.
SECTION 2.14. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision of this Agreement, 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 Issuing
Bank of the principal of or interest on any Eurodollar Loan made by such Lender
or any Fees or other amounts payable hereunder (other than changes in respect of
taxes based on the overall net income of such Lender or the Issuing Bank by the
jurisdiction in which such Lender or the Issuing Bank has its principal office
or by any political subdivision or taxing authority therein), or shall impose,
modify or deem applicable any reserve, special deposit or similar
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requirement against assets of, deposits with or for the account of or credit
extended by any Lender or the Issuing Bank (except any such reserve requirement
which is reflected in the Adjusted Eurodollar Rate) or shall impose on such
Lender or the Issuing Bank or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender or any Letter
of Credit or participation therein, and the result of any of the foregoing shall
be to increase the cost to such Lender or the Issuing Bank of making or
maintaining any Eurodollar Loan or increase the cost to any Lender of issuing or
maintaining any Letter of Credit or purchasing or maintaining a participation
therein or to reduce the amount of any sum received or receivable by such Lender
or the Issuing Bank hereunder or under the Notes (whether of principal, interest
or otherwise) by an amount deemed by such Lender or the Issuing Bank to be
material, then the Borrower will pay to such Lender or the Issuing Bank, as the
case may be, upon demand such additional amount or amounts as will compensate
such Lender or the Issuing Bank, as the case may be, for such additional costs
incurred or reduction suffered.
(b) If any Lender or the Issuing Bank shall have determined that the
adoption after the date hereof of any law, rule, regulation, agreement or
guideline regarding capital adequacy, or any change after the date hereof in any
such law, rule, regulation, agreement or guideline (whether such law, rule,
regulation, agreement or guideline has been adopted) or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or the Issuing Bank or any Lender's or the
Issuing Bank's holding company with any request or directive regarding capital
adequacy (whether or not having the force of law) of any Governmental Authority
has or would have the effect of reducing the rate of return on such Lender's or
the Issuing Bank's capital or on the capital of such Lender's or the Issuing
Bank's holding company, if any, as a consequence of this Agreement or the Loans
made or participations in Letters of Credit purchased by such Lender pursuant
hereto or the Letters of Credit issued by the Issuing Bank pursuant hereto to a
level below that which such Lender or the Issuing Bank or such Lender's or the
Issuing Bank's holding company could have achieved but for such applicability,
adoption, change or compliance (taking into consideration such Lender's or the
Issuing Bank's policies and the policies of such Lender's or the Issuing Bank's
holding company with respect to capital adequacy) by an amount deemed by such
Lender or the Issuing Bank to be material, then from time to time the Borrower
shall pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank
or such Lender's or the Issuing Bank's holding company for any such reduction
suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as applicable, as specified in clause (a) or (b), and showing
the method of calculation in reasonable detail, shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender or the Issuing Bank the amount shown as due on any such certificate
delivered by it within 10 days after its receipt of the same.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation. The
protection of this Section shall be available to each Lender and the Issuing
Bank regardless of any possible contention of the invalidity or inapplicability
of the law, rule, regulation, agreement, guideline or other change or condition
that shall have occurred or been imposed. If such Lender receives a refund of
any such amount, such Lender will promptly pay such amount over to the Borrower.
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SECTION 2.15. Change in Legality. (a) Notwithstanding any other
provision of this Agreement, if, after the date hereof, 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 to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrower and to the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans will not thereafter
(for the duration of such unlawfulness) be made by such Lender hereunder
(or be continued for additional Interest Periods and ABR Loans will not
thereafter (for such duration) be converted into Eurodollar Loans),
whereupon any request for a Eurodollar Borrowing (or to convert an ABR
Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing
for an additional Interest Period) shall, as to such Lender only, be deemed
a request for an ABR Loan (or a request to continue an ABR Loan as such for
an additional Interest Period or to convert a Eurodollar Loan into an ABR
Loan, as the case may be), unless such declaration shall be subsequently
withdrawn; and
(ii) such Lender may require that all outstanding Eurodollar Loans made
by it be converted to ABR Loans, in which event all such Eurodollar Loans
shall be automatically converted to ABR Loans as of the effective date of
such notice as provided in clause (b).
In the event any Lender shall exercise its rights under clause (i) or (ii), all
payments and prepayments of principal that would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
(b) For purposes of this Section, a notice to the Borrower by any
Lender shall be effective as to each Eurodollar Loan made by such Lender, 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 Borrower.
SECTION 2.16. Indemnity. The Borrower shall indemnify each Lender
against any loss or expense that such Lender may sustain or incur as a
consequence of (a) any event, other than a default by such Lender in the
performance of its obligations hereunder, which results in (i) such Lender
receiving or being deemed to receive any amount on account of the principal of
any Eurodollar Loan prior to the end of the Interest Period in effect therefor,
(ii) the conversion of any Eurodollar Loan to an ABR Loan, or the conversion of
the Interest Period with respect to any Eurodollar Loan, in each case other than
on the last day of the Interest Period in effect therefor, or (iii) any
Eurodollar Loan to be made by such Lender (including any Eurodollar Loan to be
made pursuant to a conversion or continuation under Section 2.10) not being made
after notice of such Loan shall have been given by the Borrower hereunder (any
of the events referred to in this clause being called a "Breakage Event") or (b)
any default in the making of any payment or prepayment required to be made
hereunder. In the case of any Breakage Event, such loss shall include an amount
equal to the excess, as reasonably determined by such Lender, of (i) its cost of
obtaining funds for the Eurodollar Loan that is the subject of such Breakage
Event for the period from the date of such Breakage Event to the last day of the
Interest Period in effect (or that would have been in effect) for such Loan over
(ii) the amount of interest likely to be realized by such Lender in redeploying
the funds released or not utilized by reason of such Breakage Event for such
period. A certificate of any Lender setting forth any amount or amounts which
such Lender is entitled to receive pursuant to this Section with calculations in
reasonable detail shall be delivered to the Borrower and shall be conclusive
absent manifest error.
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SECTION 2.17. Pro Rata Treatment. Except as provided below in this
Section with respect to Swingline Loans and as required under Section 2.15,
each Borrowing, each payment or prepayment of principal of any Borrowing, each
payment of interest on the Loans, each payment of the Commitment Fees, each
reduction of the Term Loan Commitments or the Revolving Credit Commitments and
each conversion of any Borrowing to or continuation of any Borrowing as a
Borrowing of any Type shall be allocated 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 outstanding Loans and participations in unreimbursed
drawings under Letters of Credit). For purposes of determining the available
Revolving Credit Commitments of the Lenders at any time, each outstanding
Swingline Loan shall be deemed to have utilized the Revolving Credit Commitments
of the Lenders (including those Lenders which shall not have made Swingline
Loans) pro rata in accordance with such respective Revolving Credit Commitments.
Each Lender agrees that in computing such Lender's portion of any Borrowing to
be made hereunder, the Administrative Agent may, in its discretion, round each
Lender's percentage of such Borrowing to the next higher or lower whole dollar
amount.
SECTION 2.18 Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower or any other Credit 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 Loans or L/C Disbursement as a result of which the unpaid principal
portion of its Term Loans and Revolving Loans and participations in L/C
Disbursements shall be proportionately less than the unpaid principal portion of
the Term Loans and Revolving Loans and participations in L/C Disbursements of
any other Lender, it shall be deemed simultaneously to have purchased from such
other Lender at face value, and shall promptly pay to such other Lender the
purchase price for, a participation in the Term Loans and Revolving Loans and
L/C Exposure, as the case may be of such other Lender, so that the aggregate
unpaid principal amount of the Term Loans and Revolving Loans and L/C Exposure
and participations in Term Loans and Revolving Loans and L/C Exposure held by
each Lender shall be in the same proportion to the aggregate unpaid principal
amount of all Term Loans and Revolving Loans and L/C Exposure then outstanding
as the principal amount of its Term Loans and Revolving Loans and L/C Exposure
prior to such exercise of banker's lien, setoff or counterclaim or other event
was to the principal amount of all Term Loans and Revolving Loans and L/C
Exposure 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 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 Borrower and
Holding consent to the foregoing arrangements and agree that any Lender holding
a participation in a Term Loan or Revolving 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 Borrower and
Holding to such Lender by reason thereof as fully as if such Lender had made a
Loan directly to the Borrower in the amount of such participation.
SECTION 2.19. Payments. (a) The Borrower shall make each payment
(including principal of or interest on any Borrowing or any L/C Disbursement or
any Fees or other amounts) hereunder and under any other Credit Document not
later than 12:00 (noon), New York City time, on the date when due in immediately
available dollars, without setoff, defense or counterclaim. Each such payment
(other than (i) Issuing Bank Fees, which shall be paid directly to the Issuing
Bank, and (ii) principal of and interest on Swingline Loans, which shall be paid
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directly to the Swingline Lender except as otherwise provided in Section
2.21(e)) shall be made to the Administrative Agent at its offices at identified
in Annex 2.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder or under any other Credit
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, and
such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.20. Taxes. (a) Any and all payments by or on behalf of the
Borrower or any Credit Party hereunder and under any other Credit Document shall
be made, in accordance with Section 2.19, free and clear of and without
deduction for any and all current or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding
(i) taxes imposed on the net income of the Administrative Agent, any Lender or
the Issuing Bank (or any transferee or assignee thereof, including a
participation holder (any such entity a "Transferee")) and (ii) franchise taxes
imposed on the net income of the Administrative Agent, any Lender or the Issuing
Bank (or Transferee), in each case by the jurisdiction under the laws of which
the Administrative Agent, such Lender or the Issuing Bank (or Transferee) is
organized (or where its lending office is located) or any political subdivision
thereof (all such nonexcluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities, collectively or individually, being called
"Taxes"). If the Borrower or any Credit Party shall be required to deduct any
Taxes from or in respect of any sum payable hereunder or under any other Credit
Document to the Administrative Agent, any Lender or the Issuing Bank (or any
Transferee), (i) the sum payable shall be increased by the amount (an
"additional amount") necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section)
the Administrative Agent, such Lender or the Issuing Bank (or Transferee), as
the case may be, shall receive an amount equal to the sum it would have received
had no such deductions been made, (ii) the Borrower or such Credit Party shall
make such deductions and (iii) the Borrower or such Credit Party shall pay the
full amount deducted to the relevant Governmental Authority in accordance with
applicable law.
(b) In addition, the Borrower agrees to pay to the relevant
Governmental Authority in accordance with applicable law any current or future
stamp, documentary, excise, transfer, sales, property taxes, charges or similar
levies (including mortgage recording taxes and similar fees) that arise from any
payment made hereunder or under any other Credit Document or from the execution,
delivery, enforcement or registration of, or otherwise with respect to, this
Agreement or any other Credit Document ("Other Taxes").
(c) The Borrower will indemnify the Administrative Agent, each Lender
and the Issuing Bank (or Transferee) for the full amount of Taxes and Other
Taxes paid by the Administrative Agent, such Lender or the Issuing Bank (or
Transferee), as the case may be, and any liability (including penalties,
interest and expenses (including reasonable attorney's fees and expenses
(including the allocated costs of in-house legal counsel))) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted by the relevant Governmental Authority. A certificate as to
the amount of such payment or liability prepared by the Administrative Agent, a
Lender or the Issuing Bank (or Transferee), or the Administrative Agent on its
behalf showing calculations in reasonable detail, absent manifest error, shall
be final, conclusive and binding for all purposes. Such indemnification shall
be made within 30 days after the date the Administrative Agent, any Lender or
the Issuing Bank (or Transferee), as the case may be, makes written demand
therefor.
(d) As soon as practicable after the date of any payment of Taxes or
Other Taxes by the Borrower or any other Credit Party to the relevant
Governmental Authority, the Borrower
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or such other Credit Party will deliver to the Administrative Agent, at its
address referred to in Section 9.01, the original or a certified copy of a
receipt issued by such Governmental Authority evidencing payment thereof.
(e) Each Lender (or Transferee) that is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the
Administrative Agent two copies of either United States Internal Revenue Service
Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption
from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", a Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a
Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for
purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S.
Federal withholding tax on payments by the Borrower under this Agreement and the
other Credit Documents. Such forms shall be delivered by each Non-U.S. Lender
on or before the date it becomes a party to this Agreement (or, in the case of a
Transferee that is a participation holder, on or before the date such
participation holder becomes a Transferee hereunder) and on or before the date,
if any, such Non-U.S. Lender changes its applicable lending office by
designating a different lending office (a "New Lending Office"). In addition,
each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or
invalidity of any form previously delivered by such Non-U.S. Lender.
Notwithstanding any other provision of this Section 2.20(e), a Non-U.S. Lender
shall not be required to deliver any form pursuant to this Section 2.20(e) that
such Non-U.S. Lender is not legally able to deliver.
(f) The Borrower shall not be required to indemnify any Non-U.S.
Lender or to pay any additional amounts to any Non-U.S. Lender, in respect of
United States Federal withholding tax pursuant to clause (a) or (c) to the
extent that (i) the obligation to withhold amounts with respect to United States
Federal withholding tax existed and would apply to payments made to such Non-
U.S. Lender on the date such Non-U.S. Lender became a party to this Agreement
(or, in the case of a Transferee that is a participation holder, on the date
such participation holder became a Transferee hereunder) or, with respect to
payments to a New Lending Office, the date such Non-U.S. Lender designated such
New Lending Office with respect to a Loan; provided, however, that this clause
shall not apply (x) to any Transferee or New Lending Office that becomes a
Transferee or New Lending Office as a result of an assignment, participation,
transfer or designation made at the request of the Borrower and (y) to the
extent the indemnity payment or additional amounts any Transferee, or any Lender
(or Transferee), acting through a New Lending Office, would be entitled to
receive (without regard to this clause) do not exceed the indemnity payment or
additional amounts that the person making the assignment, participation or
transfer to such Transferee, or Lender (or Transferee) making the designation of
such New Lending Office, would have been entitled to receive in the absence of
such assignment, participation, transfer or designation or (ii) the obligation
to pay such additional amounts would not have arisen but for a failure by such
Non-U.S. Lender to comply with the provisions of clause (e).
(g) Nothing contained in this Section shall require any Lender or the
Issuing Bank (or any Transferee) or the Administrative Agent to make available
any of its tax returns (or any other information that it deems to be
confidential or proprietary). If any Lender receives a refund of any additional
amount or any taxes paid by or on behalf of such Lender, such Lender will
promptly pay such amount over to the Borrower.
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SECTION 2.21. Assignment of Commitments Under Certain Circumstances;
Duty to Mitigate. (a) In the event (i) any Lender or the Issuing Bank delivers
a certificate requesting compensation pursuant to Section 2.14, (ii) any Lender
or the Issuing Bank delivers a notice described in Section 2.15 or (iii) the
Borrower is required to pay any additional amount to any Lender or the Issuing
Bank or any Governmental Authority on account of any Lender or the Issuing Bank
pursuant to Section 2.20, the Borrower may, at its sole expense and effort
(including with respect to the processing and recordation fee referred to in
Section 9.04(b)), upon notice to such Lender or the Issuing Bank and the
Administrative Agent, require such Lender or the Issuing Bank to transfer and
assign, without recourse (in accordance with and subject to the restrictions
contained in Section 9.04), all of its interests, rights and obligations under
this Agreement to an assignee that shall assume such assigned obligations (which
assignee may be another Lender, if a Lender accepts such assignment); provided
that (x) such assignment shall not conflict with any law, rule or regulation or
order of any court or other Governmental Authority having jurisdiction, (y) the
Borrower shall have received the prior written consent of the Administrative
Agent (and, if a Revolving Credit Commitment is being assigned, of the Issuing
Bank and the Swingline Lender), which consent shall not unreasonably be
withheld, and (z) the Borrower or such assignee shall have paid to the affected
Lender or the Issuing Bank in immediately available funds an amount equal to the
sum of the principal of and interest accrued to the date of such payment on the
outstanding Loans or L/C Disbursements of such Lender or the Issuing Bank,
respectively, plus all Fees and other amounts accrued for the account of such
Lender or the Issuing Bank hereunder (including any amounts under Section 2.14
and Section 2.16); provided further that, if prior to any such transfer and
assignment the circumstances or event that resulted in such Lender's or the
Issuing Bank's claim for compensation under Section 2.14 or notice under Section
2.15 or the amounts paid pursuant to Section 2.20, as the case may be, cease to
cause such Lender or the Issuing Bank to suffer increased costs or reductions in
amounts received or receivable or reduction in return on capital, or cease to
have the consequences specified in Section 2.15, or cease to result in amounts
being payable under Section 2.20, as the case may be (including as a result of
any action taken by such Lender or the Issuing Bank pursuant to clause (b)), or
if such Lender or the Issuing Bank shall waive its right to claim further
compensation under Section 2.14 in respect of such circumstances or event or
shall withdraw its notice under Section 2.15 or shall waive its right to further
payments under Section 2.20 in respect of such circumstances or event, as the
case may be, then such Lender or the Issuing Bank shall not thereafter be
required to make any such transfer and assignment hereunder.
(b) If (i) any Lender or the Issuing Bank shall request compensation
under Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice
described in Section 2.15 or (iii) the Borrower is required to pay any
additional amount to any Lender or the Issuing Bank or any Governmental
Authority on account of any Lender or the Issuing Bank, pursuant to Section
2.20, then such Lender or the Issuing Bank shall use reasonable efforts (which
shall not require such Lender or the Issuing Bank to incur an unreimbursed loss
or unreimbursed cost or expense or otherwise take any action inconsistent with
its internal policies or legal or regulatory restrictions or suffer any
disadvantage or burden deemed by it to be significant) (x) to file any
certificate or document reasonably requested in writing by the Borrower or (y)
to assign its rights and delegate and transfer its obligations hereunder to
another of its offices, branches or affiliates, if such filing or assignment
would materially reduce its claims for compensation under Section 2.14 or enable
it to withdraw its notice pursuant to Section 2.15 or would materially reduce
amounts payable pursuant to Section 2.20, as the case may be, in the future.
The Borrower hereby agrees to pay all reasonable costs and expenses incurred by
any Lender or the Issuing Bank in connection with any such filing or assignment,
delegation and transfer.
SECTION 2.21. Swingline Loans. (a) Swingline Commitment. Subject to
the terms and conditions and relying upon the representations and warranties
herein set forth, the
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Swingline Lender agrees to make loans to the Borrower at any time and from time
to time on and after the Closing Date and until the earlier of the Revolving
Credit Maturity Date and the termination of the Revolving Credit Commitments in
accordance with the terms hereof, in an aggregate principal amount at any time
outstanding that will not result in (i) the aggregate principal amount of all
Swingline Loans exceeding $5,000,000 in the aggregate or (ii) the Aggregate
Revolving Credit Exposure, after giving effect to any Swingline Loan, exceeding
the Total Revolving Credit Commitment. Each Swingline Loan shall be in a
principal amount that is an integral multiple of $100,000. The Swingline
Commitment may be terminated or reduced from time to time as provided herein.
Within the foregoing limits, the Borrower may borrow, pay or prepay and reborrow
Swingline Loans hereunder, subject to the terms, conditions and limitations set
forth herein.
(b) Swingline Loans. The Borrower shall notify the Administrative
Agent by telecopy or by telephone, not later than 1:00 p.m., New York City time,
on the day of a proposed Swingline Loan. Such notice shall be delivered on a
Business Day, shall be irrevocable and shall refer to this Agreement. Promptly
after such notification, the Borrower shall hand deliver or telecopy to the
Administrative Agent a duly completed Borrowing Request confirming such
notification. Each such Borrowing Request shall be signed by or on behalf of
the Borrower and shall specify: (i) that the Borrower is requesting a Swingline
Loan, (ii) the requested date of such Swingline Loan (which shall be a Business
Day), (iii) 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)), and (iv) the amount of such Swingline Loan. The
Administrative Agent will promptly advise the Swingline Lender of any notice
received from the Borrower pursuant to this clause. The Swingline Lender shall
make each Swingline Loan available to the Borrower by means of a credit to the
account specified in the Borrowing Request by 4:00 p.m., New York City time, on
the date such Swingline Loan is so requested.
(c) Prepayment. The Borrower shall have the right at any time and
from time to time to prepay any Swingline Loan, in whole or in part, upon giving
written or telecopy notice (or telephone notice promptly confirmed by written,
or telecopy notice) to the Swingline Lender and to the Administrative Agent
before 12:00 (noon), New York City time on the date of prepayment at the
Swingline Lender's address for notices specified on Annex 2.
(d) Interest. Each Swingline Loan shall be an ABR Loan and, subject
to the provisions of Section 2.07, shall bear interest as provided in Section
2.06(a).
(e) Conversion to Revolving Loans. With respect to any Swingline
Loans, the Swingline Lender may, at any time in its sole and absolute
discretion, deliver to Administrative Agent (with a copy to the Borrower ) no
later than 11:00 a.m. (New York City time) on the first Business Day in advance
of the proposed Funding Date, a notice (which shall be deemed to be a Borrowing
Request given by the Borrower) requesting the Lenders to make Revolving Loans
that are ABR Loans on such Funding Date in an amount equal to the amount of such
Swing Line Loans outstanding on the date such notice is given which Swing Line
Lender requests the Lenders to prepay; provided, however, that the obligations
of the Lenders to fund such Borrowing shall not be subject to Section 4.01.
(f) Participations. Upon the Borrowing of a Swingline Loan, each
Revolving Credit Lender shall be deemed to have automatically acquired a
unfunded participation in such Swingline Loan proportional to its Applicable
Percentage. Upon demand by the Swingline Lender, or automatically upon the
occurrence of an Event of Default under Section 7.01(g) or (h), each Revolving
Credit Lender shall fund such participation by paying to the Administrative
Agent, for the account of the Swingline Lender, such Revolving Credit Lender's
Applicable Percentage of such Swingline Loan, together with interest accruing on
such participation amount
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from the date of such Event of Default or such demand, as the case may be, at
the Federal Funds Effective Rate for the first day, and for each day thereafter,
the rate of interest then applicable to ABR Revolving Loans. Each Lender
acknowledges and agrees that its obligation to acquire participations in
Swingline Loans pursuant to this clause 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. Each Lender shall comply with its obligation under this clause 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 Lender and the Administrative
Agent shall promptly pay to the Swingline Lender the amounts so received by it
from the Lenders. The Administrative Agent shall notify the Borrower of any
participations in any Swingline Loan acquired pursuant to this clause and
thereafter payments in respect of such Swingline Loan shall be made to the
Administrative Agent and not to the Swingline Lender. Any amounts received by
the Swingline Lender from the Borrower (or other party on behalf of the
Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender
of the proceeds of a sale of participations therein shall be promptly remitted
to the Administrative Agent; any such amounts received by the Administrative
Agent shall be promptly remitted by the Administrative Agent to the Lenders that
shall have made their payments pursuant to this clause and to the Swingline
Lender, as their interests may appear. The purchase of participations in a
Swingline Loan pursuant to this clause shall not relieve the Borrower (or other
party liable for obligations of the Borrower) of any default in the payment
thereof.
If for any reason the Revolving Credit Commitments are terminated at a time
when any Swing Line Loans are outstanding, each Lender shall be deemed to have
purchased, and hereby agrees to purchase, a participation in such outstanding
Swing Line Loans in an amount equal to its Applicable Percentage calculated
immediately prior to such termination of the Revolving Credit Commitments ) of
the unpaid amount of such Swing Line Loans together with accrued interest
thereon. Upon one Business Day's notice from the Swingline Lender, each Lender
shall deliver to the Swingline Lender an amount equal to its respective
participation in same day funds to the Administrative Agent at its offices
identified in Annex 2. In order to further evidence such participation (and
without prejudice to the effectiveness of the participation provisions set
forth above), each Lender shall enter into a separate participation agreement at
the request of the Swingline Lender in form and substance reasonably
satisfactory to such Lender and the Swingline Lender. If any Lender fails to
make available to the Swingline Lender the amount of such Lender's participation
as provided in this paragraph, the Swingline Lender shall be entitled to recover
such amount of demand from such Lender together with interest thereon at the
Federal Funds Effective Rate for one Business Day and thereafter at the rate
applicable to ABR Revolving Loans. If the Swingline Lender receives a payment
of any amount in which other Lenders have purchased participations as provided
in the Paragraph, the Swingline Lender shall promptly distribute to each such
other Lender its Applicable Percentage of such payment.
SECTION 2.23. Letters of Credit. (a) General. The Borrower may
request the issuance of a Letter of Credit for its own account, by delivering a
Letter of Credit Request at any time and from time to time while the Revolving
Credit Commitments remain in effect. This Section shall not be construed to
impose an obligation upon the Issuing Bank to issue any Letter of Credit that is
inconsistent with the terms and conditions of this Agreement.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. In order to request the issuance of a Letter of Credit (or to
amend, renew or extend an existing Letter of Credit), the Borrower shall hand
deliver or telecopy to the Issuing Bank and the Administrative Agent (reasonably
in advance of the requested date of issuance,
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amendment, renewal or extension) a Letter of Credit Request requesting the
issuance of a Letter of Credit, or identifying the Letter of Credit to be
amended, renewed or extended, the date of issuance, amendment, renewal or
extension, the date on which such Letter of Credit is to expire (which shall
comply with clause (c)), the amount of such Letter of Credit, the name and
address of the beneficiary thereof and such other information as shall be
necessary to prepare such Letter of Credit. A Letter of Credit shall be issued,
amended, renewed or extended only if, and upon issuance, amendment, renewal or
extension of each Letter of Credit the Borrower shall be deemed to represent and
warrant that, after giving effect to such issuance, amendment, renewal or
extension (A) the L/C Exposure shall not exceed $7,500,000 and (B) the Aggregate
Revolving Credit Exposure shall not exceed the Total Revolving Credit
Commitment.
(c) Expiration Date. Each Letter of Credit shall expire at the close
of business no later than the first anniversary of the date of the issuance of
such Letter of Credit, unless such Letter of Credit expires by its terms on an
earlier date; provided, however, that this clause shall not prevent any Issuing
Bank from agreeing that a Letter of Credit will automatically be extended for
one or more successive periods not to exceed one year each unless such Issuing
Bank elects not to extend for any such additional period. Notwithstanding the
foregoing, no Letter of Credit shall expire later than the fifth Business Days
prior to the Revolving Credit Maturity Date.
(d) Participations. By the issuance of a Letter of Credit and
without any further action on the part of the Issuing Bank or the Lenders, the
Issuing Bank hereby grants to each Revolving Credit Lender, and each such Lender
hereby acquires from the applicable Issuing Bank, a participation in such Letter
of Credit equal to such Lender's Applicable Percentage of the aggregate amount
available to be drawn under such Letter of Credit, effective upon the issuance
of such Letter of Credit. In consideration and in furtherance of the foregoing,
each Revolving Credit Lender hereby absolutely and unconditionally agrees to pay
to the Administrative Agent, for the account of the Issuing Bank, such Lender's
Applicable Percentage of each L/C Disbursement made by the Issuing Bank and not
reimbursed by the Borrower (or, if applicable, another party pursuant to its
obligations under any other Credit Document) forthwith on the date due as
provided in Section 2.02(e). Each Revolving Credit Lender acknowledges and
agrees that its obligation to acquire participations pursuant to this clause 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.
(e) Reimbursement. If the Issuing Bank shall make any L/C
Disbursement in respect of a Letter of Credit, the Borrower shall pay to the
Issuing Bank an amount equal to such L/C Disbursement on the same Business Day
on which the Borrower shall have received notice from the Issuing Bank that
payment of such draft will be made, or, if the Borrower shall have received such
notice later than 12:00 noon, New York City time, on any Business Day, not later
than 11:00 a.m., New York City time, on the immediately following Business Day.
(f) Obligations Absolute. The Borrower's obligations to reimburse
L/C Disbursements as provided in clause (e) 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 Credit 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 Credit Document;
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(iii) the existence of any claim, setoff, defense or other right that
the Borrower, any other party guaranteeing, or otherwise obligated with,
the Borrower, any Subsidiary or other Affiliate thereof or any other person
may at any time have against the beneficiary under any Letter of Credit,
the Issuing Bank, the Administrative Agent or any Lender or any other
person, whether in connection with this Agreement, any other Credit
Document or any other related or unrelated agreement or transaction;
(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;
(v) payment by the Issuing 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; and
(vi) any other act or omission to act or delay of any kind of the
Issuing Bank, the Lenders, the 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,
constitute a legal or equitable discharge of the Borrower's obligations
hereunder.
Without limiting the generality of the foregoing, it is expressly
understood and agreed that the absolute and unconditional obligation of the
Borrower hereunder to reimburse L/C Disbursements will not be excused by the
gross negligence or wilful misconduct of the Issuing Bank. However, the
foregoing shall not be construed to excuse the Issuing Bank from liability to
the Borrower to the extent of any direct damages (as opposed to consequential
damages, claims in respect of which are hereby waived by the Borrower to the
extent permitted by applicable law) suffered by the Borrower that are caused by
the Issuing 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 Issuing Bank may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary and, in
making any payment under any Letter of Credit (i) the Issuing 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 the Issuing Bank.
(g) Disbursement Procedures. The Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall as promptly
as possible give telephonic notification, confirmed by telecopy, to the
Administrative Agent and the Borrower of such demand for payment and whether the
Issuing 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
Borrower of its obligation to reimburse the Issuing Bank and the Revolving
Credit Lenders with respect to any such L/C Disbursement. The Administrative
Agent shall promptly give each Revolving Credit Lender notice thereof.
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(h) Interim Interest. If the Issuing Bank shall make any L/C
Disbursement in respect of a Letter of Credit, then, unless the Borrower shall
reimburse such L/C Disbursement in full on such date, the unpaid amount thereof
shall bear interest for the account of the Issuing Bank, for each day from and
including the date of such L/C Disbursement, to but excluding the earlier of the
date of payment by the Borrower or the date on which interest shall commence to
accrue thereon as provided in Section 2.02(e), at the rate per annum that would
apply to such amount if such amount were an ABR Loan.
(i) Resignation or Removal of the Issuing Bank. The Issuing Bank may
resign at any time by giving 180 days' prior written notice to the
Administrative Agent, the Lenders and the Borrower, and may be removed at any
time by the Borrower by notice to the Issuing Bank, the Administrative Agent and
the Lenders, to be effective only upon the appointment of a successor Issuing
Bank pursuant to the following sentence. Subject to the next succeeding clause,
upon the acceptance of any appointment as the Issuing Bank hereunder by a Lender
that shall agree to serve as successor Issuing Bank, such successor shall
succeed to and become vested with all the interests, rights and obligations of
the retiring Issuing Bank and the retiring Issuing Bank shall be discharged from
its obligations to issue additional Letters of Credit hereunder. At the time
such removal or resignation shall become effective, the Borrower shall pay all
accrued and unpaid fees pursuant to Section 2.05(d)(ii). The acceptance of any
appointment as the Issuing Bank hereunder by a successor Lender shall be
evidenced by an agreement entered into by such successor, in a form satisfactory
to the Borrower and the Administrative Agent, and, from and after the effective
date of such agreement, (i) such successor Lender shall have all the rights and
obligations of the previous Issuing Bank under this Agreement and the other
Credit Documents and (ii) references herein and in the other Credit Documents to
the term "Issuing Bank" shall be deemed to refer to such successor or to any
previous Issuing Bank, or to such successor and all previous Issuing Banks, as
the context shall require. After the resignation or removal of the Issuing Bank
hereunder, the retiring Issuing Bank shall remain a party hereto and shall
continue to have all the rights and obligations of an Issuing Bank under this
Agreement and the other Credit 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.
(j) Cash Collateralization. If any Event of Default shall occur and
be continuing, the Borrower shall, on the Business Day it receives notice from
the Administrative Agent or the Required Lenders (or, if the maturity of the
Loans has been accelerated, 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) thereof and of the amount
to be deposited, deposit in an account with the Collateral Agent, for the
benefit of the Revolving Credit Lenders, an amount in cash equal to the L/C
Exposure as of such date. Such deposits 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. Such deposits shall be invested in Permitted
Investments, to be selected by the Issuing Bank in its sole discretion, and
interest earned on such deposits shall be deposited in such account as
additional collateral for the payment and performance of the Obligations.
Interest or profits, if any, on such investments shall accumulate in such
account. Moneys in such account shall (i) automatically be applied by the
Administrative Agent to reimburse the Issuing Bank for L/C Disbursements for
which it has not been reimbursed, (ii) be held for the satisfaction of the
reimbursement obligations of the Borrower for the L/C Exposure at such time and
(iii) if the maturity of the Loans has been accelerated (but subject to the
consent of 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 Borrower is required to provide an amount of cash collateral hereunder as
a result of the occurrence of an
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Event of Default, such amount (to the extent not applied as aforesaid) shall be
returned to the Borrower within three Business Days after all Events of Default
have been cured or waived.
(k) Additional Issuing Banks. The Borrower may, at any time and from
time to time with the consent of the Administrative Agent (which consent shall
not be unreasonably withheld) and such Lender, designate one or more additional
Lenders to act as an issuing bank under the terms of the Agreement. Any Lender
designated as an issuing bank pursuant to this clause shall be deemed to be an
"Issuing Bank" (in addition to being a Lender) in respect of Letters of Credit
issued or to be issued by such Lender, and, with respect to such Letters of
Credit, such term shall thereafter apply to the other Issuing Bank and such
Lender.
ARTICLE III
Representations and Warranties
Each of Holding and the Borrower represents and warrants to the
Administrative Agent, the Collateral Agent, the Issuing Bank and each of the
Lenders that:
SECTION 3.01. Organization; Powers. Each of Holding, the Borrower and
each of the Subsidiaries (a) is a corporation duly organized, validly existing
and in good standing 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 and as proposed to be conducted, (c) is
qualified to do business in, and is in good standing 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 Credit Documents and each other agreement or
instrument contemplated hereby to which it is or will be a party and, in the
case of the Borrower, to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and performance
by each Credit Party of each of the Credit Documents and the borrowings
hereunder (collectively, the "Transactions") and the Recapitalization (a) have
been duly authorized by all requisite corporate and, if required, stockholder
action 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 Holding, the Borrower or any Subsidiary
other than any violation which will not have a Material Adverse Effect or the
effect (if any) of Chapter 5 of the California Corporations Code, (B) any order
of any Governmental Authority or (C) any provision of any indenture, agreement
or other instrument to which Holding, the Borrower or any Subsidiary is a party
or by which any 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, or give rise to any right to accelerate
or to require the prepayment, repurchase or redemption of any obligation under
any such indenture, agreement or other instrument 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 Holding, the Borrower or any
Subsidiary (other than any Lien created hereunder or under the Security
Documents).
SECTION 3.03. Enforceability. This Agreement has been duly executed
and delivered by Holding and the Borrower and constitutes, and each other Credit
Document when executed and delivered by the each Credit Party party thereto will
constitute, a legal, valid and binding obligation of such Credit Party
enforceable against such Credit Party in accordance with its terms.
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SECTION 3.04. Governmental Approvals and Licenses. 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 and the Recapitalization, 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, (b) recordation of
the Mortgages and (c) such as have been made or obtained and are in full force
and effect. The Borrower and its Subsidiaries have all licenses, permits,
approvals, qualifications, consents, certificates of needs and accreditations
(where such are required) and other authorizations necessary for the lawful
conduct of their respective businesses or operations wherever now conducted and
as planned to be conducted, pursuant to all applicable statutes, laws,
ordinances, rules and regulations of all Governmental Authorities having,
asserting or claiming jurisdiction over the Borrower and its Subsidiaries on a
consolidated basis, except where such failure would not have a Material Adverse
Effect. Copies of all such licenses, permits, approvals, qualifications,
consents and other authorizations shall be provided to the Administrative Agent
upon request. The Borrower and its Subsidiaries are not in default under any of
such licenses, permits, approvals, consents, qualifications or authorizations
and no event has occurred, and no condition exists, which, with the giving of
notice, the passage of time, or both, would constitute a default thereunder or
would result in the suspension, revocation, impairment, forfeiture or non-
renewal of any such permit, license, authorization or accreditation, except
where such failure would not have a Material Adverse Effect. The continuation,
validity and effectiveness of all such licenses, permits, approvals, consents,
qualifications and authorizations will in no way be adversely affected by the
transactions contemplated by this Agreement, except where such a failure of
continuation, validly or effectiveness would not have a Material Adverse Effect.
The Borrower and its Subsidiaries know of no reason why they will not be able to
maintain after the Closing Date all licenses, permits, approvals, consents,
qualifications, accreditations and other authorizations necessary or appropriate
to own and operate their respective current businesses and to obtain such
licenses, permits, approvals, consents, qualifications and other authorizations
necessary to own and operate their respective current businesses, and otherwise
conduct the business of the Borrower and its Subsidiaries as now conducted and
presently proposed to be conducted.
SECTION 3.05. Financial Statements. (a) The Borrower has heretofore
furnished to the Lenders its consolidated and consolidating balance sheets and
statements of income and changes in financial condition as of and for the fiscal
year ended December 26, 1997, audited by and accompanied by the opinion of
Arthur Andersen LLP, independent public accountants. Such financial statements
present fairly the financial condition and results of operations and cash flows
of the Borrower and its consolidated Subsidiaries as of such dates and for such
periods. Such balance sheets and the notes thereto disclose all material
liabilities, direct or contingent, of the Borrower and its consolidated
Subsidiaries as of the dates thereof. Such financial statements were prepared
in accordance with GAAP applied on a consistent basis.
(b) The Borrower has heretofore delivered to the Lenders its
unaudited pro forma consolidated balance sheet as of December 26, 1997 and
monthly operating statements for January and February 1998, prepared giving
effect to the Recapitalization as if it had occurred on such date. Such pro
forma balance sheet and monthly operating statements has been prepared in good
faith by the Borrower, based on the assumptions used to prepare the pro forma
financial information contained in the Confidential Information Memorandum
(which assumptions are believed by the Borrower on the date hereof and on the
Closing Date to be reasonable), is based on the best information available to
the Borrower as of the date of delivery thereof, accurately reflects all
adjustments required to be made to give effect to the Recapitalization and
presents fairly on a pro forma basis the estimated consolidated financial
position of the Borrower and its consolidated Subsidiaries as of such date,
assuming that the Recapitalization had actually occurred at such date.
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SECTION 3.06. No Material Adverse Change. There has been no material
adverse change in the business, assets, operations, prospects, condition,
financial or otherwise, or material agreements of Holding, the Borrower and the
Subsidiaries, taken as a whole, since January 1, 1997.
SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each
of Holding, the Borrower and the Subsidiaries has good and marketable title to,
or valid leasehold interests in, all its material properties and assets
(including all Mortgaged Property), 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.
(b) Except as set forth on Schedule 3.07(b), each of Holding, the
Borrower and the Subsidiaries has complied in all material respects with all
obligations under all material leases to which it is a party and all such leases
are in full force and effect. Each of Holding, the Borrower and the
Subsidiaries enjoys peaceful and undisturbed possession under all such material
leases, except where failure to have such possession will not have a Material
Adverse Effect.
(c) Except as set forth on Schedule 3.07(c), neither Holding nor the
Borrower has received any written notice of, nor has any knowledge of, any
pending or contemplated condemnation proceeding affecting the Mortgaged
Properties or any sale or disposition thereof in lieu of condemnation.
(d) None of Holding, the Borrower or any of 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.
SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the Closing
Date a list of all Subsidiaries and the percentage ownership interest of Holding
or the Borrower therein. The shares of capital stock or other ownership
interests so indicated on Schedule 3.08 are fully paid and non-assessable and
are owned by Holding or the Borrower, directly or indirectly, free and clear of
all Liens.
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as set
forth on Schedule 3.09, there are not any actions, suits or proceedings at law
or in equity or by or before any Governmental Authority now pending or, to the
knowledge of Holding or the Borrower, threatened against or affecting Holding or
the Borrower or any Subsidiary or any business, property or rights of any such
person (i) that involve any Credit Document, the Transactions or the
Recapitalization, or that purport to affect the ability of the parties to
consummate the Transactions or the Recapitalization, or (ii) as to which there
is a reasonable possibility of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect.
(b) None of Holding, the Borrower or any of the Subsidiaries or any
of 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 permits) or any
restrictions of record or agreements affecting the Mortgaged Property, or is in
default with respect to any judgment, writ, injunction, decree or order of any
Governmental Authority, where such violation or default could reasonably be
expected to result in a Material Adverse Effect.
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SECTION 3.10. Default in Material Agreements. None of Holding, the
Borrower or any of 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,
where such default could reasonably be expected to result in a Material Adverse
Effect.
SECTION 3.11. Federal Reserve Regulations. (a) None of Holding, the
Borrower or any of the Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
buying or carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit will
be used, whether directly or indirectly, and whether immediately, incidentally
or ultimately, for any purpose that entails a violation of, or that 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 Holding, the Borrower or any Subsidiary 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. (a) The proceeds of the Term Loans
shall be used solely to pay a portion of the Redemption Amount in connection
with the Recapitalization, to repay the Indebtedness to be Paid, and pay a
portion of the Transaction Costs.
(b) The proceeds of the Revolving Loans may be used for working
capital and general corporate purposes of the Borrower (including Permitted
Acquisitions); provided, however, that (i) no more than$0 of Revolving Loans may
be borrowed on the Closing Date, and (ii) the proceeds of any Revolving Loan
made pursuant to Section 2.22(e) shall be applied only to repay Swingline Loans.
(c) The proceeds of the Swingline Loans may be used for working
capital and general corporate purposes of the Borrower; provided, however, that
no Swingline Loans may be borrowed on the Closing Date.
(d) The Letters of Credit may be used for general corporate purposes.
SECTION 3.14. Tax Returns. Each of Holding, the Borrower and the
Subsidiaries has filed or caused to be filed all Federal, state, local and
foreign tax returns or materials required to have been filed by it and has paid
or caused to be paid all taxes due and payable by it and all assessments
received by it, except taxes that are being contested in good faith by
appropriate proceedings and for which Holding, the Borrower or such Subsidiary,
as applicable, shall have set aside on its books adequate reserves in accordance
with GAAP.
SECTION 3.15. No Material Misstatements. None of (a) the Confidential
Information Memorandum or (b) any other information, report, financial
statement, exhibit or schedule furnished by or on behalf of Holding or the
Borrower to the Administrative Agent or any Lender in connection with the
negotiation of any Credit Document or included therein or delivered pursuant
thereto contained, contains or will contain any material misstatement of fact or
omitted, omits or will omit to state 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 misleading; provided that to the extent any such
information, report, financial statement, exhibit or schedule was based upon or
constitutes a forecast or projection, each of Holding and the Borrower
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represents only that it acted in good faith and utilized reasonable assumptions
and due care in the preparation of such information, report, financial
statement, exhibit or schedule.
SECTION 3.16. Employee Benefit Plans. Each of the Borrower and its
ERISA Affiliates is in compliance in all material respects with the applicable
provisions of ERISA and the Code and the regulations and published
interpretations thereunder. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events,
could reasonably be expected to result in material liability of the Borrower or
any of its ERISA Affiliates. The present value of all benefit liabilities under
each Plan (based on those assumptions used to fund such Plan) did not, as of the
last annual valuation date applicable thereto, exceed by more than $1,000,000
the fair market 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, exceed by more than $1,000,000 the fair market value of the assets of
all such underfunded Plans.
SECTION 3.17. Environmental Matters. Except as set forth in Schedule
3.17:
(a) The real properties owned or operated by Holding, the Borrower and
the Subsidiaries (the "Environmental Properties") do not contain any Hazardous
Materials in amounts or concentrations which (i) constitute, or constituted a
violation of, (ii) require Remedial Action under, or (iii) could give rise to
liability under, Environmental Laws, which violations, Remedial Actions and
liabilities, in the aggregate, could reasonably be expected to result in a
Material Adverse Effect;
(b) The Environmental Properties and all operations of the Borrower
and the Subsidiaries are in compliance, and in the last five years 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, could
not reasonably be expected to result in a Material Adverse Effect;
(c) There have been no Releases or threatened Releases at, from, under
or proximate to the Environmental Properties or otherwise in connection with the
operations of the Borrower or the Subsidiaries, which Releases or threatened
Releases, in the aggregate, could reasonably be expected to result in a Material
Adverse Effect;
(d) None of Holding, the Borrower or any of the Subsidiaries has
received any Environmental Claim in connection with the Environmental Properties
or the operations of the Borrower or the Subsidiaries or with regard to any
person whose liabilities for environmental matters Holding, the Borrower or the
Subsidiaries has retained or assumed, in whole or in part, contractually, by
operation of law or otherwise, which, in the aggregate, could reasonably be
expected to result in a Material Adverse Effect, nor do Holding, the Borrower or
the Subsidiaries have reason to believe that any such notice will be received or
is being threatened; and
(e) Hazardous Materials have not been transported from the
Environmental Properties, nor have Hazardous Materials been generated, treated,
stored or disposed of at, on or under any of the Environmental Properties in a
manner that could give rise to liability under any Environmental Law, nor have
the Borrower or 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 transportation,
generation, treatment, storage or disposal, or retained or assumed liabilities,
in the aggregate, could reasonably be expected to result in a Material Adverse
Effect.
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SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete and
correct description of all insurance maintained by the Borrower or by the
Borrower for its Subsidiaries as of the date hereof and the Closing Date. As of
each such date, such insurance is in full force and effect and all premiums have
been duly paid. The Borrower and its Subsidiaries have insurance in such amounts
and covering such risks and liabilities as are in accordance with normal
industry practice.
SECTION 3.19. Security Documents. (a) The Pledge 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 the
Collateral (as defined in the Pledge Agreement) and, when the Collateral is
delivered to the Collateral Agent, the Pledge Agreement shall constitute a fully
perfected first priority Lien on, and security interest in, all right, title and
interest of the pledgors thereunder in such Collateral, 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 the Collateral (as defined in the Security
Agreement) and, when financing statements in appropriate form are filed in the
offices specified on Schedule 6 to the Perfection Certificate, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the grantors thereunder in such Collateral
(other than the Intellectual Property, as defined in the Security Agreement), in
each case to the extent such security interests can be so perfected by such
filings, and prior and superior in right to any other person, other than with
respect to Liens expressly permitted by Section 6.02.
(c) When the Security Agreement is filed in the United States Patent
and Trademark Office and the United States Copyright Office, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the grantors thereunder in the Intellectual
Property (as defined in the Security Agreement), in each case to the extent such
security interests can be so perfected by such filings, and 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 a lien on registered trademarks, trademark
applications and copyrights acquired by the grantors after the date hereof).
(d) 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 Credit Parties' right, title and interest in and
to the Mortgaged Property thereunder and the proceeds thereof, and when the
Mortgages are filed in the offices specified on Schedule 3.19(d), the Mortgages
shall constitute a fully perfected Lien on, and security interest in, all right,
title and interest of the Credit Parties in such Mortgaged Property and 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.
SECTION 3.20. Location of Real Property and Leased Premises. (a)
Schedule 3.20(a) lists completely and correctly as of the Closing Date all real
property owned by the Borrower and the Subsidiaries and the addresses thereof.
The Borrower and the Subsidiaries own in fee all the real property set forth on
Schedule 3.20(a).
(b) Schedule 3.20(b) lists completely and correctly as of the Closing
Date all real property leased by the Borrower and the Subsidiaries and the
addresses thereof. The Borrower and the Subsidiaries have valid leases in all
the real property set forth on Schedule 3.20(b).
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SECTION 3.21. Labor Matters. As of the date hereof and the Closing
Date, there are no strikes, lockouts or slowdowns against Holding, the Borrower
or any Subsidiary pending or, to the knowledge of Holding or the Borrower,
threatened. The hours worked by and payments made to employees of Holding, the
Borrower and the Subsidiaries have not been in violation of the Fair Labor
Standards Act or any other applicable Federal, state, local or foreign law
dealing with such matters except where such a violation would not have a
Material Adverse Effect. All payments due from Holding, the Borrower or any
Subsidiary, or for which any claim may be made against Holding, the 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
Holding, the Borrower or such Subsidiary. The consummation of the Transactions
and the Recapitalization will not give rise to any right of termination or right
of renegotiation on the part of any union under any collective bargaining
agreement to which Holding, the Borrower or any Subsidiary is bound.
SECTION 3.22. Solvency. (a) Immediately after the consummation of the
Transactions to occur on the Closing Date and immediately following the making
of each Loan made on the Closing Date and after giving effect to the application
of the proceeds of such Loans, (i) the fair value of the assets of each Credit
Party, at a fair valuation, will exceed its debts and liabilities, subordinated,
contingent or otherwise; (ii) the present fair saleable value of the property of
each Credit Party will be greater than the amount that will be required to pay
the probable liability of its debts and other liabilities, subordinated,
contingent or otherwise, as such debts and other liabilities become absolute and
matured; (iii) each Credit Party will be able to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; and (iv) each Credit Party will not have unreasonably
small capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted following the Closing
Date.
SECTION 3.23. Year 2000. The Borrower does not expect that its
information system capabilities will encounter any material "Year 2000"
problems.
ARTICLE IV
Conditions of Lending
The obligations of the Lenders to make Loans (other than a Borrowing
pursuant to Section 2.2(e)) and of the Issuing Bank to issue Letters of Credit
hereunder are subject to the satisfaction of the following conditions (it being
understood for purposes of this Section that making a Loan or Borrowing does not
include a change or continuation of the Type of, or a duration of the Interest
Period applicable to, a previously outstanding Borrowing pursuant to Section
2.10):
SECTION 4.01. All Credit Events. On the date of each Borrowing (other
than a Borrowing pursuant to Section 2.02(e)), including each Borrowing of a
Swingline Loan and on the date of each issuance of a Letter of Credit (each such
event being called a "Credit Event"):
(a) Borrowing Request. The Administrative Agent shall have received
a notice of such Borrowing as required by Section 2.03 or, in the case of the
issuance of a Letter of Credit, the Issuing Bank and the Administrative Agent
shall have received a notice requesting the issuance of such Letter of Credit as
required by Section 2.23(b) or, in the case of the Borrowing of a Swingline
Loan, the Swingline Lender and the Administrative Agent shall have received a
notice requesting such Swingline Loan as required by Section 2.22(b).
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(b) Representations and Warranties. Except in the case of a
Borrowing that does not increase the aggregate principal amount of Loans
outstanding of any Lender, the representations and warranties set forth in
Article III hereof shall be true and correct in all material respects on and as
of the date of such Credit Event 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.
(c) No Default. The Borrower and each other Credit Party shall be in
compliance with all the terms and provisions set forth herein and in each other
Credit Document on its part to be observed or performed, and at the time of and
immediately after such Credit Event, no Event of Default or Default shall have
occurred and be continuing.
Each Credit Event shall be deemed to constitute a representation and warranty by
the Borrower and Holding on the date of such Credit Event as to the matters
specified in clauses (b) (except as aforesaid) and (c) of this Section.
SECTION 4.02. First Credit Event. On the Closing Date:
(a) Notes. Each Lender shall have received its duly executed Notes
complying with the provisions of Section 2.04.
(b) Opinions. The Syndication Agent shall have received, on behalf
of itself, the Lenders and the Issuing Bank, a favorable written opinion of
(i) Riordan & McKinzie, special California counsel for Holding and the
Borrower, substantially to the effect set forth in Exhibit , (ii) Richards
& O'Neil, special New York counsel for Holding and the Borrower,
substantially to the effect set forth in Exhibit , and (iii) each local
counsel listed on Schedule 4.02(b), substantially to the effect set forth
in Exhibit , in each case (A) dated the Closing Date, (B) addressed to the
Syndication Agent, the Issuing Bank, the Administrative Agent and the
Lenders, and (C) covering such other matters relating to the Credit
Documents and the Transactions as the Syndication Agent shall reasonably
request, and each of Holding and the Borrower hereby requests such counsel
to deliver such opinions.
(c) Legal Matters. All legal matters incident to this Agreement, the
Borrowings and extensions of credit hereunder and the other Credit
Documents shall be satisfactory to the Lenders, to the Issuing Bank and to
Cravath, Swaine & Moore, counsel for the Syndication Agent.
(d) Organizational Documents. The Syndication Agent shall have
received (i) a copy of the certificate or articles of incorporation,
including all amendments thereto, of each Credit Party, 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 Credit Party as of a recent
date, from such Secretary of State; (ii) a certificate of the Secretary or
Assistant Secretary of each Credit Party dated the Closing Date and
certifying (A) that attached thereto is a true and complete copy of the by-
laws of such Credit 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 (B),
(B) that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of such Credit Party authorizing the
execution, delivery and performance of the Credit Documents to which such
person is a party and, in the case of the Borrower, the borrowings
hereunder, and that such resolutions have not been modified, rescinded or
amended and are in full force and effect, (C) that the certificate or
articles of incorporation of such Credit Party have not been amended since
the date of the last amendment thereto shown on the certificate of good
standing furnished pursuant to
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clause (i), and (D) as to the incumbency and specimen signature of each
officer executing any Credit Document or any other document delivered in
connection herewith on behalf of such Credit Party; (iii) a certificate of
another officer as to the incumbency and specimen signature of the
Secretary or Assistant Secretary executing the certificate pursuant to
clause (ii); and (iv) such other documents as the Lenders, the Issuing Bank
or Cravath, Swaine & Moore, counsel for the Administrative Agent, may
reasonably request.
(e) Officer's Certificate. The Syndication Agent shall have received
a certificate, dated the Closing Date and signed by a Responsible Officer
of the Borrower, confirming compliance with the conditions precedent set
forth in clauses (b) and (c) of Section 4.01.
(f) Payment of Fees, Etc. The 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 the
Borrower hereunder or under any other Credit Document and fees under
Section 9.05(a).
(g) Pledge Agreement. The Pledge Agreement shall have been duly
executed by the parties thereto and delivered to the Collateral Agent and
shall be in full force and effect, and all the outstanding capital stock of
the Borrower and the Subsidiaries 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 by
instruments of transfer and stock powers endorsed in blank, shall be in the
actual possession of the Collateral Agent; provided that to the extent to
do so would cause adverse tax consequences to the Borrower, (i) neither the
Borrower nor any Domestic Subsidiary shall be required to pledge more than
65% of the capital stock of any Foreign Subsidiary and (ii) no Foreign
Subsidiary shall be required to pledge the capital stock of any of its
Foreign Subsidiaries.
(h) Security Agreement. The Security Agreement shall have been duly
executed by the Credit 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 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 (subject to any Lien expressly permitted by Section 6.02)
described in such agreement shall have been delivered to the Collateral
Agent.
(i) Lien Search. The Collateral Agent shall have received the
results of a search of the Uniform Commercial Code (or equivalent filings)
filings made with respect to the Credit Parties in the states (or other
jurisdictions) in which the chief executive office of each such person is
located, any offices of such persons in which records have been kept
relating to Accounts and the other jurisdictions in which Uniform
Commercial Code filings (or equivalent filings) are to be made pursuant to
the preceding clause, together with copies of the financing statements (or
similar documents) disclosed by such search, and accompanied by evidence
satisfactory to the Collateral Agent that the Liens indicated in any such
financing statement (or similar document) would be permitted under Section
6.02 or have been released.
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(j) Perfection Certificate. The Collateral Agent shall have received
a Perfection Certificate with respect to the Credit Parties dated the
Closing Date and duly executed by a Responsible Officer of the Borrower.
(k) Mortgages. (i) Each of the Security Documents, in form and
substance satisfactory to the Lenders, 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 permitted under Section 6.02, (iii) each of such Security
Documents shall be in proper form for filing and recordation in the
recording office as specified on Schedule 3.19(d), and (iv) the Collateral
Agent shall have received such other documents, including a commitment,
policy or policies of title insurance issued by a nationally recognized
title insurance company, together with such endorsements, coinsurance and
reinsurance as may be requested by the Collateral Agent and the Lenders,
insuring the Mortgages as valid first liens on the Mortgaged Properties,
free of Liens other than those permitted under Section 6.02, together with
such surveys, abstracts, appraisals and legal opinions required to be
furnished pursuant to the terms of the Mortgages or as reasonably requested
by the Collateral Agent or the Lenders.
(l) Guarantee Agreements. Each of Holding Guarantee Agreement and
the Subsidiary Guarantee Agreement shall have been duly executed by the
parties thereto, shall have been delivered to the Collateral Agent and
shall be in full force and effect.
(m) Indemnity, Subrogation and Contribution Agreement. The
Indemnity, Subrogation and Contribution Agreement shall have been duly
executed by the parties thereto, shall have been delivered to the
Collateral Agent and shall be in full force and effect.
(n) Insurance Policies. The Syndication Agent shall have received a
copy of, or a certificate as to coverage under, the insurance policies
required by Section 5.02 and the applicable provisions of the Security
Documents, each of which 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 Administrative Agent.
(o) Environmental and Employment Matters. The Lenders shall be
satisfied as to the amount and nature of any environmental and employee
health and safety exposures to which the Borrower and the Subsidiaries may
be subject and the plans of the Borrower with respect thereto.
(p) Environmental Reports. The Syndication Agent shall have received
a Phase I environmental assessment report in form, scope and substance
reasonably satisfactory to the Lenders, from Dames & Moore as to any
environmental hazards, liabilities or Remedial Action to which the Borrower
or any of the Subsidiaries may be subject and the Lenders shall be
reasonably satisfied with the nature and cost of any such hazards,
liabilities or Remedial Action and with the Borrower's plans with respect
thereto.
(q) Recapitalization Documents. The Syndication Agent shall have
received, with a copy for each Lender, a copy of the Acquisition Agreement
and any of the other Recapitalization Documents reasonably requested by the
Syndication Agent, certified by a Responsible Officer of the Borrower.
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(r) Recapitalization. The Recapitalization shall be concurrently
consummated as set forth in Annex 3, and the capital structure of the
Borrower shall be as set forth in Annex 3. The terms and conditions, and
documentation, of any material Indebtedness and all equity securities of
the Borrower or any of its Subsidiaries to be outstanding at or after the
Closing Date, the certificate of incorporation, by-laws, other governing
documents and the corporate and capital structure of the Borrower and its
Subsidiaries, in each case after giving effect to the consummation of the
Recapitalization, shall be in form and substance satisfactory to the
Administrative Agent. The Recapitalization shall have been consummated for
an aggregate Redemption Amount in cash equal to $225,000,000 (the
"Redemption Amount"), pursuant to the Acquisition Agreement. All of the
conditions precedent set forth in the Acquisition Agreement shall have been
satisfied or waived, and no material provision of the Acquisition Agreement
shall have been amended, supplemented, waived or otherwise modified without
the prior written consent of the Required Lenders, which consent shall not
be unreasonably withheld. The Administrative Agent shall be satisfied with
the Acquisition Agreement in all respects. The Borrower and its
Subsidiaries shall have outstanding no indebtedness other than the term
loans or revolving credit loans (including letters of credit) under this
Agreement, the Notes or Loans hereunder, as applicable, and other
indebtedness as set forth on Schedule 6.01(a) hereto.
(s) Transaction Costs. The Transaction Costs shall have been paid
(or made provision reasonably satisfactory to the Syndication Agent for the
payment thereof) in an amount not in excess of $15,000,000.
(t) Senior Subordinated Notes. The Senior Subordinated Notes shall
have been executed, authenticated and issued in form and substance
satisfactory to the Lenders; and the Borrower shall have received proceeds
(before deductions for underwriting and placement fees) pursuant thereto of
approximately $115,000,000.
(u) Exchangeable Preferred Stock. The Exchangeable Preferred Stock
shall have been duly authorized and issued in form and substance
satisfactory to the Lenders; and the Borrower shall have received proceeds
(before deductions for underwriting and placement fees) pursuant thereto of
approximately $30,000,000.
(v) Solvency Certificate. The Administrative Agent shall have
received a certificate of the Borrower's chief financial officer, in form
and substance satisfactory to the Administrative Agent, to the effect of
the representations set forth in Section 3.22.
(w) EBITDA Certificate. The Administrative Agent shall have received
a written certification of the Borrower's accountants that the EBITDA of
the Borrower and its Subsidiaries on a consolidated basis for the
immediately preceding fiscal year was at least $26,200,000, on a pro forma
basis computed, in accordance with Regulation S-X.
ARTICLE V
Affirmative Covenants
SECTION 5.01. Existence; Businesses and Properties. (a) Holding and
the Borrower shall, and the Borrower shall cause each Restricted Subsidiary to,
do or cause to be done all things necessary to preserve, renew and keep in full
force and effect its legal existence, except as otherwise expressly permitted
under Section 6.04.
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(b) Holding and the Borrower shall, and the Borrower shall cause each
Restricted Subsidiary to, 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
decrees and orders of any Governmental Authority, whether now in effect or
hereafter enacted, except where the failure to do so will not have a Material
Adverse Effect; 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 renewals, additions, improvements
and replacements thereto necessary in order that the business carried on in
connection therewith may be properly conducted at all times.
SECTION 5.02. Insurance. The Borrower shall, and shall cause each
Restricted Subsidiary to,
(a) keep its insurable properties adequately insured at all times by
financially sound and reputable insurers; maintain such other insurance, to
such extent and against such risks, including fire and other risks insured
against by extended coverage, as is customary with companies in the same or
similar businesses operating in the same or similar locations, including
public liability insurance against claims for personal injury or death or
property damage occurring upon, in, about or in connection with the use of
any properties owned, occupied or controlled by it; and maintain such other
insurance as may be required by law.
(b) cause all such policies to be endorsed or otherwise amended to
include a "standard" or "New York" lender's loss payable endorsement, in
form and substance satisfactory to the 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 Administrative Agent or the Collateral Agent of the occurrence of
an Event of Default, the insurance carrier shall pay all proceeds otherwise
payable to the Borrower or the Credit Parties under such policies directly
to the Collateral Agent; cause all such policies to provide that neither
the Borrower, the 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 Administrative Agent or the Collateral Agent may
reasonably require from time to time to protect their interests; deliver
original or certified copies of all such policies to the Collateral Agent;
cause each such policy to provide that it shall not be cancelled, modified
or not renewed (i) by reason of nonpayment of premium upon not less than 10
days' prior written notice thereof by the insurer to the Administrative
Agent and the Collateral Agent (giving the Administrative Agent and the
Collateral Agent the right to cure defaults in the payment of premiums) or
(ii) for any other reason upon not less than 30 days' prior written notice
thereof by the insurer to the Administrative Agent and the Collateral
Agent; deliver to the Administrative Agent and the Collateral Agent, prior
to the cancellation, 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 Administrative Agent and
the Collateral Agent) together with evidence satisfactory to the
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
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by the Federal Emergency Management Agency (or any successor agency),
obtain flood insurance in such total amount as the Syndication Agent, the
Collateral Agent or the Required Lenders may from time to time 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, obtain earthquake insurance in such total
amount as the Administrative Agent, the Collateral Agent or the Required
Lenders may from time to time require.
(d) with respect to any 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 $10,000,000, naming the Collateral Agent
as an additional insured, on forms satisfactory to the Collateral Agent.
(e) notify the Administrative Agent and the Collateral Agent
immediately whenever any separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained under
this Section is taken out by the Borrower; and promptly deliver to the
Administrative Agent and the Collateral Agent a duplicate original copy of
such policy or policies.
(f) in connection with the covenants set forth in this Section, it is
understood and agreed that:
(i) none of the Administrative Agent, the Lenders, the Issuing Bank,
or 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, it being understood that (A) the Borrower and the other
Credit 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 Administrative Agent, the Collateral Agent, the Lenders, the
Issuing 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 Borrower hereby agrees, to the extent permitted
by law, to waive its right of recovery, if any, against the Administrative
Agent, the Collateral Agent, the Lenders, the Issuing Bank and their agents
and employees; and
(ii) the designation of any form, type or amount of insurance coverage
by the Administrative Agent, the Collateral Agent or the Required Lenders
under this Section shall in no event be deemed a representation, warranty
or advice by the Administrative Agent, the Collateral Agent or the Lenders
that such insurance is adequate for the purposes of the business of the
Borrower and the Subsidiaries or the protection of their properties and the
Administrative Agent, the Collateral Agent and the Required Lenders shall
have the right from time to time to require the Borrower and the other
Credit Parties to keep other insurance in such form and amount as the
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. Payment of Taxes. Holding and the Borrower shall, and
the Borrower shall cause each Restricted Subsidiary to, 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, that, if unpaid, might
give rise to a Lien upon such properties or any part thereof; provided, however,
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that such payment and discharge shall not be required with respect to any such
tax, assessment, charge, levy or claim so long as the validity or amount thereof
shall be contested in good faith by appropriate proceedings and the Borrower
shall have set aside on its books adequate reserves with respect thereto in
accordance with GAAP and such contest operates to suspend collection of the
contested obligation, tax, assessment or charge and enforcement of a Lien and,
in the case of a Mortgaged Property, there is no risk of forfeiture of such
property.
SECTION 5.04. Financial Statements, Reports, etc. The Borrower shall
furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year, its consolidated
and consolidating balance sheets and related statements of operations,
stockholders' equity and cash flows showing the financial condition of
Holding and the Borrower and its consolidated Subsidiaries as of the close
of such fiscal year and the results of its operations and the operations of
such Subsidiaries during such year, all audited by Arthur Andersen LLP or
other independent public accountants of recognized national standing and
accompanied by (i) an opinion of such accountants (which shall not be
qualified in any material respect) to the effect that such consolidated
financial statements fairly present the financial condition and results of
operations of Holding and the Borrower and its consolidated Subsidiaries on
a consolidated basis in accordance with GAAP consistently applied, and
(ii) any management letter issued by such accountants to the board of
directors or finance committee of Holding or the Borrower;
(b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, its consolidated and consolidating balance
sheets and related statements of operations, stockholders' equity and cash
flows showing the financial condition of the Borrower and its consolidated
Subsidiaries as of the close of such fiscal quarter and the results of its
operations and the operations of such Subsidiaries during such fiscal
quarter and the then elapsed portion of the fiscal year, all certified by
one of its Financial Officers as fairly presenting the financial condition
and results of operations of the Borrower and its consolidated Subsidiaries
on a consolidated basis in accordance with GAAP consistently applied,
subject to the absence of footnotes and normal year-end audit adjustments;
(c) within 30 days after the end of each of month, its consolidated
balance sheets and related statements of operations, stockholders' equity
and cash flows showing the financial condition of the Borrower and its
consolidated Subsidiaries as of the close of such month and the results of
its operations and the operations of such Subsidiaries during such month
and the then elapsed portion of the fiscal year, all certified by one of
its Financial Officers as fairly presenting the financial condition and
results of operations of the Borrower and its consolidated Subsidiaries on
a consolidated basis in accordance with GAAP consistently applied, subject
to the absence of footnotes and normal year-end audit adjustments;
(d) concurrently with any delivery of financial statements under
clause (a), (b) or (c), a certificate of the accounting firm or a Financial
Officer 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
Administrative Agent demonstrating compliance with the covenants contained
in Section 6.09 through Section 6.12;
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(d) concurrently with any delivery of financial statements under
clause (a) or (b), a Pricing Adjustment Certificate;
(e) not later than January 31 of each year, (i) copies of the
Borrower's annual consolidated budget for the current fiscal year, in the
form presented by management to the Borrower's Board of Directors; and (ii)
copies of the Borrower's consolidated financial projections for the current
fiscal year and the next 3 fiscal years prepared in a manner consistent
with the financial projections delivered to the Syndication Agent in
connection with the closing of this Agreement;
(f) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the Securities and Exchange Commission,
or any Governmental Authority succeeding to any or all of the functions of
said Commission, or with any national securities exchange, or distributed
to its shareholders, as the case may be; and
(g) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of Holding, the
Borrower or any Subsidiary, or compliance with the terms of any Credit
Document, as the Administrative Agent or any Lender may reasonably request.
SECTION 5.05. Litigation and Other Notices. The Borrower shall,
promptly after a Responsible Officer becomes aware thereof, furnish to the
Administrative Agent, the Issuing Bank and each Lender prompt written notice of
the following:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) taken or proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any Governmental
Authority, against the Borrower or any Affiliate thereof that could
reasonably be expected to result in a Material Adverse Effect; and (c) any
development that has resulted in, or could reasonably be expected to result
in, a Material Adverse Effect.
SECTION 5.06. Employee Benefits. Holding and the Borrower shall, and
the Borrower shall cause each Restricted Subsidiary to, (a) comply in all
material respects with the applicable provisions of ERISA and the Code and (b)
furnish to the Administrative Agent (i) as soon as possible after, and in any
event within 10 days after any Responsible Officer of the Borrower or any ERISA
Affiliate knows or has reason to know that, any ERISA Event has occurred that,
alone or together with any other ERISA Event could reasonably be expected to
result in liability of the Borrower in an aggregate amount exceeding $1,000,000
or requiring payments exceeding $500,000 in any year, a statement of a Financial
Officer of the Borrower setting forth details as to such ERISA Event and the
action, if any, that the Borrower proposes to take with respect thereto.
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections. (a) The Borrower shall, and shall cause each Restricted Subsidiary
to, keep proper books of record and account, in a manner consistent with
requirements of law and with sound business practice so as to permit the
preparation of financial statements in conformity with GAAP, and in which full,
true and correct entries are made of all dealings and transactions in relation
to its business and activities.
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(b) Each Credit Party will, and will cause each of its Subsidiaries to,
permit any representatives designated by the Syndication Agent or any Lender to
visit and inspect the financial records and the properties of Holding, the
Borrower or any Subsidiary at reasonable times and as often as reasonably
requested and to make extracts from and copies of such financial records, and
permit any representatives designated by the Syndication Agent or any Lender to
discuss the affairs, finances and condition of Holding, the Borrower or any
Subsidiary with the officers thereof and independent accountants therefor;
provided, however, that (i) so long as no Event of Default has occurred and is
continuing, the Syndication Agent and the Lenders shall be limited to visits on
four occasions per year, and the Syndication Agent shall use it best efforts to
coordinate such visits, and (ii) the Syndication Agent shall give the Borrower
reasonable notice of a proposed discussions with such independent accountants,
and representatives of the Borrower may at the Borrower's option participate in
such discussions.
SECTION 5.08. Use of Proceeds. The Borrower shall, and shall cause
each Restricted Subsidiary to, use the proceeds of the Loans and request the
issuance of Letters of Credit only for the purposes set forth in Section 3.13.
SECTION 5.09. Compliance with Environmental Laws. The Borrower shall,
and shall cause each Restricted Subsidiary to, comply, and cause all lessees and
other persons occupying its Environmental Properties to comply, in all material
respects with all Environmental Laws and Environmental Permits applicable to its
operations and Environmental Properties; obtain and renew all material
Environmental Permits necessary for its operations and Environmental Properties;
and conduct any Remedial Action in accordance with Environmental Laws, except to
the extent to do the same could not be reasonably be expected to have a Material
Adverse Effect; provided, however, that none of Holding, the Borrower or any of
the Subsidiaries shall be required to undertake any Remedial Action to the
extent that its obligation to do so is being contested in good faith and by
proper proceedings and appropriate reserves are being maintained with respect to
such circumstances.
SECTION 5.10. Preparation of Environmental Reports. The Borrower
shall, and shall cause each Restricted Subsidiary to, 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 Administrative
Agent, provide to the Lenders within 45 days after such request, at the expense
of the Borrower, an environmental site assessment report for the Environmental
Properties which are the subject of such default prepared by an environmental
consulting firm acceptable to the Administrative Agent and indicating the
presence or absence of Hazardous Materials and the estimated cost of any
compliance or Remedial Action in connection with such Environmental Properties.
SECTION 5.11. Further Assurances. Holding and the Borrower shall, and
the Borrower shall cause each Restricted Subsidiary to, 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 that the Required Lenders, the Administrative Agent or the Collateral
Agent may reasonably request, in order to effectuate the transactions
contemplated by the Credit Documents and in order to grant, preserve, protect
and perfect the validity and first priority of the security interests created or
intended to be created by the Security Documents. The Borrower will cause any
subsequently acquired or organized Domestic Subsidiary to execute a Subsidiary
Guarantee Agreement, Indemnity Subrogation and Contribution Agreement and each
applicable Security Document in favor of the Collateral Agent. In addition, from
time to time, the Borrower will, at its cost and expense, promptly secure the
Obligations by pledging or creating, or causing to be pledged or created,
perfected security interests with respect to such of its assets and properties
as the Administrative Agent or the Required Lenders shall designate (it
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being understood that it is the intent of the parties that the Obligations
shall be secured by, among other things, substantially all the assets of the
Borrower (including real and other properties acquired subsequent to the Closing
Date)). Such security interests and Liens will be created under the Security
Documents and other security agreements, mortgages, deeds of trust and other
instruments and documents in form and substance satisfactory to the Collateral
Agent, and the Borrower shall deliver or cause to be delivered to the Lenders
all such instruments and documents (including legal opinions, title insurance
policies and lien searches) as the Collateral Agent shall reasonably request to
evidence compliance with this Section. The Borrower agrees 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.
SECTION 5.12. Mortgaged Property Casualty and Condemnation. (a)
Notwithstanding any other provision of this Agreement or the Security Documents,
the Collateral Agent is authorized, at its option (for the benefit of the
Secured Parties), to collect and receive, to the extent payable to the Borrower
or any other Credit Party, all insurance proceeds, damages, claims and rights of
action under any insurance policies with respect to any casualty or other
insured damage ("Casualty") to any portion of any Mortgaged Property
(collectively, "Casualty Proceeds"), unless the amount of the related Casualty
Proceeds is less than $1,000,000 and an Event of Default shall not have occurred
and be continuing. The Borrower agrees to notify the Collateral Agent and the
Administrative Agent, in writing, promptly after the Borrower obtains notice or
knowledge of any Casualty to a Mortgaged Property, which notice shall set forth
a description of such Casualty and the Borrower's good faith estimate of the
amount of related damages. The Borrower agrees, subject to the foregoing
limitations, to endorse and transfer or cause to be endorsed or transferred any
Casualty Proceeds received by it or any other Credit Party to the Collateral
Agent.
(b) The Borrower will notify the Collateral Agent and the
Administrative Agent immediately upon obtaining knowledge of the institution of
any action or proceeding for the taking of any Mortgaged Property, or any part
thereof or interest therein, for public or quasi-public use under the power of
eminent domain, by reason of any public improvement or condemnation proceeding,
or in any other manner (a "Condemnation"). No settlement or compromise of any
claim in connection with any such action or proceeding shall be made without the
consent of the Collateral Agent, which consent shall not be unreasonably
withheld. The Collateral Agent is authorized, at its option (for the benefit of
the Secured Parties), to collect and receive all proceeds of any such
Condemnation (in each case, the "Condemnation Proceeds"). The Borrower agrees to
execute or cause to be executed such further assignments of any Condemnation
Proceeds as the Collateral Agent may reasonably require.
(c) In the event of any Condemnation of the Mortgaged Property, or
any part thereof and subject to the provisions of clause (e), the Collateral
Agent shall apply the Condemnation Proceeds first, in the case of a partial
Condemnation, to the repair or restoration of any integrated structure subject
to such Condemnation or, in the case of a total or "substantially all"
Condemnation, to the location of a replacement property, acquisition of such
replacement property and construction of the replacement structures, and second,
shall apply the remainder of such Condemnation Proceeds (less the reasonable
costs, if any, incurred by the Collateral Agent in the recovery of such
Condemnation Proceeds) to prepay obligations outstanding under this Agreement,
with any remaining Condemnation Proceeds being returned to the Borrower.
(d) In the event of any Casualty of less than 50% of the useable
square footage of the improvements of any Mortgaged Property, the Borrower
shall, subject to the conditions contained in clause (e), restore the Mortgaged
Property to substantially its same condition immediately prior to such Casualty.
In the event of any Casualty of greater than 50% of the
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useable square footage of the improvements of any Mortgaged Property and so
long as no Default or Event of Default has occurred and is continuing, the
Borrower shall have the option to either:
(i) restore the Mortgaged Property to a condition substantially
similar to its condition immediately prior to such Casualty and to invest
the balance, if any, of any Casualty Proceeds in equipment or other assets
used in the Borrower's principal lines of business within 6 months after
the receipt thereof, provided that the Borrower, pending such reinvestment,
promptly deposits such excess Casualty Proceeds in a cash collateral
account established with the Collateral Agent for the benefit of the
Secured Parties, or
(ii) direct the Collateral Agent to apply the related Casualty
Proceeds to prepay obligations outstanding under this Agreement, with any
remaining Casualty Proceeds being returned to the Borrower.
Any excess Casualty Proceeds that are not reinvested in the Borrower's principal
lines of business as contemplated above will be applied to prepay the
Obligations.
If required to do so, the Borrower shall make the election
contemplated by the immediately preceding clause by notifying the Collateral
Agent and the Administrative Agent promptly after the later to occur of (A) five
days after the Borrower and its insurance carrier reach a final determination of
the amount of any Casualty Proceeds and (B) 30 days after the occurrence of the
Casualty. If the Borrower shall be required or shall elect to restore the
Mortgaged Property, the insufficiency of any Casualty Proceeds or Condemnation
Proceeds to defray the entire expense of such restoration shall in no way
relieve the Borrower of such obligation so to restore. In the event the
Borrower shall be required to restore or shall notify the Collateral Agent and
the Administrative Agent of its election to restore, the Borrower shall
diligently and continuously prosecute the restoration of the Mortgaged Property
to completion. In the event of a Casualty where the Borrower is required to make
the election set forth above and the Borrower shall fail to notify the
Collateral Agent and the Administrative Agent of its election within the period
set forth above or shall elect not to restore the Mortgaged Property, the
Collateral Agent shall (after being reimbursed for all reasonable costs of
recovery of such Casualty Proceeds) apply such Casualty Proceeds to prepay
obligations outstanding under this Agreement. In addition, upon such
prepayment, the Borrower shall be obligated to place the remaining portion, if
any, of the Mortgaged Property in a safe condition that is otherwise in
compliance with the requirements of applicable Governmental Authorities and the
provisions of this Agreement and the applicable Mortgage.
(e) Except as otherwise specifically provided in this Section, all
Casualty Proceeds and all Condemnation Proceeds recovered by the Collateral
Agent (A) are to be applied to the restoration of the applicable Mortgaged
Property (less the reasonable cost, if any, to the Collateral Agent of such
recovery and of paying out such proceeds, including reasonable attorneys' fees
(including the allocated costs of in-house legal counsel), other charges and
disbursements and costs allocable to inspecting the Work (as defined below)) and
(B) shall be applied by the Collateral Agent to the payment of the cost of
restoring or replacing the Mortgaged Property so damaged, destroyed or taken or
of the portion or portions of the Mortgaged Property not so taken (the "Work")
and (C) shall be paid out from time to time to the Borrower as and to the extent
the Work (or the location and acquisition of any replacement of any Mortgaged
Property) progresses for the payment thereof, but subject to each of the
following conditions:
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(i) the Borrower must promptly commence the restoration process or the
location, acquisition and replacement process (in the case of a total or
"substantially all" Condemnation) in connection with the Mortgaged
Property;
(ii) the Work shall be in the charge of an architect or engineer and
before the Borrower commences any Work, other than temporary work to
protect property or prevent interference with business, the Collateral
Agent shall have received the plans and specifications and the general
contract for the Work from the Borrower. The plans and specifications
shall provide for such Work that, upon completion thereof, the improvements
shall (A) be in compliance with all requirements of applicable Governmental
Authorities such that all representations and warranties of the Borrower
relating to the compliance of such Mortgaged Property with applicable laws,
rules or regulations in this Agreement or the Security Documents will be
correct in all respects and (B) be at least equal in value and general
utility to the improvements that were on such Mortgaged Property (or that
were on the Mortgaged Property that has been replaced, if applicable) prior
to the Casualty or Taking, and in the case of a Taking, subject to the
effect of such Taking;
(iii) except as provided in clause (iv), each request for payment
shall be made on seven days' prior notice to the Collateral Agent and shall
be accompanied by a certificate to be made by such architect or engineer,
stating (A) that all the Work completed has been done in substantial
compliance with the plans and specifications, (B) that the sum requested is
justly required to reimburse the Borrower for payments by the Borrower to,
or is justly due to, the contractor, subcontractors, materialmen, laborers,
engineers, architects or other persons rendering services or materials for
the Work (giving a brief description of such services and materials) and
that, when added to all sums previously paid out by the Collateral Agent,
does not exceed the value of the Work done to the date of such certificate;
(iv) each request for payment in connection with the acquisition of a
replacement Mortgaged Property (in the case of a total or "substantially
all" Condemnation) shall be made on 30 days' prior notice to the Collateral
Agent and, in connection therewith, (A) each such request shall be
accompanied by a copy of the sales contract or other document governing the
acquisition of the replacement property by the Borrower and a certificate
of the Borrower stating that the sum requested represents the sales price
under such contract or document and the related reasonable transaction fees
and expenses (including brokerage fees) and setting forth in sufficient
detail the various components of such requested sum and (B) the Borrower
shall (I) in addition to any other items required to be delivered under
this Section), provide the Administrative Agent and the Collateral Agent
with such opinions, documents, certificates, title insurance policies,
surveys and other insurance policies as they may reasonably request and
(II) take such other actions as the Administrative Agent and the Collateral
Agent may reasonably deem necessary or appropriate (including actions with
respect to the delivery to the Collateral Agent of a first priority
Mortgage with respect to such real property for the ratable benefit of the
Secured Parties);
(v) each request shall be accompanied by waivers of lien satisfactory
to the Collateral Agent covering that part of the Work for which payment or
reimbursement is being requested and, if required by the Collateral Agent,
by a search prepared by a title company or licensed abstractor or by other
evidence satisfactory to the Collateral Agent, that there has not been
filed with respect to such Mortgaged Property any mechanics' or other lien
or instrument for the retention of title in respect of any part of the Work
not discharged of record or bonded to the reasonable satisfaction of the
Collateral Agent;
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(vi) there shall be no Default or Event of Default that has occurred
and is continuing;
(vii) the request for any payment after the Work has been completed
shall be accompanied by a copy of any certificate or certificates required
by law to render occupancy of the improvements being rebuilt, repaired or
restored legal; and
(viii) after commencing the Work, the Borrower shall continue to
perform the Work diligently and in good faith to completion in accordance
with the approved plans and specifications.
Upon completion of the Work and payment in full therefor, the Collateral Agent
will disburse to the Borrower the amount of any Casualty Proceeds or
Condemnation Proceeds then or thereafter in the hands of the Collateral Agent on
account of the Casualty or Taking that necessitated such Work to be applied (x)
to prepay obligations outstanding under this Agreement, with any excess being
returned to the Borrower, or (y) to be reinvested in the Borrower's principal
lines of business within 180 days after the receipt thereof, provided that the
Borrower, pending such reinvestment, promptly deposits such amounts in a cash
collateral account established with the Collateral Agent for the benefit of the
Secured Parties.
(f) Notwithstanding any other provisions of this Section, if the
Borrower shall have elected to replace a Mortgaged Property in connection with a
total or "substantially all" Condemnation as contemplated in clause (c), all
Condemnation Proceeds held by the Collateral Agent in connection therewith shall
be applied to prepay obligations outstanding under this Agreement if (i) the
Borrower notifies the Collateral Agent and the Administrative Agent that it does
not intend to replace the related Mortgaged Property, (ii) a Responsible Officer
of the Borrower shall not have notified the Administrative Agent and the
Collateral Agent in writing that the Borrower has acquired or has entered into a
binding contract to acquire land upon which it will construct the replacement
property within six months after the related Condemnation or (iii) the Borrower
shall have not notified the Administrative Agent and the Collateral Agent in
writing that it has begun construction of the replacement structures within one
year after the related Condemnation.
(g) Nothing in this Section shall prevent the Collateral Agent from
applying at any time all or any part of the Casualty Proceeds or Condemnation
Proceeds to (i) the curing of any Event of Default under this Agreement or (ii)
the payment of any of the Obligations after the occurrence and during the
continuance of an Event of Default.
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness. The Borrower will not, and will not permit
any Restricted Subsidiary to, incur, create, assume or permit to exist any
Indebtedness, except:
(a) Indebtedness for borrowed money existing on the date hereof and
set forth in Schedule 6.01(a); provided, however, that such Indebtedness
shall be repaid concurrently with the incurrence of the Borrowing of the
Initial Credit Event hereunder ("Indebtedness to be Paid");
(b) Indebtedness represented by the Notes and by the other Credit
Documents;
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(c) Indebtedness under the Senior Subordinated Notes (as the same may
be amended from time to time, without increasing the committed amount
thereunder, except as otherwise permitted by this Section) and any
Refinancing Indebtedness of the Borrower with respect thereto in an
aggregate principal amount on the date of Incurrence that, when added to
all other Indebtedness Incurred pursuant to this clause and then
outstanding, shall not exceed the sum of the then outstanding Indebtedness
under the Senior Subordinated Notes;
(d) Indebtedness (i) of the Borrower to any wholly owned Restricted
Subsidiary or to any Guarantor and (ii) of any Restricted Subsidiary to the
Borrower or any wholly owned Restricted Subsidiary;
(e) Indebtedness represented by the Guarantees of Indebtedness
Incurred pursuant to clause (c) (provided, that any Guarantee with respect
to the Senior Subordinated Notes will be subordinated to the same extent as
the Senior Subordinated Notes) or clause (d);
(f) Indebtedness relating to Capital Lease Obligations, Sale/Leaseback
Transactions and Permitted Purchase Money Liens; provided, that
(i) with respect to Capital Lease Obligations, Indebtedness
relating to Purchase Money Liens and Unrestricted Sale/Leaseback
Transactions, either (A) the Incurrence of such Indebtedness relating
to Capital Expenditures, Unrestricted Sale/Leaseback Transactions and
Permitted Purchase Money Liens would be permitted pursuant to Section
6.08 in the fiscal year in which it is Incurred, or (B) the aggregate
principal amount of such Indebtedness does not exceed $10,000,000 at
any one time; and
(ii) with respect to Restricted Sale/Leaseback Transactions, if
the Net Cash Proceeds thereof are applied in accordance with Section
2.13(b).
(g) Indebtedness under Hedging Obligations; provided, however, that
such Hedging Obligations are entered into for bona fide hedging purposes
of the Borrower or its Restricted Subsidiaries (as determined in good faith
by the Board of Directors or senior management of the Borrower) and
correspond in terms of notional amount, duration, currencies and interest
rates, as applicable, to Indebtedness of the Borrower or its Restricted
Subsidiaries Incurred without violation of this Agreement or to business
transactions of the Borrower or its Restricted Subsidiaries on customary
terms entered into in the ordinary course of business; and
(h) Indebtedness in an aggregate principal amount which, together with
all other Indebtedness of the Borrower and the Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (a) through (g)) does not exceed $5,000,000 at any one
time outstanding.
SECTION 6.02. Liens. The Borrower will not, and will not permit any
Restricted Subsidiary to, 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) now owned or hereafter acquired by it or on any income
or revenues or rights in respect of any thereof, except:
(a) Liens on property or assets of the Borrower and its Subsidiaries
existing on the date hereof and set forth in Schedule 6.02(a); provided
that such Liens shall secure only those obligations which they secure on
the date hereof;
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(b) any Lien created under the Credit Documents;
(c) any Lien existing on any property or asset prior to the
acquisition thereof by the 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
assets of the Borrower or any Subsidiary;
(d) Liens for taxes not yet due or which are being contested in
compliance with Section 5.03;
(e) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business and securing
obligations that are not due and payable or which are being contested in
compliance with Section 5.03;
(f) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance and other
social security laws or regulations;
(g) Liens and deposits to secure the performance of bids, contracts
(other than for Indebtedness), leases (other than Capital Lease
Obligations), statutory obligations, surety, indemnity and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(h) zoning restrictions, easements, 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
Borrower or any of its Subsidiaries;
(i) Liens relating to Indebtedness described in Section 6.01(f);
(j) any interest or title of a lessor or any Lien encumbering such
lessor's interest with respect to any lease to the Borrower or any
Subsidiary; and
(k) judgment Liens that do not otherwise constitute an Event of
Default.
SECTION 6.03. Investments, Loans and Advances. The Borrower will not,
and will not permit any Restricted Subsidiary to, make or permit to exist any
Investment in any other person, except:
(a) Investments by the Borrower existing on the date hereof in the
capital stock of the Subsidiaries;
(b) Permitted Investments;
(c) Investments in Unrestricted Subsidiaries not to exceed $20,000 in
the aggregate; and
(d) Investments in Restricted Subsidiaries;
(e) Investments made in connection with Permitted Investments;
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(f) Investments which would be permitted as Indebtedness pursuant to
Section 6.01;
(g) loans and advances to employees of the Borrowers and any
Restricted Subsidiary made in the ordinary course of business consistent
with past practices of the Borrower or such Restricted Subsidiary; provided
that the aggregate principal amount of such loans, advances and Employee
Notes payable shall not exceed $1,000,000 at any one time outstanding;
(h) loans and advances to, or Employee Notes received from, employees
of Holding, the Borrower or any of their Subsidiaries made or received in
connection with the substantially concurrent purchase of common stock of
Holding or the Borrower by such employees; provided that the aggregate
principal amount of such loans, advances and Employee Notes payable shall
not exceed $1,000,000 at any one time outstanding; and
(i) other Investments in an aggregate amount not in excess of
$500,000 at any one time outstanding.
SECTION 6.04. Mergers, Consolidations, Sales of Assets and
Acquisitions. (a) The Borrower will not merge, consolidate or amalgamate with
or into any other person (other than a merger of a wholly owned Subsidiary into
the Borrower) unless: (i) the Borrower shall be the surviving person (the
"Surviving Person") or the Surviving Person (if other than the Borrower) formed
by such merger, consolidation or amalgamation shall be a corporation organized
and existing under the laws of the State of Delaware, (ii) the Surviving Person
(if other than the Borrower) shall expressly assume, by an agreement
satisfactory in form and substance to the Agents, executed and delivered to the
Agents by the Surviving Person, the due and punctual performance of all of the
obligations and agreements of the Borrower under this Agreement, (iii)
immediately after giving effect to such merger, consolidation or amalgamation,
no Default or Event of Default shall have occurred, and (iv) the Borrower shall
have carried out any acts necessary to ensure that any security interest
purported to be created by any Security Document shall continue to be a valid,
perfected, first priority (except as otherwise expressly provided in this
Agreement or such Security Document) security interest in the applicable
Collateral.
(b) The Borrower will not permit any Restricted Subsidiary to merge into
or consolidate with any other person, or permit any other person to merge into
or consolidate with it, except that if at the time thereof and immediately after
giving effect thereto no Event of Default or Default shall have occurred and be
continuing (i) any wholly owned Subsidiary may merge into the Borrower in a
transaction in which the Borrower is the surviving corporation and (ii) any
wholly owned Subsidiary may merge into or consolidate with any other wholly
owned Subsidiary in a transaction in which the surviving entity is a wholly
owned Subsidiary and no person other than the Borrower or a wholly owned
Subsidiary receives any consideration.
(c) The Borrower will not, and will not permit any Restricted Subsidiary
to, purchase, lease, or otherwise acquire (in one transaction or a series of
transactions) any Assets or capital stock (or other equity interests) of any
person other than in the ordinary course of the Borrower's business, except for
Permitted Acquisitions.
(d) The Borrower will not, and will not permit any Restricted Subsidiary
to, enter into any Asset Disposition or Sale/Leaseback Transaction, except for
(i) Unrestricted Asset Dispositions, (ii) Unrestricted Sale/Leaseback
Transactions permitted by Section 6.01(f), (iii) Restricted Asset Dispositions,
the Net Cash Proceeds of which are applied in accordance with
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Section 2.13(b), and (iv) Restricted Sale/Leaseback Transactions which are
permitted by Section 6.01(f) and the Net Cash Proceeds of which are applied in
accordance with Section 2.13(b).
SECTION 6.05. Dividends and Distributions; Restrictions on Ability of
Subsidiaries to Pay Dividends. Neither Holding nor the Borrower shall, and the
Borrower shall not permit any Restricted Subsidiary to, (a) Directly or
indirectly, declare or pay any dividend or make any distribution (whether in
cash, securities or other Property) on or with respect to the Capital Stock of
the Borrower or any Restricted Subsidiary (including any payment in connection
with any merger or consolidation with or into the Borrower or any Restricted
Subsidiary) except for any dividends or distributions payable solely in its
Capital Stock (other than Disqualified Stock) and except any dividend or
distribution which is made to the Borrower or a wholly owned Restricted
Subsidiary (provided that such Restricted Subsidiary is a Wholly Owned
Subsidiary), or any dividend or distribution payable solely in shares of Capital
Stock (other than Redeemable Stock) of the Borrower, purchase, repurchase,
redeem, retire or otherwise acquire for value any Capital Stock of the Borrower
or any Affiliate of the Borrower held by persons other than the Borrower or a
Restricted Subsidiary or any Securities exchangeable for or convertible into any
such Capital Stock (other than for or into Capital Stock of the Borrower that is
not Disqualified Stock), purchase, repurchase, redeem, defease or otherwise
acquire or retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations purchased
in anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of acquisition,
or the refinancing of any Subordinated Obligations with Refinancing
Indebtedness), or make any Investment (other than pursuant to Section 6.03) in
any person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment being herein referred to
as a "Restricted Payment"); provided, however, that
(i) the purchase, repurchase, redeem, legally defease, acquire or
retire for value, or pay dividends or make loans to Holding to enable
Holding substantially concurrently therewith to purchase, repurchase,
redeem, legally defease, acquire or retire for value, shares of, or options
to purchase shares of, Capital Stock of the Borrower or Holding from
employees or former employees of the Borrower, Holding or any of their
Subsidiaries (or their estates or beneficiaries thereof) upon death,
disability, retirement or termination pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments
thereto) approved by the board of directors of the Borrower or Holding, as
the case may be, under which such individuals purchase or sell, or are
granted the option to purchase or sell, shares of such Capital Stock;
provided, that (i) the aggregate amount of such purchases, repurchases,
redemptions, defeasances, acquisitions or retirements shall not exceed
$1,000,000 in any fiscal year or $3,000,000 in the aggregate after the
Closing Date, except that (x) such amounts shall be increased by the
aggregate net amount of cash received by the Borrower after the Closing
Date from the sale of such Capital Stock to, or the exercise of options to
purchase such shares by, employees of the Borrower, Holding or any of their
Subsidiaries, and (y) the Borrower may forgive or return Employee Notes
without regard to the limitations set forth in clause (d)(i) and such
forgiveness or return shall not be treated as a Restricted Payment for
purpose of determining compliance with clause (d)(i) and such purchases,
repurchases, defeasances, acquisitions or retirements (but not forgiveness
or returns of Employee Notes) shall be included in the calculation of the
amount of Restricted Payments;
(ii) beginning not earlier than the fifth anniversary of the Closing
Date, the Borrower may pay cash dividends on the Borrower's Exchangeable
Preferred Stock, and Holding may pay cash dividends on Holding's
Exchangeable Preferred Stock, but only in
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<PAGE>
accordance with the terms of the Exchangeable Preferred Stock in amounts
not greater than 11 1/2% per annum of the original aggregate liquidation
preference of the Borrower's Exchangeable Preferred Stock plus accreted PIK
liquidation preference;
(iii) the Borrower may redeem the Borrower's Exchangeable Preferred
Stock (including accreted PIK liquidation preference) with Net Cash
Proceeds of an Equity Issuance pursuant to Section 2.13(c)(i) in accordance
with its terms; provided, however, that Holdings shall concurrently apply
the proceeds of such redemption to redeem a like amount of Holding's
Exchangeable Preferred Stock; and
(iv) the Borrower and/or Holding may make Contingent Acquisition-
Related Payments; or
(b) Permit its subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction on the ability of any such subsidiary to (i) pay any
dividends or make any other distributions on its capital stock or any other
interest or (ii) make or repay any loans or advances to the Borrower or Holding
of such subsidiary.
SECTION 6.06. Transactions with Affiliates. Neither Holding nor the
Borrower shall, and the Borrower shall not permit any Restricted Subsidiary to,
directly or indirectly, conduct any business or enter into or suffer to exist
any transaction or series of transactions (including the purchase, sale,
transfer, assignment, lease, conveyance or exchange of any Property or the
rendering of any service) with, or for the benefit of, any Affiliate of the
Borrower, other than the payment of Transaction Costs approved by the
Syndication Agent prior to the Closing Date (an "Affiliate Transaction"), unless
the terms of such Affiliate Transaction are (i) set forth in writing, (ii) in
the interests of the Borrower or such Restricted Subsidiary as the case may be,
and (iii) no less favorable to the Borrower or such Restricted Subsidiary, as
the case may be, than those that could be obtained in a comparable arm's length
transaction with a person that is not an Affiliate of the Borrower.
Notwithstanding the foregoing limitations, the Borrower or any Restricted
Subsidiary may enter into or permit to exist the following:
(a) any transaction permitted pursuant to Section 6.03 or Section
6.05;
(b) the issuance of Capital Stock for cash;
(c) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and employees of the Borrower or any of the Restricted Subsidiaries, so
long as the board of directors of the Borrower in good faith shall have
approved the terms thereof and deemed the services theretofore or
thereafter to be performed for such compensation to be fair consideration
therefor; or
(d) the payment of the Transaction Costs.
SECTION 6.07. Business of Holding, Borrower and Subsidiaries. The
Borrower will not, and will not permit any Restricted Subsidiary to, engage at
any time in any business or business activity other than the business currently
conducted by it and business activities reasonably related or complementary
thereto. Notwithstanding anything to the contrary in this Agreement, Holding
shall not engage in any business, or have any assets, operations, obligations,
liabilities or employees, except as specifically contemplated in the Credit
Documents and the Recapitalization Agreements.
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<PAGE>
SECTION 6.08. Capital Expenditures. The Borrower will not, and will
not permit any Restricted Subsidiary to, or make Capital Expenditures if the
aggregate amount thereof would exceed the following limits in the following
fiscal years; provided, that the unused portion of the scheduled limit for any
fiscal year (not to exceed $4,000,000) may be carried forward to be used in the
following fiscal year.
<TABLE>
<CAPTION>
FISCAL YEAR LIMIT
-------------- -------------
<S> <C>
1998 $6,000,000
1999 $8,000,000
2000 $8,000,000
2001 $8,000,000
2002 $8,000,000
2003 $8,000,000
2004 $8,000,000
</TABLE>
SECTION 6.09. Debt/Adjusted EBITDA Ratio. The Debt/Adjusted EBITDA
Ratio shall not exceed the following amounts as of the ends of fiscal quarters
of the Borrower ending nearest to the following dates:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FISCAL DEBT/ADJUSTED EBITDA RATIO
QUARTER
ENDING
NEAREST TO
- ---------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31 6.00:1.00 5.25:1.00 4.50:1.00 3.75:1.00 3.50:1.00 3.50:1.00
- ---------------------------------------------------------------------------------------------------
June 30 6.25:1:00 6.00:1.00 5.00:1.00 4.25:1.00 3.75:1.00 3.50:1.00
- ---------------------------------------------------------------------------------------------------
September 30 6.25:1:00 6.00:1.00 5.00:1.00 4.25:1.00 3.75:1.00 3.50:1.00
- ---------------------------------------------------------------------------------------------------
December 31 6.00:1.00 5.25:1.00 4.50:1.00 3.75:1.00 3.50:1.00 3.50:1.00
- ---------------------------------------------------------------------------------------------------
</TABLE>
and thereafter, 3.50:1.00.
SECTION 6.10. Minimum EBITDA. The EBITDA for the fiscal year of the
Borrower shall not be less than the following amounts as of the end of the
following fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
NEAREST TO
DECEMBER 31, MINIMUM EBITDA
--------------------- -------------------
<S> <C>
1998 $27,000,000
1999 $29,000,000
2000 $32,000,000
2001 $34,000,000
2002 $37,000,000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
NEAREST TO
DECEMBER 31, MINIMUM EBITDA
------------------- ------------------
<S> <C>
2003 $39,000,000
and thereafter
</TABLE>
SECTION 6.11. Interest Coverage Ratio.
(a) The ratio of
(i) the EBITDA for the period of four fiscal quarters ending nearest
to June 30, 1998 to
(ii) the product of 4 times the Consolidated Interest Expense for the
fiscal quarter ending nearest to June 30, 1998,
shall not be less than 1.5:1.0.
(b) The ratio of
(i) the EBITDA for the period of four fiscal quarters ending nearest
to September 30, 1998 to
(ii) the product of 2 times the Consolidated Interest Expense for the
period of two fiscal quarters ending nearest to September 30, 1998,
shall not be less than 1.5:1.0.
(c) The ratio of
(i) the EBITDA for the period of four fiscal quarters ending nearest
to December 31, 1998 to
(ii) the product of 1.33 times the Consolidated Interest Expense for
the period of three fiscal quarters ending nearest to December 31, 1998,
shall not be less than 1.75:1.0.
(d) The ratio of EBITDA to Consolidated Interest Expense for the
period of four fiscal quarters ending nearest to each of the following
dates, shall not be less than the following ratios:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FISCAL QUARTER ENDING
NEAREST TO CONSOLIDATED INTEREST COVERAGE RATIO
- ------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 1.75:1.00 2.00:1.00 2.30:1.00 2.75:1.00 3.00:1:00 3.00:1:00
- ------------------------------------------------------------------------------------------------
June 30 1.75:1.00 2.00:1.00 2.30:1.00 2.75:1.00 3.00:1:00
- ------------------------------------------------------------------------------------------------
September 30 1.75:1.00 2.00:1.00 2.30:1.00 2.75:1.00 3.00:1:00
- ------------------------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FISCAL QUARTER ENDING
NEAREST TO CONSOLIDATED INTEREST COVERAGE RATIO
- ------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31 2.00:1.00 2.30:1.00 2.75:1.00 3.00:1.00 3.00:1:00
- ------------------------------------------------------------------------------------------------
</TABLE>
and thereafter, 3.00:1.00.
SECTION 6.12. Fixed Charge Coverage Ratio. The Fixed Charge Coverage
Ratio as of the end of any period of four fiscal quarters shall not be less than
1.2:1.0, beginning with the fiscal quarter ending nearest to March 31, 1999.
SECTION 6.13. Modification of Certain Agreements. Neither Holding, the
Borrower nor any Restricted Subsidiary shall consent to any amendment,
supplement or other modification of any of the terms or provisions contained in
the Senior Subordinated Notes, the Exchangeable Preferred Stock, or any document
or instrument evidencing or applicable to any Subordinated Obligation, other
than any amendment, supplement or other modification which extends the date or
reduces the amount of any required repayment or redemption.
ARTICLE VII
Defaults and Remedies
SECTION 7.01. 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 in or in
connection with any Credit Document or the borrowings or issuances of
Letters of Credit hereunder, 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 Credit
Document, shall prove to have been false or misleading in any material
respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any Loan
or the reimbursement with respect to any L/C Disbursement when and 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 any Fee or L/C Disbursement (after demand for such reimbursement) or any
other amount (other than an amount referred to in clause (b)) due under any
Credit Document, when and as the same shall become due and payable, and
such default shall continue unremedied for a period of three Business Days;
(d) default shall be made in the due observance or performance by
Holding, the Borrower or any Restricted Subsidiary of any covenant,
condition or agreement contained in Section 5.01(a), 5.05 or 5.07(b) or in
Article VI;
(e) default shall be made in the due observance or performance by
Holding, the Borrower or any Restricted Subsidiary of any covenant,
condition or agreement contained in any Credit Document (other than those
specified in clause (b), (c) or (d) ) and such default shall continue
unremedied for a period of 15 days after notice thereof from the
Administrative Agent or any Lender to the Borrower;
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(f) Holding, the Borrower or any Restricted Subsidiary shall (i) fail
to pay any principal or interest, regardless of amount, due in respect of
any Indebtedness in a principal amount in excess of $2,500,000, when and as
the same shall become due and payable, or (ii) fail to observe or perform
any other term, covenant, condition or agreement contained in any agreement
or instrument evidencing or governing any such Indebtedness if the effect
of any failure referred to in this clause (ii) is to cause, or to permit
the holder or holders of such Indebtedness or a trustee on its or their
behalf (with or without the giving of notice, the lapse of time or both) to
cause, such Indebtedness to become due prior to its stated maturity;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i)
relief in respect of Holding, the Borrower or any Material Subsidiary, or
of a substantial part of the property or assets of Holding, the Borrower or
a Material 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 Holding, the Borrower or any Material Subsidiary or for a
substantial part of the property or assets of Holding, the Borrower or a
Material Subsidiary, (iii) the winding-up or liquidation of Holding, the
Borrower or any Material 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, or (iv) any similar relief
is granted under any foreign laws;
(h) Holding, the Borrower or any Material 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 clause (g), (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for Holding, the Borrower or any Material Subsidiary or
for a substantial part of the property or assets of Holding, the Borrower
or any Material 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 $2,500,000 shall be rendered against Holding, the
Borrower, any Restricted 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 legally
taken (and not stayed) by a judgment creditor to levy upon assets or
properties of Holding, the Borrower or any Subsidiary to enforce any such
judgment;
(j) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other such ERISA Events,
could reasonably be expected to result in liability of the Borrower and its
ERISA Affiliates in an aggregate amount exceeding $1,000,000 or requires
payments exceeding $500,000 in any year;
(k) any security interest purported to be created by any Security
Document shall cease to be, or shall be asserted by the Borrower or any
other Credit Party not to be, a valid, perfected, first priority (except as
otherwise expressly provided in this Agreement
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or such Security Document) security interest in securities, assets or
properties with a Fair Market Value of $500,000 or more and purported to be
covered thereby, except to the extent 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
Agreement 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;
(l) any Credit Document shall cease, for any reason, to be in full
force and effect or any Credit Party or any of its Subsidiaries shall so
assert in writing; or
(m) there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to the Borrower
described in clause (g) or (h)), and at any time thereafter during the
continuance of such event, the Administrative Agent may, and at the request of
the Required Lenders shall, by notice to the Borrower, take either or both of
the following actions, at the same or different times: (i) terminate forthwith
the Commitments and (ii) declare the Loans then outstanding to be forthwith due
and payable in whole or in part, whereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and any
unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder
and under any other Credit 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 the Borrower, anything contained herein or
in any other Credit Document to the contrary notwithstanding; and in any event
with respect to the Borrower described in clause (g) or (h), the Commitments
shall automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and any unpaid accrued Fees and all other
liabilities of the Borrower accrued hereunder and under any other Credit
Document, shall automatically become due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived by the Borrower, anything contained herein or in any other
Credit Document to the contrary notwithstanding.
ARTICLE VII
The Agents
SECTION 8.01. Appointment of Administrative and Collateral Agent. In
order to expedite the transactions contemplated by this Agreement, Bankers Trust
Company is hereby appointed to act as Administrative Agent and Collateral Agent
on behalf of the Lenders and the Issuing Bank , and Salomon Brothers Inc is
hereby appointed to act as Syndication Agent on behalf of the Lenders and the
Issuing Bank (for purposes of this Article VIII, the Administrative Agent, the
Collateral Agent and the Syndication Agent are referred to collectively as the
"Agents"). Each of the Lenders and each subsequent holder of any Note by its
acceptance thereof, hereby irrevocably authorizes the Agents to take such
actions on behalf of such Lender or holder or the Issuing Bank and to exercise
such powers as are specifically delegated to the Agents by the terms and
provisions hereof and of the other Credit Documents, together with such actions
and powers as are reasonably incidental thereto. The Administrative Agent is
hereby expressly authorized by the Lenders and the Issuing Bank, without hereby
limiting any implied authority, (a) to receive on behalf of the Lenders and the
Issuing Bank all payments of principal of and interest on the Loans, all
payments in respect of L/C Disbursements and all other amounts due to the
Lenders hereunder, and promptly to distribute to each Lender or the Issuing Bank
its proper share of each payment so received; (b) to give notice on behalf of
each of the Lenders to
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<PAGE>
the Borrower of any Event of Default specified in this Agreement of which the
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 the Borrower or any other Credit
Party pursuant to this Agreement or the other Credit Documents as received by
the 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.
SECTION 8.02. Limitations on Liabilities. 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 Borrower or any other Credit
Party of any of the terms, conditions, covenants or agreements contained in any
Credit Document. The Agents shall not be responsible to the Lenders or the
holders of the Notes for the due execution, genuineness, validity,
enforceability or effectiveness of this Agreement, the Notes or any other Credit
Documents, instruments or agreements. The Administrative Agent may deem and
treat the payee of any Note as the owner thereof for all purposes hereof until
it shall have received from the payee of such Note notice, given as provided
herein, of the transfer thereof in compliance with Section 9.04. 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 and each
subsequent holder of any Note. 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
Borrower or any other Credit Party on account of the failure of or delay in
performance or breach by any Lender or the Issuing Bank of any of its
obligations hereunder or to any Lender or the Issuing Bank on account of the
failure of or delay in performance or breach by any other Lender or the Issuing
Bank or the Borrower or any other Credit Party of any of their respective
obligations hereunder or under any other Credit 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 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.
SECTION 8.03. Acting at the Direction of the Required Lenders. The
Lenders hereby acknowledge that neither 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.
SECTION 8.04. Resignation of the Administrative Agent or the
Collateral Agent. Subject to, and effective upon, the appointment and
acceptance of a successor Agent as provided below, either Agent may resign at
any time by notifying the Lenders and the Borrower. Upon any such resignation,
the Required Lenders shall have the right to appoint a successor. If no
successor shall have been so appointed by the Required Lenders (subject, so
long as no Event of Default has occurred and is continuing, to the consent of
the Borrower, which consent shall not be unreasonably withheld or delayed) 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, appoint a successor Agent which shall be a bank with an office in New
York, New
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York, having a combined capital and surplus of at least $500,000,000 or an
Affiliate of any such bank. 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 9.05 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.
SECTION 8.05. Other Transactions. With respect to the Loans made by it
hereunder and the Notes issued to it, 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 Holding, the Borrower or any Subsidiary or other Affiliate
thereof as if it were not an Agent.
SECTION 8.06. Reimbursement and Indemnity. Each Lender agrees (a) to
reimburse the Agents, on demand, in the amount of its pro rata share (based on
its Commitments hereunder) of any expenses incurred for the benefit of the
Lenders by the Agents, including counsel fees (including the allocated costs of
in-house legal counsel) and compensation of agents and employees paid for
services rendered on behalf of the Lenders, that shall not have been reimbursed
by the 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 that 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 Credit Document or any
action taken or omitted by it or any of them under this Agreement or any other
Credit Document, to the extent the same shall not have been reimbursed by the
Borrower or any other Credit Party, provided that no Lender shall be liable to
an Agent or any such other indemnified person for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements 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 Agent or any of its directors, officers,
employees or agents. Each Revolving Credit Lender agrees to reimburse each the
Issuing Bank and its directors, employees and agents, in each case, to the same
extent and subject to the same limitations as provided above for the Agents.
SECTION 8.07. No Reliance. 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 Agreement or any other Credit
Document, any related agreement or any document furnished hereunder or
thereunder.
ARTICLE IX
Miscellaneous
SECTION 9.01. 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:
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(a) if to the Borrower or Holding, to it at 27711 Diaz Road, P.O. Box
9020, Temecula, CA 92589-9020, Attention of Chief Financial Officer
(telecopy: 909-694-1225) with a copy to Freeman Spogli & Co. Incorporated,
11100 Santa Monica Boulevard, Los Angeles, CA 90025, Attention of Jon Ralph
(telecopy: 310-444-1870);
(b) if to the Administrative Agent with respect to notices under
Article II, to Bankers Trust Company, 130 Liberty St., 14th Floor, New
York, NY 10006, Attention of Stuart Levy, Deal Administrator (telephone:
212-250-4869), (telecopy: 212-250-6029;
(c) if to the Administrative Agent with respect to other matters, to
Bankers Trust Company, 300 South Grand Ave., Floor 41, Los Angeles, CA
90071, Attention of Keith Bernstein, Principal (telephone: 213-620-8148),
(telecopy: 213-620-8484);
(d) if to the Syndication Agent, to Salomon Smith Barney, 7 World
Trade Center, New York, NY 10048, Attention of Nick Erni, (telecopy: 212-
783-2316); and
(e) if to a Lender, to it at its address (or telecopy number) set
forth on Annex 2 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 or in accordance with the
latest unrevoked direction from such party given in accordance with this
Section.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower or Holding herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Credit Document shall be considered to
have been relied upon by the Lenders and the Issuing Bank and shall survive the
making by the Lenders of the Loans, the issuance of Letters of Credit by the
Issuing Bank and the execution and delivery to the Lenders of the Notes
evidencing such Loans, regardless of any investigation made by the Lenders or
the Issuing Bank 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 any Fee or
any other amount payable under this Agreement or any other Credit Document is
outstanding and unpaid or any Letter of Credit is outstanding and so long as the
Commitments have not been terminated. The provisions of Sections 2.14, 2.16,
2.20 and 9.05 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 Loans, the
expiration of the Commitments, the expiration of any Letter of Credit, the
invalidity or unenforceability of any term or provision of this Agreement or any
other Credit Document, or any investigation made by or on behalf of the
Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank.
SECTION 9.03. Effectiveness; Termination. This Agreement shall become
effective when it shall have been executed by the Borrower, Holding and the
Administrative Agent and when the Administrative Agent shall have received
counterparts 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 parties hereto and their respective permitted successors and
assigns. 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 Credit Document shall have been paid
in full and all Letters of Credit
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have been cancelled or have expired and all amounts drawn thereunder have been
reimbursed in full.
SECTION 9.04. 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 Borrower, Holding, the
Administrative Agent, the Issuing 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 under this Agreement (including all or
a portion of its Commitment and the Loans at the time owing to it and the Notes
held by it); provided, however, that
(x) the Borrower and the Administrative Agent and (only with respect
to Revolving Credit Commitments and Revolving Credit Loans) the Swingling
Lender and the Issuing Bank must give their prior written consent to such
assignment (which consent shall not be unreasonably withheld), except in
the case of an assignment to a Lender or an Affiliate of such Lender of any
Loan or Note (when no consent of any party is required), or at any time
when an Event of Default has occurred and is continuing (when no consent of
the Borrower is required), and
(y) the amount of the Commitment of the assigning Lender subject to
each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000 (or, if less, the
entire remaining amount of such Lender's Commitment), (ii) each such
assignment shall be of a constant, and not a varying, percentage of all the
assigning Lender's rights and obligations with respect to the Revolving
Credit Commitments and/or the Term Loans, (iii) the parties to each such
assignment shall execute and deliver to the Administrative Agent an
Assignment and Acceptance, together with the Note or Notes subject to such
assignment and a processing and recordation fee of $3,500 and (iv) the
assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire. Upon acceptance and recording
pursuant to clause (e) of this Section, from and after the effective date
specified in each Assignment and Acceptance, (A) 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 of a Lender
under this Agreement and (B) 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, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.14, 2.16, 2.20 and 9.05, 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 Loan Commitment and Revolving Credit Commitment, and the outstanding
balances of its Term Loans and Revolving Loans, in each case without giving
effect to assignments thereof which have not become effective, are as set forth
in such Assignment and Acceptance, (ii) except as set forth in clause (i), such
assigning Lender makes no representation
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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 Credit Document or any other instrument or
document furnished pursuant hereto, or the financial condition of the Borrower
or any Subsidiary or the performance or observance by the Borrower or any
Subsidiary of any of its obligations under this Agreement, any other Credit
Document or any other instrument or document furnished pursuant hereto; (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 a copy of this Agreement, together with copies of the most recent
financial statements referred to in Section 3.05(a) or delivered pursuant to
Section 5.04 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (v) such assignee will independently and without
reliance upon the Administrative Agent, the Collateral Agent, 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 Agent and the Collateral Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
as are delegated to the Administrative Agent and the Collateral Agent,
respectively, by the terms hereof, 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 Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
conclusive and the Borrower, the Administrative Agent, the Issuing Bank, the
Collateral Agent and the Lenders may treat each person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all purposes
of this Agreement, notwithstanding notice to the contrary. The Register shall
be available for inspection by the Borrower, the Issuing Bank, the Collateral
Agent and any Lender, 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 together with the Note or Notes
subject to such assignment, 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 clause (b) and, if required, the
written consent of the Borrower, the Administrative Agent and (only with respect
to Revolving Credit Commitments and Revolving Credit Loans) the Swingline Lender
and the Issuing Bank to such assignment, the Administrative Agent shall (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Lenders, the
Issuing Bank and the Swingline Lender. No assignment shall be effective unless
it has been recorded in the Register as provided in this clause. Within five
Business Days after receipt of notice, (i) the Borrower, at its own expense,
shall execute and deliver to the Administrative Agent new Notes payable to the
order of such assignee (or, if such assignee shall so request, to such assignee
or registered assigns) representing Loans made pursuant to the Commitments
assumed by it or Term Loans acquired by it, as the case may be, pursuant to such
Assignment and Acceptance and (ii) the assigning Lender, if it shall cease to be
a party hereto as provided in clause (a), shall deliver the Notes held by it to
the Borrower for cancellation. The new Notes delivered to such assignee shall
be dated the date of the original Notes issued hereunder and shall otherwise be
in substantially the form of the appropriate Exhibit or Exhibits thereto.
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(f) Each Lender may without the consent of the Borrower, the
Swingline Lender, the Issuing Bank or the 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
Commitment and the Loans owing to it and the Notes 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 2.14, 2.16 and 2.20 to the same extent as if
they were Lenders and (iv) the Borrower, the Administrative Agent, the Issuing
Bank and the 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
Borrower relating to the Loans or L/C Disbursements and to approve any
amendment, modification or waiver of any provision of this Agreement (other than
amendments, modifications or waivers which extend the final scheduled maturity
of any Loan, Note or Letter of Credit (unless such Letter of Credit is not
extended beyond the Maturity Date) in which such participant is participating,
or reduce the rate or extend the time of payment of interest or Fees thereon
(except in connection with a waiver of applicability of any post-default
increase in interest amounts) or reduce the principal amount thereof, or
increase the amount of the participant's participation over the amount thereof
then in effect (provided that a waiver of any Default or of a mandatory
reduction in the Commitment shall not constitute a change in the terms of such
participation, and that an increase in any Commitment or Loan shall be permitted
without the consent of any participant if the participant's participation is not
increased thereby), or consent to the assignment or transfer by the Borrower of
any of its rights and obligations under this Agreement).
(g) Any Lender or participant may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower furnished to such Lender by
or on behalf of the Borrower; provided that, prior to any such disclosure of
information designated by the Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall agree (subject to
customary exceptions) to preserve the confidentiality of such confidential
information on terms no less restrictive than those applicable to the Lenders
pursuant to Section 9.16.
(h) Any Lender may at any time assign all or any portion of its
rights under this Agreement and the Notes issued to it to a Federal Reserve Bank
to secure extensions of credit by such Federal Reserve Bank to such Lender;
provided that no such assignment shall release a Lender from any of its
obligations hereunder or substitute any such Bank for such Lender as a party
hereto.
(i) Neither Holding nor the Borrower shall assign or delegate any of
its rights or duties hereunder without the prior written consent of the
Administrative Agent, the Issuing Bank and each Lender, and any attempted
assignment without such consent shall be null and void.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower and Holding
agree, jointly and severally, to pay all out-of-pocket expenses incurred by the
Administrative Agent, the Collateral Agent, the Issuing Bank and the Swingline
Lender in connection with the syndication of the credit facilities provided for
herein and the preparation and administration of this Agreement and the other
Credit Documents or in connection with any amendments, modifications or waivers
of the provisions hereof or thereof (whether or not the transactions hereby or
thereby contemplated shall be consummated) or incurred by the Administrative
Agent, the Collateral Agent or any Lender in connection with the enforcement or
protection of its rights in connection with this Agreement and the other Credit
Documents or in connection with the
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Loans made or the Notes or Letters of Credit issued hereunder, including the
fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the
Administrative Agent and the Collateral Agent, and, in connection with any such
enforcement or protection, the fees, charges and disbursements of any other
counsel for the Administrative Agent, the Collateral Agent or any Lender
(including the allocated costs of in-house legal counsel).
(b) The Borrower and Holding agree, jointly and severally, to
indemnify the Administrative Agent, the Collateral Agent, each Lender and the
Issuing Bank, each Affiliate of any of the foregoing persons and each of their
respective directors, officers, employees 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 (including the allocated costs of in-house legal
counsel), 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 Credit Document or any
agreement or instrument contemplated thereby, the performance by the parties
thereto of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby, (ii) the use of
the proceeds of the Loans or issuance of Letters of Credit, (iii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto, or (iv) any actual or alleged
presence or Release of Hazardous Materials on any property owned or operated by
the Borrower or any of the Subsidiaries, or any Environmental Claim related in
any way to the Borrower or the Subsidiaries; 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.
(c) The provisions of this Section 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 Loans, the expiration of the Commitments, the expiration of any Letter of
Credit, the invalidity or unenforceability of any term or provision of this
Agreement or any other Credit Document, or any investigation made by or on
behalf of the Administrative Agent, the Collateral Agent, any Lender or the
Issuing Bank. All amounts due under this Section shall be payable on written
demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, except to the extent prohibited 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 to or
for the credit or the account of the Borrower or Holding against any of and all
the obligations of the Borrower or Holding now or hereafter existing under this
Agreement and other Credit Documents held by such Lender, irrespective of
whether or not such Lender shall have made any demand under this Agreement or
such other Credit Document and although such obligations may be unmatured. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER CREDIT
DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER
CREDIT 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),
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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 9.08. Waivers; Amendment. (a) No failure or delay of the
Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank in
exercising any power or right hereunder or under any other Credit 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 Agent, the Collateral Agent, the Issuing Bank and the Lenders
hereunder and under the other Credit 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 Credit Document or consent to
any departure by the Borrower or any other Credit Party therefrom shall in any
event be effective unless the same shall be permitted by clause (b), 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 the Borrower or Holding in
any case shall entitle the Borrower or Holding to any other or further notice or
demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower, Holding and the Required Lenders; provided,
however, that no such agreement shall (i) decrease the principal amount of, or
extend the maturity of or any scheduled principal payment date or date for the
payment of any interest on any Loan or any date for reimbursement of an L/C
Disbursement, or waive or excuse any such payment or any part thereof, or
decrease the rate of interest on any Loan or L/C Disbursement, without the prior
written consent of each holder of a Note affected thereby, (ii) change or extend
the Commitment or decrease or extend the date for payment of the Commitment Fees
of any Lender without the prior written consent of such Lender or (iii) amend or
modify the provisions of Section 2.17 or 9.04(i), the provisions of this
Section, the definition of the term "Required Lenders" or release any Guarantor
or all or substantially all of the Collateral, without the prior written consent
of each Lender; provided further that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Administrative Agent, the
Collateral Agent, the Issuing Bank or the Swingline Lender hereunder or under
any other Credit Document without the prior written consent of the
Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline
Lender. Each Lender and each holder of a Note shall be bound by any waiver,
amendment or modification authorized by this Section regardless of whether its
Note shall have been marked to make reference thereto, and any consent by any
Lender or holder of a Note pursuant to this Section shall bind any person
subsequently acquiring a Note from it, whether or not such Note shall have been
so marked.
(c) If a Lender refuses to consent to a proposed change, waiver,
discharge or termination with respect to this Agreement which requires the
consent of all of the Lenders and has been approved by the Required Lenders, the
Borrower shall have the right for a 60 day period following such refusal, to
replace such Lender (a "Replaced Lender") with one or more assignees permitted
pursuant to Section 9.04 (collectively, the "Replacement Lender") acceptable to
Administrative Agent, provided that
(i) at the time of any replacement pursuant to this clause, the
Replacement Lender and Replaced Lender shall enter into one or more
Assignment and Acceptances pursuant to Section 9.04(b) (and with all fees
payable pursuant to Section 9.04(b) to be paid by the Replacement Lender)
pursuant to which the Replacement Lender shall acquire all of the
outstanding Loans and Commitments (including principal, interest and
Commitment
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Fees) of, and in each case participations in Letters of Credit and
Swingline Loans by, the Replaced Lender,
(ii) the Replacement Lender shall pay to the Replaced Lender in
respect thereof an amount equal to the sum of (A) an amount equal to the
principal of, and all unpaid interest on, all outstanding Loans of the
Replaced Lender, and all unpaid Commitment Fees payable to the Replaced
Lender, (B) an amount equal to all unpaid drawings with respect to Letters
of Credit that have been funded by (and not reimbursed to) such Replaced
Lender, together with all unpaid interest thereon, (C) an amount equal to
such Replaced Lender's funded participations in any Swingline Loans, and
(D) an amount equal to all unpaid fees owing to the Replaced Lender with
respect thereto,
(iii) the Replacement Lender shall pay to the appropriate Issuing Bank
an amount equal to such Replaced Lender's Applicable Percentage of any
unpaid drawings with respect to Letters of Credit issued by it to the
extent such amount was not theretofore funded by such Replaced Lender, and
(iv) the Replacement Lender shall pay to the Swingline Lender an
amount equal to the unfunded amount of any participation of the Replaced
Lender in a Swingline Loan which is required to be funded; and
(ii) all obligations of the Borrower owing to the Replaced Lender
other than principal, interest and Commitment Fees, shall be paid in full
to such Replaced Lender concurrently with such replacement.
Upon the execution of the respective Assignment and Acceptance, recordation of
such assignment in the Register by Administrative Agent, and the payment of
foregoing amounts, the Replacement Lender shall become a Lender hereunder and
the Replaced Lender shall cease to constitute a Lender hereunder except with
respect to indemnification provisions under this Agreement which by the terms of
this Agreement survive the termination of this Agreement, which indemnification
provisions shall survive as to such Replaced Lender. Notwithstanding anything
to the contrary contained above, no Issuing Bank may be replaced hereunder at
any time while it has Letters of Credit outstanding hereunder unless
arrangements satisfactory to such Issuing Bank (including the furnishing of a
standby letter of credit in form and substance, and issued by an issuer
satisfactory to such Issuing Bank or the furnishing of cash collateral in
amounts and pursuant to arrangements satisfactory to such Issuing Bank) have
been made with respect to such outstanding Letters of Credit.
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything
herein or in the Notes to the contrary, if at any time the interest rate
applicable to any Loan or participation in any L/C Disbursement, together with
all fees, charges and other amounts which are treated as interest on such Loan
or participation in such L/C Disbursement under applicable law (collectively the
"Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may
be contracted for, charged, taken, received or reserved by the Lender holding
such Loan or participation in accordance with applicable law, the rate of
interest payable in respect of such Loan or participation hereunder or under the
Note held by such Lender, together with all Charges payable in respect thereof,
shall be limited to the Maximum Rate and, to the extent lawful, the interest and
Charges that would have been payable in respect of such Loan or participation
but were not payable as a result of the operation of this Section shall be
cumulated and the interest and Charges payable to such Lender in respect of
other Loans or participations or periods shall be increased (but not above the
Maximum Rate therefor) until such cumulated amount, together with interest
thereon at the Federal Funds Effective Rate to the date of repayment, shall have
been received by such Lender.
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SECTION 9.10. Entire Agreement. This Agreement, the Fee Letter and the
other Credit Documents constitute the entire contract between the parties
relative to the subject matter hereof. Any other previous agreement among the
parties with respect to the subject matter hereof is superseded by this
Agreement and the other Credit Documents. Nothing in this Agreement or in the
other Credit 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
Credit Documents.
SECTION 9.11. 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 CREDIT
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 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 CREDIT DOCUMENTS, AS
APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION.
SECTION 9.12. Severability. In the event any one or more of the
provisions contained in this Agreement or in any other Credit 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 (it being understood that
the invalidity of a particular provision in a particular jurisdiction shall not
in and of itself affect the validity of such provision in any other
jurisdiction). 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 9.13. Counterparts. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original but all of which when taken together shall
constitute a single contract, and shall become effective as provided in Section
9.03. Delivery of an executed signature page to this Agreement by telecopy
transmission shall be as effective as delivery of a manually signed counterpart
of this Agreement.
SECTION 9.14. 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 9.15. Jurisdiction; Consent to Service of Process. (a) Each
of Holding and the 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 Credit 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 such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the
88
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judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Administrative Agent, the Collateral Agent, the
Issuing Bank or any Lender may otherwise have to bring any action or proceeding
relating to this Agreement or the other Credit Documents against the Borrower,
Holding or their respective properties in the courts of any jurisdiction.
(b) Each of Holding and the 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 Credit 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 9.01. 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 9.16. Confidentiality. The Administrative Agent, the
Collateral Agent, the Issuing Bank and each of the Lenders agrees to keep
confidential (and to use its best efforts to cause its respective agents and
representatives to keep confidential) the Information (as defined below) and all
copies thereof, extracts therefrom and analyses or other materials based
thereon, except that the Administrative Agent, the Collateral Agent, the Issuing
Bank or any Lender shall be permitted to disclose Information (a) to such of its
respective officers, directors, employees, agents, affiliates and
representatives as need to know such Information, (b) to the extent requested by
any regulatory authority, (c) to the extent otherwise required by applicable
laws and regulations or by any subpoena or similar legal process, (d) in
connection with any suit, action or proceeding relating to the enforcement of
its rights hereunder or under the other Credit Documents or (e) to the extent
such Information (i) becomes publicly available other than as a result of a
breach of this Section or (ii) becomes available to the Administrative Agent,
the Issuing Bank, any Lender or the Collateral Agent on a nonconfidential basis
from a source other than the Borrower or Holding. For the purposes of this
Section, "Information" means all financial statements, certificates, reports,
agreements and information (including all analyses, compilations and studies
prepared by the Administrative Agent, the Collateral Agent, the Issuing Bank or
any Lender based on any of the foregoing) that are received from the Borrower or
Holding and related to the Borrower or Holding, any shareholder of the Borrower
or Holding or any employee, customer or supplier of the Borrower or Holding,
other than any of the foregoing that were available to the Administrative Agent,
the Collateral Agent, the Issuing Bank or any Lender on a nonconfidential basis
prior to its disclosure thereto by the Borrower or Holding, and which are in the
case of Information provided after the date hereof, clearly identified at the
time of delivery as confidential. The provisions of this Section shall remain
operative and in full force and effect until the second anniversary of the
termination of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
HUDSON RESPIRATORY CARE INC.,
by /s/ Richard W. Johansen
_____________________
Name: Richard W. Johansen
Title: President and Chief Financial Officer
by /s/ Jay R. Ogram
---------------------
Name: Jay R. Ogram
Title: Chief Financial Officer
RIVER HOLDING CORP.,
by /s/ Charles P. Rullman
______________________
Name: Charles P. Rullman
Title: President
BANKERS TRUST COMPANY, as Administrative Agent,
Collateral Agent, Swingline Lender and Issuing
Bank,
by /s/ Robert R. Telesca
______________________
Name: Robert R. Telesca
Title: Assistant Vice President
SALOMON BROTHERS INC, as Arranger, Advisor and
Syndication Agent,
by /s/ Chad A. Leat
______________________
Name: Chad A. Leat
Title: Managing Director
LENDERS
-------
BANKERS TRUST COMPANY,
by /s/ Robert R. Telesca
_________________________
Name: Robert R. Telesca
Title: Assistant Vice President
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<PAGE>
SALOMON BROTHERS HOLDING
COMPANY INC,
by /s/ Chad A. Leat
_________________________
Name: Chad A. Leat
Title: Managing Director
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
by /s/ Helen Wilson
_________________________
Name: Helen Wilson
Title: Vice President
/s/ James O. Heil
_________________________
Name: James O. Heil
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY,
by /s/ Nicholas J. Campbell
_________________________
Name: Nicholas J. Campbell
Title: Vice President
BHF-BANK AKTIENGESELLSCHAFT,
by /s/ Dan Dobrjanskyj
_________________________
Name: Dan Dobrjanskyj
Title: Assistant Vice President
/s/ Anthony Heyman
_________________________
Name: Anthony Heyman
Title: Assistant Vice President
CREDITANSTALT CORPORATE FINANCE,
INC,
by /s/ Greg Roux
_________________________
Name: Greg Roux
Title: Vice President
/s/ Jack R. Bertges
_________________________
Name: Jack R. Bertges
Title: Senior Vice President
91
<PAGE>
WELLS FARGO BANK, N.A.,
by /s/ Delia B. Fance
_________________________
Name: Delia B. Fance
Title: Vice President
ROYAL BANK OF CANADA,
by /s/ Athar Khan
________________________
Name: Athar Khan
Title: Senior Manager
92
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NATIONSBANK OF TEXAS, N.A.,
by /s/ Keith Fern
_________________________
Name: Keith Fern
Title: Vice President
SOCIETE GENERALE,
by /s/ Maureen E. Kelly
_________________________
Name: Maureen E. Kelly
Title: Vice President
93
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EXHIBIT 10.2
SECURITY AGREEMENT dated as of April 7, 1998, among HUDSON
RESPIRATORY CARE INC., a California corporation (the "Borrower"),
each subsidiary of the Borrower listed on Schedule I hereto (each
such subsidiary individually a "Subsidiary Guarantor" and
collectively, the "Subsidiary Guarantors"; the Subsidiary
Guarantors and the Borrower are referred to collectively herein
as the "Grantors") and BANKERS TRUST COMPANY, a New York banking
corporation ("BTCo."), as collateral agent (in such capacity, the
"Collateral Agent") for the Secured Parties (as defined herein).
Reference is made to the Credit Agreement dated as of April 7, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, Holding, the lenders from time to time party
thereto (the "Lenders"), BTCo., as administrative agent for the Lenders (in such
capacity, the "Administrative Agent") and Collateral Agent and as issuing bank
(in such capacity, the "Issuing Bank").
The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. Each of Holding and the Subsidiary Guarantors has agreed to
guarantee, among other things, all the obligations of the Borrower under the
Credit Agreement. The obligations of the Lenders to make Loans and of the
Issuing Bank to issue Letters of Credit are conditioned upon, among other
things, the execution and delivery by the Grantors of an agreement in the form
hereof to secure (a) the due and punctual payment by the Borrower of (i) the
principal of and premium, if any, and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (ii) each payment required to be
made by the Borrower under the Credit Agreement in respect of any Letter of
Credit, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral and
(iii) all other monetary obligations, including fees, costs, expenses and
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding), of the Borrower to the Secured Parties
under the Credit Agreement and the other Credit Documents, (b) the due and
punctual performance of all covenants, agreements, obligations and liabilities
of the Borrower under or pursuant to the Credit Agreement and the other Credit
Documents, (c) the due and punctual payment and performance of all the
covenants, agreements, obligations and liabilities of each Credit Party under or
pursuant to this Agreement and the other Credit Documents and (d) the due and
punctual payment and performance of all obligations of the Borrower under each
Interest Rate Protection Agreement entered into with any counterparty that was a
Lender at the time such Interest Rate Protection Agreement was entered into (all
the monetary and other obligations described in the preceding clauses (a)
through (d) being collectively called the "Obligations").
Accordingly, the Grantors and the Collateral Agent, on behalf of itself and
each Secured Party (and each of their respective successors or assigns), hereby
agree as follows:
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2
ARTICLE I
Definitions
SECTION 1.01. Definition of Terms Used Herein. Unless the context
otherwise requires, all capitalized terms used but not defined herein shall have
the meanings set forth in the Credit Agreement.
SECTION 1.02. Definition of Certain Terms Used Herein. As used herein,
the following terms shall have the following meanings:
"Account Debtor" shall mean any person who is or who may become obligated
to any Grantor under, with respect to or on account of an Account.
"Accounts" shall mean any and all right, title and interest of any Grantor
to payment for goods and services sold or leased, including any such right
evidenced by chattel paper, whether due or to become due, whether or not it has
been earned by performance, and whether now or hereafter acquired or arising in
the future, including accounts receivable from Affiliates of the Grantors.
"Accounts Receivable" shall mean all Accounts and all right, title and
interest in any returned goods, together with all rights, titles, securities and
guarantees with respect thereto, including any rights to stoppage in transit,
replevin, reclamation and resales, and all related security interests, liens and
pledges, whether voluntary or involuntary, in each case whether now existing or
owned or hereafter arising or acquired.
"Collateral" shall mean all (a) Accounts Receivable, (b) Documents, (c)
Equipment, (d) General Intangibles, (e) Inventory, (f) cash and cash accounts,
(g) Proceeds and (h) Investment Property.
"Commodity Account" shall mean an account maintained by a Commodity
Intermediary in which a Commodity Contract is carried out for a Commodity
Customer.
"Commodity Contract" shall mean a commodity futures contract, an option on
a commodity futures contract, a commodity option or any other contract that, in
each case, is (a) traded on or subject to the rules of a board of trade that has
been designated as a contract market for such a contract pursuant to the federal
commodities laws or (b) traded on a foreign commodity board of trade, exchange
or market, and is carried on the books of a Commodity Intermediary for a
Commodity Customer.
"Commodity Customer" shall mean a person for whom a Commodity Intermediary
carries a Commodity Contract on its books.
"Commodity Intermediary" shall mean (a) a person who is registered as a
futures commission merchant under the federal commodities laws or (b) a person
who in the ordinary course of its business provides clearance or settlement
services for a board of trade that has been designated as a contract market
pursuant to federal commodities laws.
"Copyright License" shall mean any written agreement, now or hereafter in
effect, granting any right to any third party under any Copyright now or
hereafter owned
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3
by any Grantor or which such Grantor otherwise has the right to license, or
granting any right to such Grantor under any Copyright now or hereafter owned by
any third party, and all rights of such Grantor under any such agreement.
"Copyrights" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all copyright rights in any work subject to the
copyright laws of the United States or any other country, whether as author,
assignee, transferee or otherwise, and (b) all registrations and applications
for registration of any such copyright in the United States or any other
country, including registrations, recordings, supplemental registrations and
pending applications for registration in the United States Copyright Office,
including those listed on Schedule II.
"Credit Agreement" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Documents" shall mean all instruments, files, records, ledger sheets and
documents covering or relating to any of the Collateral.
"Entitlement Holder" shall mean a person identified in the records of a
Securities Intermediary as the person having a Security Entitlement against the
Securities Intermediary. If a person acquires a Security Entitlement by virtue
of Section 8-501(b)(2) or (3) of the New York Uniform Commercial Code, such
person is the Entitlement Holder.
"Equipment" shall mean all equipment, furniture and furnishings, and all
tangible personal property similar to any of the foregoing, including tools,
parts and supplies of every kind and description, and all improvements,
accessions or appurtenances thereto, that are now or hereafter owned by any
Grantor. The term Equipment shall include Fixtures.
"Financial Asset" shall mean (a) a Security, (b) an obligation of a person
or a share, participation or other interest in a person or in property or an
enterprise of a person, which is, or is of a type, dealt with in or traded on
financial markets, or which is recognized in any area in which it is issued or
dealt in as a medium for investment or (c) any property that is held by a
Securities Intermediary for another person in a Securities Account if the
Securities Intermediary has expressly agreed with the other person that the
property is to be treated as a Financial Asset under Article 8 of the Uniform
Commercial Code. As the context requires, the term "Financial Asset" shall mean
either the interest itself or the means by which a person's claim to it is
evidenced, including a certificated or uncertificated Security, a certificate
representing a Security or a Security Entitlement.
"Fixtures" shall mean all items of Equipment, whether now owned or
hereafter acquired, of any Grantor that become so related to particular real
estate that an interest in them arises under any real estate law applicable
thereto.
"General Intangibles" shall mean all choses in action and causes of action
and all other assignable intangible personal property of any Grantor of every
kind and nature (other than Accounts Receivable) now owned or hereafter acquired
by any Grantor, including corporate or other business records, indemnification
claims, contract rights (including rights under leases, whether entered into as
lessor or lessee, Interest Rate Protection Agreements and other agreements),
Intellectual Property, goodwill,
<PAGE>
4
registrations, franchises, tax refund claims and any letter of credit,
guarantee, claim, security interest or other security held by or granted to any
Grantor to secure payment by an Account Debtor of any of the Accounts
Receivable.
"Intellectual Property" shall mean all intellectual and similar property of
any Grantor of every kind and nature now owned or hereafter acquired by any
Grantor, including inventions, designs, Patents, Copyrights, Licenses,
Trademarks, trade secrets, confidential or proprietary technical and business
information, know-how, show-how or other data or information, software and
databases and all embodiments or fixations thereof and related documentation,
registrations and franchises, and all additions, improvements and accessions to,
and books and records describing or used in connection with, any of the
foregoing.
"Inventory" shall mean all goods of any Grantor, whether now owned or
hereafter acquired, held for sale or lease, or furnished or to be furnished by
any Grantor under contracts of service, or consumed in any Grantor's business,
including raw materials, intermediates, work in process, packaging materials,
finished goods, semi-finished inventory, scrap inventory, manufacturing supplies
and spare parts, and all such goods that have been returned to or repossessed by
or on behalf of any Grantor.
"Investment Property" shall mean all Securities (whether certificated or
uncertificated), Security Entitlements, Securities Accounts, Commodity Contracts
and Commodity Accounts of any Grantor, whether now owned or hereafter acquired
by any Grantor.
"License" shall mean any Patent License, Trademark License, Copyright
License or other license or sublicense to which any Grantor is a party,
including those listed on Schedule III (other than those license agreements in
existence on the date hereof and listed on Schedule III and those license
agreements entered into after the date hereof, which by their terms prohibit
assignment or a grant of a security interest by such Grantor as licensee
thereunder).
"Obligations" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Patent License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to make, use or sell any invention
on which a Patent, now or hereafter owned by any Grantor or which any Grantor
otherwise has the right to license, is in existence, or granting to any Grantor
any right to make, use or sell any invention on which a Patent, now or hereafter
owned by any third party, is in existence, and all rights of any Grantor under
any such agreement.
"Patents" shall mean all of the following now owned or hereafter acquired
by any Grantor: (a) all letters patent of the United States or any other
country, all registrations and recordings thereof, and all applications for
letters patent of the United States or any other country, including
registrations, recordings and pending applications in the United States Patent
and Trademark Office or any similar offices in any other country, including
those listed on Schedule IV, and (b) all reissues, continuations, divisions,
continuations-in-part, renewals or extensions thereof, and the inventions
disclosed or claimed therein, including the right to make, use and/or sell the
inventions disclosed or claimed therein.
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5
"Perfection Certificate" shall mean a certificate substantially in the form
of Annex 1 hereto, completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by a Financial Officer and the chief
legal officer of the Borrower.
"Proceeds" shall mean any consideration received from the sale, exchange,
license, lease or other disposition of any asset or property that constitutes
Collateral, any value received as a consequence of the possession of any
Collateral and any payment received from any insurer or other person or entity
as a result of the destruction, loss, theft, damage or other involuntary
conversion of whatever nature of any asset or property which constitutes
Collateral, and shall include (a) any claim of any Grantor against any third
party for (and the right to sue and recover for and the rights to damages or
profits due or accrued arising out of or in connection with) (i) past, present
or future infringement of any Patent now or hereafter owned by any Grantor, or
licensed under a Patent License, (ii) past, present or future infringement or
dilution of any Trademark now or hereafter owned by any Grantor or licensed
under a Trademark License or injury to the goodwill associated with or
symbolized by any Trademark now or hereafter owned by any Grantor, (iii) past,
present or future breach of any License and (iv) past, present or future
infringement of any Copyright now or hereafter owned by any Grantor or licensed
under a Copyright License and (b) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
"Secured Parties" shall mean (a) the Lenders, (b) the Administrative Agent,
(c) the Collateral Agent, (d) the Issuing Bank, (e) each counterparty to an
Interest Rate Protection Agreement entered into with the Borrower if such
counterparty was a Lender at the time the Interest Rate Protection Agreement was
entered into, (f) the beneficiaries of each indemnification obligation
undertaken by any Grantor under any Credit Document and (g) the successors and
assigns of each of the foregoing.
"Securities" shall mean any obligations of an issuer or any shares,
participations or other interests in an issuer or in property or an enterprise
of an issuer which (a) are represented by a certificate representing a security
in bearer or registered form, or the transfer of which may be registered upon
books maintained for that purpose by or on behalf of the issuer, (b) are one of
a class or series or by its terms is divisible into a class or series of shares,
participations, interests or obligations and (c)(i) are, or are of a type, dealt
with or trade on securities exchanges or securities markets or (ii) are a medium
for investment and by their terms expressly provide that they are a security
governed by Article 8 of the Uniform Commercial Code.
"Securities Account" shall mean an account to which a Financial Asset is
or may be credited in accordance with an agreement under which the person
maintaining the account undertakes to treat the person for whom the account is
maintained as entitled to exercise rights that comprise the Financial Asset.
"Security Interest" shall have the meaning assigned to such term in Section
2.01.
"Security Entitlements" shall mean the rights and property interests of an
Entitlement Holder with respect to a Financial Asset.
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6
"Security Intermediary" shall mean (a) a clearing corporation or (b) a
person, including a bank or broker, that in the ordinary course of its business
maintains securities accounts for others and is acting in that capacity.
"Trademark License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to use any Trademark now or
hereafter owned by any Grantor or which any Grantor otherwise has the right to
license, or granting to any Grantor any right to use any Trademark now or
hereafter owned by any third party, and all rights of any Grantor under any such
agreement.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all trademarks, service marks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, trade dress, logos, other source or business identifiers, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all registration and
recording applications filed in connection therewith, including registrations
and registration applications in the United States Patent and Trademark Office,
any State of the United States or any similar offices in any other country or
any political subdivision thereof, and all extensions or renewals thereof,
including those listed on Schedule V, (b) all goodwill associated therewith or
symbolized thereby and (c) all other assets, rights and interests that uniquely
reflect or embody such goodwill.
SECTION 1.03. Rules of Interpretation. The rules of interpretation
specified in Section 1.02 of the Credit Agreement shall be applicable to this
Agreement.
ARTICLE II
Security Interest
SECTION 2.01. Security Interest. As security for the payment or
performance, as the case may be, in full of the Obligations, each Grantor hereby
mortgages, pledges, hypothecates and transfers as security for the Obligations
as contemplated hereunder to the Collateral Agent, its successors and assigns,
for the ratable benefit of the Secured Parties, and hereby grants to the
Collateral Agent, its successors and assigns, for the ratable benefit of the
Secured Parties, a security interest in, all of such Grantor's right, title and
interest in, to and under the Collateral (the "Security Interest"); provided,
however, that no mortgage, pledge, hypothecation or security interest shall be
created or granted hereunder if such creation or grant would constitute a
violation of a valid and enforceable restriction on such creation or grant,
unless and until any required consents shall have been obtained. Without
limiting the foregoing, the Collateral Agent is hereby authorized to file one or
more financing statements (including fixture filings), continuation state
ments, filings with the United States Patent and Trademark Office or United
States Copyright Office (or any successor office or any similar office in any
other country) or other documents for the purpose of perfecting, confirming,
continuing, enforcing or protecting the Security Interest granted by each
Grantor, without the signature of any Grantor, and naming any Grantor or the
Grantors as debtors and the Collateral Agent as secured party.
SECTION 2.02. No Assumption of Liability. The Security Interest is
granted as security only and shall not subject the Collateral Agent or any other
Secured Party to, or
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7
in any way alter or modify, any obligation or liability of any Grantor with
respect to or arising out of the Collateral.
ARTICLE III
Representations and Warranties
The Grantors severally represent and warrant to the Collateral Agent and
the Secured Parties that:
SECTION 3.01. Title and Authority. Each Grantor has good and valid
rights in and title to the Collateral with respect to which it has purported to
grant a Security Interest hereunder and has full power and authority to grant to
the Collateral Agent the Security Interest in such Collateral pursuant hereto
and to execute, deliver and perform its obligations in accordance with the terms
of this Agreement, without the consent or approval of any other person other
than any consent or approval which has been obtained.
SECTION 3.02. Filings. The Perfection Certificate has been duly
prepared, completed and executed and the information set forth therein is
correct and complete in all material respects. Fully executed Uniform Commercial
Code financing statements (including fixture filings, as applicable) or other
appropriate filings, recordings or registrations containing a description of the
Collateral have been delivered to the Collateral Agent for filing in each
governmental, municipal or other office specified in Schedule 6 to the
Perfection Certificate, which are all the filings, recordings and registrations
(other than filings required to be made in the United States Patent and
Trademark Office and the United States Copyright Office in order to perfect the
Security Interest in Collateral consisting of United States Patents, Trademarks
and Copyrights) that are necessary to publish notice of and protect the validity
of and to establish a legal, valid and perfected security interest in favor of
the Collateral Agent (for the ratable benefit of the Secured Parties) in respect
of all Collateral in which the Security Interest may be perfected by filing,
recording or registration in the United States (or any political subdivision
thereof) and its territories and possessions, and no further or subsequent
filing, refiling, recording, rerecording, registration or reregistration is
necessary in any such jurisdiction, except as provided under applicable law with
respect to the filing of continuation statements.
SECTION 3.03. Validity of Security Interest. The Security Interest
constitutes (a) a legal and valid security interest in all the Collateral
securing the payment and performance of the Obligations, (b) subject to the
filings described in Section 3.02, a perfected security interest in all
Collateral in which a security interest may be perfected by filing, recording or
registering a financing statement or analogous document in the United States (or
any political subdivision thereof) and its territories and possessions pursuant
to the Uniform Commercial Code or other applicable law in such jurisdictions and
(c) a security interest that shall be perfected in all Collateral in which a
security interest may be perfected upon the receipt and recording of this
Agreement with the United States Patent and Trademark Office and the United
States Copyright Office, as applicable, within the three month period
(commencing as of the date hereof) pursuant to 35 U.S.C. (S) 261 or 15 U.S.C.
(S) 1060 or the one month period (commencing as of the date hereof) pursuant to
17 U.S.C. (S) 205 and otherwise as may be required pursuant to the laws of any
other necessary jurisdiction. The Security Interest is and shall be prior to
any
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8
other Lien on any of the Collateral, other than Liens expressly permitted to
be prior to the Security Interest pursuant to Section 6.02 of the Credit
Agreement.
SECTION 3.04 Absence of Other Liens. The Collateral is owned by the
Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement. The Grantor has not filed or
consented to the filing of (a) any financing statement or analogous document
under the Uniform Commercial Code or any other applicable laws covering any
Collateral, (b) any assignment in which any Grantor assigns any Collateral or
any security agreement or similar instrument covering any Collateral with the
United States Patent and Trademark Office or the United States Copyright Office
or (c) any assignment in which any Grantor assigns any Collateral or any
security agreement or similar instrument covering any Collateral with any
foreign governmental, municipal or other office, which financing statement or
analogous document, assignment, security agreement or similar instrument is
still in effect, except, in each case, for Liens expressly permitted pursuant to
Section 6.02 of the Credit Agreement.
ARTICLE IV
Covenants
SECTION 4.01 Change of Name; Location of Collateral; Records; Place of
Business. (a) Each Grantor agrees promptly to notify the Collateral Agent in
writing of any change (i) in its corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility)
other than (A) with respect to goods in transit between facilities, whether in
vehicles owned by the applicable Grantor or on common carriers and (B) in the
case of temporary warehousing which will last for no longer than one month,
(iii) in its identity or corporate structure or (iv) in its Federal Taxpayer
Identification Number. Each Grantor agrees not to effect or permit any change
referred to in the preceding sentence unless all filings have been made under
the Uniform Commercial Code or otherwise that are required in order for the
Collateral Agent to continue at all times following such change to have a valid,
legal and perfected first priority security interest in all the Collateral.
Each Grantor agrees promptly to notify the Collateral Agent if any material
portion of the Collateral owned or held by such Grantor is damaged or destroyed.
(b) Each Grantor agrees to maintain, at its own cost and expense, such
complete and accurate records with respect to the Collateral owned by it as is
consistent with its current practices and in accordance with such prudent and
standard practices used in industries that are the same as or similar to those
in which such Grantor is engaged, but in any event to include complete
accounting records indicating all payments and proceeds received with respect to
any part of the Collateral, and, at such time or times as the Collateral Agent
may reasonably request, promptly to prepare and deliver to the Collateral Agent
a duly certified schedule or schedules in form and detail satisfactory to the
Collateral Agent showing the identity, amount and location of any and all
Collateral.
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9
SECTION 4.02 Periodic Certification. Each year, at the time of delivery
of annual financial statements with respect to the preceding fiscal year
pursuant to Section 5.04 of the Credit Agreement, the Borrower shall deliver to
the Collateral Agent a certificate executed by a Financial Officer of the
Borrower (a) setting forth the information required pursuant to Section 2 of the
Perfection Certificate or confirming that there has been no change in such
information since the date of such certificate or the date of the most recent
certificate delivered pursuant to Section 4.02 and (b) certifying that all
Uniform Commercial Code financing statements (including fixture filings, as
applicable) or other appropriate filings, recordings or registrations, including
all refilings, rerecordings and reregistrations, containing a description of the
Collateral have been filed of record in each governmental, municipal or other
appropriate office in each jurisdiction identified pursuant to clause (a) to the
extent necessary to protect and perfect the Security Interest for a period of
not less than 18 months after the date of such certificate (except as noted
therein with respect to any continuation statements to be filed within such
period). Each certificate delivered pursuant to this Section 4.02 shall
identify in the format of Schedule II, III, IV or V, as applicable, all Patents,
Trademarks, Copyrights and Licenses of any Grantor in existence on the date
thereof and not then listed on such Schedules or previously so identified to the
Collateral Agent.
SECTION 4.03 Protection of Security. Each Grantor shall, at its own cost
and expense, take any and all actions necessary to defend title to the
Collateral against all persons and to defend the Security Interest of the
Collateral Agent in the Collateral and the priority thereof against any Lien not
expressly permitted pursuant to Section 6.02 of the Credit Agreement.
SECTION 4.04 Further Assurances. Each Grantor agrees, at its own
expense, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as the Collateral
Agent may from time to time reasonably request to better assure, preserve,
protect and perfect the Security Interest and the rights and remedies created
hereby, including the payment of any fees and taxes required in connection with
the execution and delivery of this Agreement, the granting of the Security
Interest and the filing of any financing statements (including fixture filings)
or other documents in connection herewith or therewith. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any promissory note or other instrument, such note or instrument shall be
promptly pledged and delivered to the Collateral Agent, duly endorsed in a
manner satisfactory to the Collateral Agent.
Without limiting the generality of the foregoing, each Grantor hereby
authorizes the Collateral Agent, with prompt notice thereof to the Grantors, to
supplement this Agreement by supplementing Schedule II, III, IV or V hereto or
adding additional schedules hereto to specifically identify any asset or item
that may constitute Copyrights, Licenses, Patents or Trademarks; provided,
however, that any Grantor shall have the right, exercisable within 10 days after
it has been notified by the Collateral Agent of the specific identification of
such Collateral, to advise the Collateral Agent in writing of any inaccuracy of
the representations and warranties made by such Grantor hereunder with respect
to such Collateral. Each Grantor agrees that it will use its best efforts to
take such action as shall be necessary in order that all representations and
warranties hereunder shall be true and correct with respect to such Collateral
within 30 days after the date it has been notified by the Collateral Agent of
the specific identification of such Collateral.
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10
SECTION 4.05 Inspection and Verification. The Collateral Agent and such
persons as the Collateral Agent may reasonably designate shall have the right,
subject to compliance with Section 5.07 of the Credit Agreement, to inspect the
Collateral, all records related thereto (and to make extracts and copies from
such records) and the premises upon which any of the Collateral is located, to
discuss the Grantors' affairs with the officers of the Grantors and their
independent accountants and to verify under reasonable procedures the validity,
amount, quality, quantity, value, condition and status of, or any other matter
relating to, the Collateral, including, in the case of Accounts or Collateral in
the possession of any third person, by contacting Account Debtors or the third
person possessing such Collateral for the purpose of making such a verification;
provided, however, that the Collateral Agent shall give the applicable Grantor
reasonable notice of proposed discussions with such Grantor's accountants and
representatives of such Grantor shall be entitled to participate in such
discussions. The Collateral Agent shall have the absolute right to share any
information it gains from such inspection or verification with any Secured Party
(it being understood that any such information shall be deemed to be
"Information" subject to the provisions of Section 9.16 of the Credit
Agreement).
SECTION 4.06 Taxes; Encumbrances. At its option and after notice to the
applicable Grantor, the Collateral Agent may discharge past due taxes,
assessments, charges, fees, Liens, security interests or other encumbrances at
any time levied or placed on the Collateral and not permitted pursuant to
Section 6.02 of the Credit Agreement, and may pay for the maintenance and
preservation of the Collateral to the extent any Grantor fails to do so as
required by the Credit Agreement or this Agreement, and each Grantor jointly and
severally agrees to reimburse the Collateral Agent on demand for any payment
made or any expense incurred by the Collateral Agent pursuant to the foregoing
authorization; provided, however, that nothing in this Section 4.06 shall be
interpreted as excusing any Grantor from the performance of, or imposing any
obligation on the Collateral Agent or any Secured Party to cure or perform, any
covenants or other promises of any Grantor with respect to taxes, assessments,
charges, fees, liens, security interests or other encumbrances and maintenance
as set forth herein or in the other Credit Documents.
SECTION 4.07 Assignment of Security Interest. If at any time any Grantor
shall take a security interest in any property of an Account Debtor or any other
person to secure payment and performance of an Account, such Grantor shall
promptly assign such security interest to the Collateral Agent. Such assignment
need not be filed of public record unless necessary to continue the perfected
status of the security interest against creditors of and transferees from the
Account Debtor or other person granting the security interest.
SECTION 4.08 Continuing Obligations of the Grantors. Each Grantor shall
remain liable to observe and perform all the conditions and obligations to be
observed and performed by it under each contract, agreement or instrument
relating to the Collateral, all in accordance with the terms and conditions
thereof, and each Grantor jointly and severally agrees to indemnify and hold
harmless the Collateral Agent and the Secured Parties from and against any and
all liability for such performance.
SECTION 4.09 Limitation on Possession of Inventory by Bailee. Each
Grantor agrees that it shall not permit any Inventory to be in the possession or
control of any warehouseman, bailee, agent or processor at any time unless such
warehouseman, bailee, agent or processor shall have been notified of the
Security Interest and shall have agreed
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11
in writing to hold the Inventory subject to the Security Interest and the
instructions of the Collateral Agent and to waive and release any Lien held by
it with respect to such Inventory, whether arising by operation of law or
otherwise.
SECTION 4.10 Limitation on Modification of Accounts. None of the
Grantors will, without the Collateral Agent's prior written consent, grant any
extension of the time of payment of any of the Accounts Receivable, compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or partly, any person liable for the payment thereof or allow any credit
or discount whatsoever thereon, other than extensions, credits, discounts,
compromises or settlements granted or made in the ordinary course of business
and in accordance with such prudent and standard practices used in industries
that are the same as or similar to those in which such Grantor is engaged.
SECTION 4.11 Insurance. The Grantors, at their own expense, shall
maintain or cause to be maintained insurance covering physical loss or damage to
the Inventory and Equipment in accordance with Section 5.02 of the Credit
Agreement. Each Grantor irrevocably makes, constitutes and appoints the
Collateral Agent (and all officers, employees or agents designated by the
Collateral Agent) as such Grantor's true and lawful agent (and attorney-in-fact)
for the purpose, during the continuance of an Event of Default, of making,
settling and adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of such Grantor on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto. In the event that
any Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part
relating thereto, the Collateral Agent may, without waiving or releasing any
obligation or liability of the Grantors hereunder or any Event of Default, in
its sole discretion, obtain and maintain such policies of insurance and pay such
premium and take any other actions with respect thereto as the Collateral Agent
deems advisable. All sums disbursed by the Collateral Agent in connection with
this Section 4.11, including reasonable attorneys' fees, court costs, expenses
and other charges relating thereto, shall be payable, upon demand, by the
Grantors to the Collateral Agent and shall be additional Obligations secured
hereby.
SECTION 4.12 Legend. Each Grantor shall legend, in form and manner
satisfactory to the Collateral Agent, its Accounts Receivable and its books,
records and documents evidencing or pertaining thereto with an appropriate
reference to the fact that such Accounts Receivable have been assigned to the
Collateral Agent for the benefit of the Secured Parties and that the Collateral
Agent has a security interest therein.
SECTION 4.13 Covenants Regarding Patent, Trademark and Copyright
Collateral. (a) Each Grantor agrees that it will not, nor will it permit any of
its licensees to, do any act, or omit to do any act, whereby any Patent which is
material to the conduct of such Grantor's business may become invalidated or
dedicated to the public, and agrees that it shall continue to mark any products
covered by a Patent with the relevant patent number as necessary and sufficient
to establish and preserve its maximum rights under applicable patent laws.
(b) Each Grantor (either itself or through its licensees or its
sublicensees) will, for each Trademark material to the conduct of such Grantor's
business, (i) maintain such Trademark in full force free from any claim of
abandonment or invalidity for non-use, (ii)
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12
maintain the quality of products and services offered under such Trademark,
(iii) display such Trademark with notice of Federal or foreign registration to
the extent necessary and sufficient to establish and preserve its maximum rights
under applicable law and (iv) not knowingly use or knowingly permit the use of
such Trademark in violation of any third party rights.
(c) Each Grantor (either itself or through licensees) will, for each work
covered by a material Copyright, continue to publish, reproduce, display, adopt
and distribute the work with appropriate copyright notice as necessary and
sufficient to establish and preserve its maximum rights under applicable
copyright laws.
(d) Each Grantor shall notify the Collateral Agent immediately if it knows
or has reason to know that any Patent, Trademark or Copyright material to the
conduct of its business may become abandoned, lost or dedicated to the public,
or of any adverse determination or development (including the institution of, or
any such determination or development in, any proceeding in the United States
Patent and Trademark Office, United States Copyright Office or any court or
similar office of any country) regarding such Grantor's ownership of any Patent,
Trademark or Copyright, its right to register the same, or to keep and maintain
the same.
(e) In no event shall any Grantor, either itself or through any agent,
employee, licensee or designee, file an application for any Patent, Trademark or
Copyright (or for the registration of any Trademark or Copyright) with the
United States Patent and Trademark Office, United States Copyright Office or any
office or agency in any political subdivision of the United States or in any
other country or any political subdivision thereof, unless it promptly informs
the Collateral Agent, and, upon request of the Collateral Agent, executes and
delivers any and all agreements, instruments, documents and papers as the
Collateral Agent may request to evidence the Collateral Agent's security
interest in such Patent, Trademark or Copyright, and each Grantor hereby
appoints the Collateral Agent as its attorney-in-fact to execute and file such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power, being coupled with an interest, is
irrevocable.
(f) Each Grantor will take all necessary steps that are consistent with
the practice in any proceeding before the United States Patent and Trademark
Office, United States Copyright Office or any office or agency in any political
subdivision of the United States or in any other country or any political
subdivision thereof, to maintain and pursue each material application relating
to the Patents, Trademarks and/or Copyrights (and to obtain the relevant grant
or registration) and to maintain each issued Patent and each registration of the
Trademarks and Copyrights that is material to the conduct of any Grantor's
business, including timely filings of applications for renewal, affidavits of
use, affidavits of incontestability and payment of maintenance fees, and, if
consistent with good business judgment, to initiate opposition, interference and
cancellation proceedings against third parties.
(g) In the event that any Grantor has reason to believe that any
Collateral consisting of a Patent, Trademark or Copyright material to the
conduct of any Grantor's business has been or is about to be infringed,
misappropriated or diluted by a third party, such Grantor promptly shall notify
the Collateral Agent and shall, if consistent with good business judgment,
promptly sue for infringement, misappropriation or dilution and to
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13
recover any and all damages for such infringement, misappropriation or dilution,
and take such other actions as are appropriate under the circumstances to
protect such Collateral.
(h) Upon and during the continuance of an Event of Default, each Grantor
shall use its best efforts to obtain all requisite consents or approvals by the
licensor of each Copyright License, Patent License or Trademark License to
effect the assignment of all of such Grantor's right, title and interest
thereunder to the Collateral Agent or its designee.
(i) Each Grantor shall ensure that fully executed security agreements in
the form hereof and containing a description of all Collateral consisting of
Intellectual Property shall have been received and recorded within three months
after the execution of this Agreement with respect to United States Patents,
United States registered Trademarks (and Trademarks for which United States
registration applications are pending) and United States registered Copyrights
have been delivered to the Collateral Agent for recording by the United States
Patent and Trademark Office and the United States Copyright Office pursuant to
35 U.S.C. (S) 261, 15 U.S.C. (S) 1060 or 17 U.S.C. (S) 205 and the regulations
thereunder, as applicable, and otherwise as may be required pursuant to the laws
of any other necessary jurisdiction, to protect the validity of and to establish
a legal, valid and perfected security interest in favor of the Collateral Agent
(for the ratable benefit of the Secured Parties) in respect of all Collateral
consisting of Patents, Trademarks and registered Copyrights in which a security
interest may be perfected by filing, recording or registration in the United
States (or any political subdivision thereof) and its territories and
possessions, or in any other necessary jurisdiction, and no further or
subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary (other than such actions as are necessary to perfect
the Security Interest with respect to any Collateral consisting of Patents,
Trademarks and Copyrights (or registration or application for registration
thereof) acquired or developed after the date hereof).]
ARTICLE V
Power of Attorney
Each Grantor irrevocably makes, constitutes and appoints the Collateral
Agent (and all officers, employees or agents designated by the Collateral Agent)
as such Grantor's true and lawful agent and attorney-in-fact, and in such
capacity the Collateral Agent shall have the right, with power of substitution
for each Grantor and in each Grantor's name or otherwise, for the use and
benefit of the Collateral Agent and the Secured Parties, upon the occurrence and
during the continuance of an Event of Default (a) to receive, endorse, assign
and/or deliver any and all notes, acceptances, checks, drafts, money orders or
other evidences of payment relating to the Collateral or any part thereof; (b)
to demand, collect, receive payment of, give receipt for and give discharges and
releases of all or any of the Collateral; (c) to sign the name of any Grantor on
any invoice or bill of lading relating to any of the Collateral; (d) to send
verifications of Accounts Receivable to any Account Debtor; (e) to commence and
prosecute any and all suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect or otherwise realize on all or any of
the Collateral or to enforce any rights in respect of any Collateral; (f) to
settle, compromise, compound, adjust or defend any actions, suits or proceedings
relating to all or any of the Collateral; (g) to notify, or to require any
Grantor to notify, Account Debtors to make payment directly to the Collateral
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14
Agent; and (h) to use, sell, assign, transfer, pledge, make any agreement with
respect to or otherwise deal with all or any of the Collateral, and to do all
other acts and things necessary to carry out the purposes of this Agreement, as
fully and completely as though the Collateral Agent were the absolute owner of
the Collateral for all purposes; provided, however, that nothing herein
contained shall be construed as requiring or obligating the Collateral Agent or
any Secured Party to make any commitment or to make any inquiry as to the nature
or sufficiency of any payment received by the Collateral Agent or any Secured
Party, or to present or file any claim or notice, or to take any action with
respect to the Collateral or any part thereof or the moneys due or to become due
in respect thereof or any property covered thereby, and no action taken or
omitted to be taken by the Collateral Agent or any Secured Party with respect to
the Collateral or any part thereof shall give rise to any defense, counterclaim
or offset in favor of any Grantor or to any claim or action against the
Collateral Agent or any Secured Party. It is understood and agreed that the
appointment of the Collateral Agent as the agent and attorney-in-fact of the
Grantors for the purposes set forth above is coupled with an interest and is
irrevocable. The provisions of this Section shall in no event relieve any
Grantor of any of its obligations hereunder or under any other Credit Document
with respect to the Collateral or any part thereof or impose any obligation on
the Collateral Agent or any Secured Party to proceed in any particular manner
with respect to the Collateral or any part thereof, or in any way limit the exer
cise by the Collateral Agent or any Secured Party of any other or further right
which it may have on the date of this Agreement or hereafter, whether hereunder,
under any other Credit Document, by law or otherwise.
ARTICLE VI
Remedies
SECTION 6.01 Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, each Grantor agrees to deliver each item of
Collateral to the Collateral Agent on demand, and it is agreed that the
Collateral Agent shall have the right to take any of or all the following
actions at the same or different times: (a) with respect to any Collateral
consisting of Intellectual Property, on demand, to cause the Security Interest
to become an assignment, transfer and conveyance of any of or all such
Collateral by the applicable Grantors to the Collateral Agent, or to license or
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any such Collateral throughout the world on such terms
and conditions and in such manner as the Collateral Agent shall determine (other
than in violation of any then-existing licensing arrangements to the extent that
waivers cannot be obtained), and (b) with or without legal process and with or
without prior notice or demand for performance, to take possession of the
Collateral and without liability for trespass to enter any premises where the
Collateral may be located for the purpose of taking possession of or removing
the Collateral and, generally, to exercise any and all rights afforded to a
secured party under the Uniform Commercial Code or other applicable law.
Without limiting the generality of the foregoing, each Grantor agrees that the
Collateral Agent shall have the right, subject to the mandatory requirements of
applicable law, to sell or otherwise dispose of all or any part of the
Collateral, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the
Collateral Agent shall deem appropriate. The Collateral Agent shall be
authorized at any such sale (if it deems it advisable to do so) to restrict the
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing the Collateral
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15
for their own account for investment and not with a view to the distribution or
sale thereof, and upon consummation of any such sale the Collateral Agent shall
have the right to assign, transfer and deliver to the purchaser or purchasers
thereof the Collateral so sold. Each such purchaser at any such sale shall hold
the property sold absolutely, free from any claim or right on the part of any
Grantor, and each Grantor hereby waives (to the extent permitted by law) all
rights of redemption, stay and appraisal which such Grantor now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted.
The Collateral Agent shall give the Grantors 10 days' written notice (which
each Grantor agrees is reasonable notice within the meaning of Section 9-504(3)
of the Uniform Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions) of the Collateral Agent's intention to make
any sale of Collateral. Such notice, in the case of a public sale, shall state
the time and place for such sale and, in the case of a sale at a broker's board
or on a securities exchange, shall state the board or exchange at which such
sale is to be made and the day on which the Collateral, or portion thereof, will
first be offered for sale at such board or exchange. Any such public sale shall
be held at such time or times within ordinary business hours and at such place
or places as the Collateral Agent may fix and state in the notice (if any) of
such sale. At any such sale, the Collateral, or portion thereof, to be sold may
be sold in one lot as an entirety or in separate parcels, as the Collateral
Agent may (in its sole and absolute discretion) determine. The Collateral Agent
shall not be obligated to make any sale of any Collateral if it shall determine
not to do so, regardless of the fact that notice of sale of such Collateral
shall have been given. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid by the purchaser or purchasers
thereof, but the Collateral Agent shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. At any public (or, to the extent permitted by law, private) sale made
pursuant to this Section, any Secured Party may bid for or purchase, free (to
the extent permitted by law) from any right of redemption, stay, valuation or
appraisal on the part of any Grantor (all said rights being also hereby waived
and released to the extent permitted by law), the Collateral or any part thereof
offered for sale and may make payment on account thereof by using any claim then
due and payable to such Secured Party from any Grantor as a credit against the
purchase price, and such Secured Party may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to any Grantor therefor. For purposes hereof, a written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale thereof; the
Collateral Agent shall be free to carry out such sale pursuant to such agreement
and no Grantor shall be entitled to the return of the Collateral or any portion
thereof subject thereto, notwith standing the fact that after the Collateral
Agent shall have entered into such an agreement all Events of Default shall have
been remedied and the Obligations paid in full. As an alternative to exercising
the power of sale herein conferred upon it, the Collateral Agent may proceed by
a suit or suits at law or in equity to foreclose this Agreement and to sell the
Collateral or any portion thereof pursuant to a judgment or decree of a court or
courts having competent jurisdiction or pursuant to a proceeding by a court-
appointed receiver.
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SECTION 6.02 Application of Proceeds. The Collateral Agent shall apply
the proceeds of any collection or sale of the Collateral, as well as any
Collateral consisting of cash, as follows:
FIRST, to the payment of all costs and expenses incurred by the
Administrative Agent or the Collateral Agent (in its capacity as such
hereunder or under any other Credit Document) in connection with such
collection or sale or otherwise in connection with this Agreement or any of
the Obligations, including all court costs and the fees and expenses of its
agents and legal counsel, the repayment of all advances made by the
Collateral Agent hereunder or under any other Credit Document on behalf of
any Grantor and any other costs or expenses incurred in connection with the
exercise of any right or remedy hereunder or under any other Credit
Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the Grantors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Collateral Agent or of the officer making the sale shall be a
sufficient discharge to the purchaser or purchasers of the Collateral so sold
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent
or such officer or be answerable in any way for the misapplication thereof.
SECTION 6.03 Grant of License to Use Intellectual Property. For the
purpose of enabling the Collateral Agent to exercise rights and remedies under
this Article at such time as the Collateral Agent shall be lawfully entitled to
exercise such rights and remedies, each Grantor hereby grants to the Collateral
Agent an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to the Grantors) to use, license or sub-license
any of the Collateral consisting of Intellectual Property now owned or hereafter
acquired by such Grantor, and wherever the same may be located, and including in
such license reasonable access to all media in which any of the licensed items
may be recorded or stored and to all computer software and programs used for the
compilation or printout thereof. The use of such license by the Collateral
Agent shall be exercised, at the option of the Collateral Agent, upon the
occurrence and during the continuation of an Event of Default; provided that any
license, sub-license or other transaction entered into by the Collateral Agent
in accordance herewith shall be binding upon the Grantors notwithstanding any
subsequent cure of an Event of Default.
<PAGE>
17
ARTICLE VII
Miscellaneous
SECTION 7.01 Notices. All communications and notices hereunder shall
(except as otherwise expressly permitted herein) be in writing and given as
provided in Section 9.01 of the Credit Agreement. All communications and
notices hereunder to any Subsidiary Guarantor shall be given to it at its
address or telecopy number set forth on Schedule I, with a copy to the Borrower.
SECTION 7.02 Security Interest Absolute. All rights of the Collateral
Agent hereunder, the Security Interest and all obligations of the Grantors
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Credit Agreement, any other Credit Document,
any agreement with respect to any of the Obligations or any other agreement or
instrument relating to any of the foregoing, (b) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Obligations,
or any other amend ment or waiver of or any consent to any departure from the
Credit Agreement, any other Credit Document or any other agreement or
instrument, (c) any exchange, release or non-perfection of any Lien on other
collateral, or any release or amendment or waiver of or consent under or
departure from any guarantee, securing or guaranteeing all or any of the
Obligations, or (d) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, any Grantor in respect of the
Obligations or this Agreement.
SECTION 7.03 Survival of Agreement. All covenants, agreements,
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Secured Parties and shall survive the making by the Lenders of the Loans, and
the execution and delivery to the Lenders of any notes evidencing such Loans,
regardless of any investigation made by the Lenders or on their behalf, and
shall continue in full force and effect until this Agreement shall terminate.
SECTION 7.04 Binding Effect; Several Agreement. This Agreement shall
become effective as to any Grantor when a counterpart hereof executed on behalf
of such Grantor shall have been delivered to the Collateral Agent and a
counterpart hereof shall have been executed on behalf of the Collateral Agent,
and thereafter shall be binding upon such Grantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of such
Grantor, the Collateral Agent and the other Secured Parties and their respective
successors and assigns, except that no Grantor shall have the right to assign or
transfer its rights or obligations hereunder or any interest herein or in the
Collateral (and any such assignment or transfer shall be void) except as
expressly contemplated by this Agreement or the Credit Agreement. This
Agreement shall be construed as a separate agreement with respect to each
Grantor and may be amended, modified, supplemented, waived or released with
respect to any Grantor without the approval of any other Grantor and without
affecting the obligations of any other Grantor hereunder.
SECTION 7.05 Successors and Assigns. Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and
<PAGE>
18
assigns of such party; and all covenants, promises and agreements by or on
behalf of any Grantor or the Collateral Agent that are contained in this
Agreement shall bind and inure to the benefit of their respective successors and
assigns.
SECTION 7.06 Collateral Agent's Fees and Expenses; Indemnification. (a)
Each Grantor jointly and severally agrees to pay upon demand to the Collateral
Agent the amount of any and all reasonable expenses, including the reasonable
fees, disbursements and other charges of its counsel and of any experts or
agents, which the Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody or preservation of, or the
sale of, collection from or other realization upon any of the Collateral, (iii)
the exercise, enforcement or protection of any of the rights of the Collateral
Agent hereunder or (iv) the failure of any Grantor to perform or observe any of
the provisions hereof.
(b) Without limitation of its indemnification obligations under the other
Credit Documents, each Grantor jointly and severally agrees to indemnify the
Collateral Agent and the other Indemnities against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other charges of counsel,
incurred by or asserted against any of them arising out of, in any way connected
with, or as a result of, the execution, delivery or performance of this
Agreement or any claim, litigation, investigation or proceeding relating hereto
or to the Collateral, 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 are
determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee.
(c) Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 7.06 shall remain operative and in full force and effect
regardless of the termination of this Agreement or any other Credit Document,
the consummation of the transactions contemplated hereby, the repayment of any
of the Loans, the invalidity or unenforceability of any term or provision of
this Agreement or any other Credit Document, or any investigation made by or on
behalf of the Collateral Agent or any Lender. All amounts due under this
Section 7.06 shall be payable on written demand therefor.
SECTION 7.07 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 7.08 Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder 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 Collateral Agent hereunder
and of the Collateral Agent, the Issuing Bank, the Administrative Agent and the
Lenders under the other Credit Documents are cumulative and are not exclusive of
any rights or remedies that they would otherwise have. No waiver of any
provisions of this Agreement or any other Credit Document or consent to
<PAGE>
19
any departure by any Grantor therefrom shall in any event be effective unless
the same shall be permitted by clause (b), 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 Grantor in any case shall entitle such Grantor or
any other Grantor to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Collateral Agent and the Grantor or Grantors with respect to which
such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Section 9.08 of the Credit Agreement.
SECTION 7.09 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 CREDIT 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
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 CREDIT DOCUMENTS, AS APPLICABLE, BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.09.
SECTION 7.10 Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). 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 7.11 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 (subject to Section 7.04), and
shall become effective as provided in Section 7.04. Delivery of an executed
signature page to this Agreement by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.
SECTION 7.12 Headings. Article and Section headings used herein are for
the purpose 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 7.13 Jurisdiction; Consent to Service of Process. (a) Each
Grantor 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
<PAGE>
20
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 Credit 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 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 the
Collateral Agent, the Administrative Agent, the Issuing Bank or any Lender may
otherwise have to bring any action or proceeding relating to this Agreement or
the other Credit Documents against any Grantor or its properties in the courts
of any jurisdiction.
(b) Each Grantor 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 Credit 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 7.01. Nothing in this
Agreement will affected the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 7.14 Termination; Release of Collateral. (a) This Agreement and
the Security Interest shall terminate when all the Obligations (other than
inchoate rights to indemnification and reimbursement) have been indefeasibly
paid in full, the Lenders have no further commitment to lend, the L/C Exposure
has been reduced to zero and the Issuing Bank has no further commitment to issue
Letters of Credit under the Credit Agreement, at which time the Collateral Agent
shall execute and deliver to the Grantors, at the Grantors' expense, all Uniform
Commercial Code termination statements and similar documents which the Grantors
shall rea sonably request to evidence such termination. Any execution and
delivery of termination statements or documents pursuant to this Section 7.14
shall be without recourse to or warranty by the Collateral Agent. A Subsidiary
Guarantor shall automatically be released from its obligations hereunder and the
Security Interest in the Collateral of such Subsidiary Guarantor shall be
automatically released in the event that all the capital stock of such
Subsidiary Guarantor shall be sold, transferred or otherwise disposed of to a
person that is not an Affiliate of the Borrower in accordance with the terms of
the Credit Agreement; provided that the Required Lenders shall have consented to
such sale, transfer or other disposition (to the extent required by the Credit
Agreement) and the terms of such consent did not provide otherwise.
(b) In the event any Collateral is sold or transferred in an Asset Sale or
other transaction permitted by the Credit Agreement or is to be subject to a
Lien permitted by Section 6.02(i) of the Credit Agreement, the Administrative
Agent shall (i) concurrently with the consummation of such Asset Sale or other
transaction release the Collateral that is subject of such sale or transfer free
and clear of the Lien and security interest under this Agreement, or (ii) in
connection with a financing contemplated by Sections 6.01___ and
<PAGE>
21
6.02(i) of the Credit Agreement, at the request of the lender providing the
financing and at such lender's election, either (A) subordinate the Lien and
security interest under this Agreement on any assets being financed to the Lien
and security interest of such lender pursuant to an intercreditor and/or
subordination agreement in form and substance satisfactory to such lender, the
Administrative Agent and the Grantor, or (B) release the Lien and security
interest under this Agreement on any such assets to the extent required by such
lender. In connection with any release or subordination pursuant to this Section
7.14(b), the Administrative Agent shall execute and deliver, at the Grantors'
expense, any Uniform Commercial Code termination statements or other documents
necessary to effect and evidence such release or subordination as may be
reasonably requested by the Grantors.
SECTION 7.15 Additional Grantors. Pursuant to Section 5.11 of the Credit
Agreement, each Domestic Subsidiary of the Borrower that was not in existence or
not a Subsidiary on the date of the Credit Agreement is required to enter into
this Agreement as a Grantor upon becoming a Subsidiary. Upon execution and
delivery by the Collateral Agent and a Subsidiary of an instrument in the form
of Annex 2 hereto, such Subsidiary shall become a Grantor hereunder with the
same force and effect as if originally named as a Grantor herein. The execution
and delivery of any such instrument shall not require the consent of any Grantor
hereunder. The rights and obligations of each Grantor hereunder shall remain in
full force and effect notwithstanding the addition of any new Grantor as a party
to this Agreement.
SECTION 7.16 Certain Other Rights and Waivers. (a) The Grantors
authorize the Collateral Agent, without notice or demand and without affecting
their liability hereunder, from time to time, either before or after revocation
hereof, to (i) renew, compromise, extend, accelerate, or otherwise change the
time for payment of, or otherwise change the terms of the indebtedness or any
part thereof, including increase or decrease of the rate of interest thereon;
(ii) receive and hold security for the payment of the Obligations, and exchange,
enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such
security; (iii) apply such security and direct the order or manner of sale
thereof as the Collateral Agent in its discretion may determine; and (iv)
release or substitute any one or more of the endorsers or guarantors.
(b) The Grantors waive any right to require the Collateral Agent to (i)
proceed against the Borrower; (ii) proceed against or exhaust any security held
from the Borrower; or (iii) pursue any other remedy in the Collateral Agent's
power whatsoever. The Grantors waive any defense arising by reason of any
disability or other defense of the Borrower, or the cessation from any cause
whatsoever of the liability of the Borrower, or any claim that the Grantors'
obligations exceed or are more burdensome than those of the Borrower. Until the
indebtedness shall have been paid in full, even though the indebtedness is in
excess of the Grantors' liability hereunder, the Grantors will not pursue any
right of subrogation, reimbursement, indemnification, and contribution
(contractual, statutory, or otherwise) including, without limitation, any claim
or right of subrogation under the Bankruptcy Code (Title 11, United States Code)
or any successor statute, arising from the existence or performance of this
Agreement, and until such payment in full, the Grantors will not pursue any
right to enforce any remedy which the Collateral Agent and the Lenders now have
or may hereafter have against the Borrower and will not pursue any benefit of,
and any right to participate in, any security now or hereafter held by the
Collateral Agent. The Grantors waive all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of dishonor,
and notices of
<PAGE>
22
acceptance of this Agreement and of the existence, creation, or incurring of new
or additional indebtedness.
(c) (i) The Grantors understand and acknowledge that if the Collateral
Agent forecloses, either by judicial foreclosure or by exercise of power of
sale, any deed of trust securing the Obligations, that foreclosure could impair
or destroy any ability that the Grantors may have to seek reimbursement,
contribution, or indemnification from the Borrower or others based on any right
the Grantors may have of subrogation, reimbursement, contribution, or
indemnification for any amounts paid by the Grantors under this Agreement. The
Grantors further understand and acknowledge that in the absence of this
paragraph, such potential impairment or destruction of the Grantors' rights, if
any, may entitle the Grantors to assert a defense to this Agreement based on
Section 580d of the California Code of Civil Procedure as interpreted in Union
-----
Bank v. Gradsky, 265 Cal. App. 2d 40 (1968). By executing this Agreement, the
- ---------------
Grantors freely, irrevocably, and unconditionally: (A) waive and relinquish
that defense and agree that the Grantors will be fully liable under this
Agreement even though the Collateral Agent may foreclose, either by judicial
foreclosure or by exercise of power of sale, any deed of trust securing the
Obligations; (B) agree that the Grantors will not assert that defense in any
action or proceeding which the Collateral Agent may commence to enforce this
Agreement; (C) acknowledge and agree that the rights and defenses waived by the
Grantors in this Agreement include any right or defense that the Grantors may
have or be entitled to assert based upon or arising out of any one or more of
Sections 580a, 580b, 580d, or 726 of the California Civil Code; and (iv)
acknowledge and agree that the Collateral Agent and the Lenders are relying on
this waiver in creating the indebtedness, and that this waiver is a material
part of the consideration which the Collateral Agent and the Lenders are
receiving for creating the indebtedness.
(ii) The Grantors waive any rights and defenses that are or may become
available to the Grantors by reason of Sections 2787 to 2855, inclusive, of the
California Civil Code.
(iii) The Grantors waive all rights and defenses that the Grantors may
have because any of the indebtedness is secured by real property. This means,
among other things: (A) the Collateral Agent may collect from the Grantors
without first foreclosing on any real or personal property collateral pledged by
the Borrower; and (B) if the Collateral Agent forecloses on any real property
collateral pledged by the Borrower: (x) the amount of the indebtedness may be
reduced only by the price for which that collateral is sold at the foreclosure
sale, even if the collateral is worth more than the sale price, and (y) the
Collateral Agent may collect from the Grantors even if the Collateral Agent, by
foreclosing on the real property collateral, has destroyed any right the
Grantors may have to collect from the Borrower. This is an unconditional and
irrevocable waiver of any rights and defenses the Grantors may have because any
of the indebtedness is secured by real property. These rights and defenses
include, but are not limited to, any rights or defenses based upon Section 580a,
580b, 580d, or 726 of the California Code of Civil Procedure.
(iv) The Grantors waive any right or defense they may have at law or
equity, including California Code of Civil Procedure Section 580a, to a fair
market value hearing or action to determine a deficiency judgment after a
foreclosure.
<PAGE>
23
(v) No provision or waiver in this Agreement shall be construed as
limiting the generality of any other waiver contained in this Agreement.
(d) The Grantors acknowledge and agree that they shall have the sole
responsibility for obtaining from the Borrower such information concerning the
Borrower's financial conditions or business operations as the Grantors may
require, and that the Collateral Agent has no duty at any time to disclose to
the Grantors any information relating to the business operations or financial
conditions of the Borrower.
<PAGE>
24
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
HUDSON RESPIRATORY CARE INC.,
by /s/ Richard W. Johansen
------------------------------------
Name: Richard W. Johansen
Title: President and Chief Executive
Officer
by /s/ Jay R. Ogram
------------------------------------
Name: Jay R. Ogram
Title: Chief Financial Officer
BANKERS TRUST COMPANY, as
Collateral Agent,
by /s/ Robert R. Telesca
------------------------------------
Name: Robert R. Telesca
Title: Assistant Vice President
<PAGE>
EXHIBIT 10.3
PLEDGE AGREEMENT dated as of April 7, 1998, among HUDSON
RESPIRATORY CARE INC., a California corporation (the "Borrower"),
RIVER HOLDING CORP., a Delaware corporation ("Holding"), each
Subsidiary of the Borrower listed on Schedule I hereto (each such
Subsidiary individually a "Subsidiary Pledgor" and collectively,
the "Subsidiary Pledgors"; the Borrower, Holding and the
Subsidiary Pledgors are referred to collectively herein as the
"Pledgors") and BANKERS TRUST COMPANY, a New York banking
corporation ("BTCo."), as collateral agent (in such capacity, the
"Collateral Agent") for the Secured Parties (as defined in the
Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of April 7, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, Holding, the lenders from time to time party
thereto (the "Lenders"), BTCo., as administrative agent for the Lenders,
Collateral Agent, swingline lender and as issuing bank (in such capacity, the
"Issuing Bank") and (b) the Holding Guarantee Agreement dated as of April 7,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Holding Guarantee Agreement"), between Holding and the Collateral Agent.
The Lenders have agreed to make Loans to the Borrower and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. Holding and the Subsidiary Guarantors have agreed to guarantee,
among other things, all the obligations of the Borrower under the Credit
Agreement. The obligations of the Lenders to make Loans and of the Issuing Bank
to issue Letters of Credit are conditioned upon, among other things, the
execution and delivery by the Pledgors of a Pledge Agreement in the form hereof
to secure (a) the due and punctual payment by the Borrower of (i) the principal
of and premium, if any, and interest (including interest accruing during the
pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (ii) each payment required to be
made by the Borrower under the Credit Agreement in respect of any Letter of
Credit, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral and
(iii) all other monetary obligations, including fees, costs, expenses and
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding), of the Borrower to the Secured Parties
under the Credit Agreement and the other Credit Documents and (b) the due and
punctual payment and performance of all monetary obligations of the Borrower
under each Interest Rate Protection Agreement entered into with any counterparty
that was a Lender at the time such Interest Rate Protection Agreement was
entered into (all the monetary obligations referred to in the preceding clauses
(a) through (b) being referred to collectively as the "Obligations").
Capitalized terms used herein and not defined herein shall have meanings
assigned to such terms in the Credit Agreement.
Accordingly, the Pledgors and the Collateral Agent, on behalf of itself and
each Secured Party (and each of their respective successors or assigns), hereby
agree as follows:
<PAGE>
2
SECTION 1. Pledge. As security for the payment and performance, as the
case may be, in full of the Obligations, each Pledgor hereby grants,
hypothecates and pledges to the Collateral Agent, its successors and assigns,
and hereby grants to the Collateral Agent, its successors and assigns, for the
ratable benefit of the Secured Parties, a security interest in all of the
Pledgor's right, title and interest in, to and under (a) the shares of capital
stock owned by it and listed on Schedule II hereto and any shares of capital
stock of the Borrower or any Subsidiary obtained in the future by the Pledgor
and the certificates representing all such shares (the "Pledged Stock");
provided that the Pledged Stock shall not include (i) more than 65% of the
issued and outstanding shares of stock of any Foreign Subsidiary or (ii) to the
extent that applicable law requires that a Subsidiary of the Pledgor issue
directors' qualifying shares, such qualifying shares; (b)(i) the debt securities
listed opposite the name of the Pledgor on Schedule II hereto, (ii) any debt
securities or instruments in the future held the Pledgor and (iii) the
promissory notes and any other instruments evidencing such debt securities (the
"Pledged Debt Securities"); (c) all other property that may be delivered to and
held by the Collateral Agent pursuant to the terms hereof; (d) subject to
Section 5, all payments of principal or interest, dividends, cash, instruments
and other property from time to time received, receivable or otherwise distrib
uted, in respect of, in exchange for or upon the conversion of the securities
referred to in clauses (a) and (b); (e) subject to Section 5, all rights and
privileges of the Pledgor with respect to the securities and other property
referred to in clauses (a), (b), (c) and (d); and (f) all proceeds of any of the
foregoing (the items referred to in clauses (a) through (f) being collectively
referred to as the "Collateral"). Upon delivery to the Collateral Agent, (a)
any stock certificates, notes or other securities now or hereafter included in
the Collateral (the "Pledged Securities") shall be accompanied by stock powers
duly executed in blank or other instruments of transfer satisfactory to the
Collateral Agent and by such other instruments and documents as the Collateral
Agent may reasonably request and (b) all other property comprising part of the
Collateral shall be accompanied by proper instruments of assignment duly
executed by the applicable Pledgor and such other instruments or documents as
the Collateral Agent may reasonably request. Each delivery of Pledged
Securities shall be accompanied by a schedule describing the securities
theretofore and then being pledged hereunder, which schedule shall be attached
hereto as Schedule II and made a part hereof. Each schedule so delivered shall
supersede any prior schedules so delivered.
SECTION 2. Delivery of the Collateral. (a) Each Pledgor agrees promptly
to deliver or cause to be delivered to the Collateral Agent any and all Pledged
Securities, and any and all certificates or other instruments or documents
representing the Collateral.
(b) Each Pledgor will cause any Indebtedness for borrowed money owed to the
Pledgor by any person (except for Indebtedness representing advances made to
persons other than customers in the ordinary cause of business) to be evidenced
by a duly executed promissory note that is pledged and delivered to the
Collateral Agent pursuant to the terms thereof.
SECTION 3. Representations, Warranties and Covenants. Each Pledgor
hereby represents, warrants and covenants, as to itself and the Collateral
pledged by it hereunder, to and with the Collateral Agent that:
(a) the Pledged Stock represents that percentage as set forth on
Schedule II of the issued and outstanding shares of each class of the
capital stock of the issuer with respect thereto;
(b) except for the security interest granted hereunder, the Pledgor
(i) is and will at all times continue to be the direct owner, beneficially
and of record, of the Pledged Securities indicated on Schedule II, (ii)
holds the same free and clear of all
<PAGE>
3
Liens (other than Liens permitted under Section 6.02 of the Credit
Agreement), (iii) will make no assignment, pledge, hypothecation or
transfer of, or create or permit to exist any security interest in or other
Lien on, the Collateral, other than pursuant hereto, and (iv) subject to
Section 5, will cause any and all Pledged Securities, whether for value
paid by the Pledgor or otherwise, to be forthwith deposited with the
Collateral Agent and pledged or assigned hereunder;
(c) the Pledgor (i) has the power and authority to pledge the
Collateral in the manner hereby done or contemplated and (ii) will defend
its title or interest thereto or therein against any and all Liens (other
than the Lien created by this Agreement), however arising, of all persons
whomsoever;
(d) no consent of any other person (including stockholders or
creditors of any Pledgor) and no consent or approval of any Governmental
Authority or any securities exchange was or is necessary to the validity of
the pledge effected hereby;
(e) by virtue of the execution and delivery by the Pledgors of this
Agreement, when the Pledged Securities, certificates or other documents
representing or evidencing the Pledged Securities are delivered to the
Collateral Agent in accordance with this Agreement, the Collateral Agent
will obtain a valid and perfected first lien upon and security interest in
such Pledged Securities as security for the payment and performance of the
Obligations;
(f) upon delivery of the Pledged Securities to the Collateral Agent,
the pledge effected hereby is effective to vest in the Collateral Agent, on
behalf of the Secured Parties, the rights of the Collateral Agent in the
Pledged Securities as set forth herein;
(g) all of the Pledged Stock has been duly authorized and validly
issued and is fully paid and nonassessable and none of the Pledged Stock is
subject to preemptive rights;
(h) all information set forth herein relating to the Pledged Stock is
accurate and complete in all material respects as of the date hereof; and
(i) the pledge of the Pledged Stock pursuant to this Agreement does
not violate Regulation G, T, U or X of the Federal Reserve Board or any
successor thereto as of the date hereof.
SECTION 4. Registration in Nominee Name; Denominations. The Collateral
Agent, on behalf of the Secured Parties, shall have the right (in its sole and
absolute discretion) to hold the Pledged Securities in its own name as pledgee,
the name of its nominee (as pledgee or as sub-agent) or the name of the
Pledgors, endorsed or assigned in blank or in favor of the Collateral Agent.
Each Pledgor will promptly give to the Collateral Agent copies of any notices or
other communications received by it with respect to Pledged Securities
registered in the name of such Pledgor. The Collateral Agent shall at all times
have the right to exchange the certificates representing Pledged Securities for
certificates of smaller or larger denominations for any purpose consistent with
this Agreement.
SECTION 5. Voting Rights; Dividends and Interest, etc. (a) Unless and
until an Event of Default shall have occurred and be continuing:
(i) Each Pledgor shall be entitled to exercise any and all voting
and/or other consensual rights and powers inuring to an owner of Pledged
Securities or any part thereof for any purpose consistent with the terms of
this Agreement, the Credit
<PAGE>
4
Agreement and the other Credit Documents; provided, however, that such
Pledgor will not be entitled to exercise any such right if the result
thereof would reasonably be expected to materially and adversely affect the
rights inuring to a holder of the Pledged Securities or the rights and
remedies of any of the Secured Parties under this Agreement or the Credit
Agreement or any other Credit Document or the ability of the Secured
Parties to exercise the same.
(ii) The Collateral Agent shall execute and deliver to each Pledgor,
or cause to be executed and delivered to each Pledgor, all such proxies,
powers of attorney and other instruments as such Pledgor may reasonably
request for the purpose of enabling such Pledgor to exercise the voting
and/or consensual rights and powers it is entitled to exercise pursuant to
subclause (i) and to receive the cash dividends it is entitled to receive
pursuant to subclause (iii).
(iii) Each Pledgor shall be entitled to receive and retain any and all
cash dividends, interest and principal paid on the Pledged Securities to
the extent and only to the extent that such cash dividends, interest and
principal are permitted by, and otherwise paid in accordance with, the
terms and conditions of the Credit Agreement, the other Credit Documents.
All noncash dividends, interest and principal, and all dividends, interest
and principal paid or payable in cash or otherwise in connection with a
partial or total liquidation or dissolution, return of capital, capital
surplus or paid-in surplus, and all other distributions (other than
distributions referred to in the preceding sentence) made on or in respect
of the Pledged Securities, whether paid or payable in cash or otherwise,
whether resulting from a subdivision, combination or reclassification of
the outstanding capital stock of the issuer of any Pledged Securities or
received in exchange for Pledged Securities or any part thereof, or in
redemption thereof, or as a result of any merger, consolidation,
acquisition or other exchange of assets to which such issuer may be a party
or otherwise, shall be and become part of the Collateral, and, if received
by any Pledgor, shall not be commingled by such Pledgor with any of its
other funds or property but shall be held separate and apart therefrom,
shall be held in trust for the benefit of the Collateral Agent and shall be
forthwith delivered to the Collateral Agent in the same form as so received
(with any necessary endorsement).
(b) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Pledgor to dividends, interest or principal that such Pledgor
is authorized to receive pursuant to clause (a)(iii) shall cease, and all such
rights shall thereupon become vested in the Collateral Agent, which shall have
the sole and exclusive right and authority to receive and retain such dividends,
interest or principal. All dividends, interest or principal received by the
Pledgor contrary to the provisions of this Section 5 shall be held in trust for
the benefit of the Collateral Agent, shall be segregated from other property or
funds of such Pledgor and shall be forthwith delivered to the Collateral Agent
upon demand in the same form as so received (with any necessary endorsement).
Any and all money and other property paid over to or received by the Collateral
Agent pursuant to the provisions of this clause (b) shall be retained by the
Collateral Agent in an account to be established by the Collateral Agent upon
receipt of such money or other property and shall be applied in accordance with
the provisions of Section 7. After all Events of Default have been cured or
waived, the Collateral Agent shall, within five Business Days after all such
Events of Default have been cured or waived, repay to each Pledgor all cash
dividends, interest or principal (without interest), that such Pledgor would
otherwise be permitted to retain pursuant to the terms of clause (a)(iii) and
which remain in such account.
(c) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Pledgor to exercise the voting and consensual rights and
powers it is entitled to
<PAGE>
5
exercise pursuant to clause (a)(i) of this Section 5, and the obligations of the
Collateral Agent under clause (a)(ii) of this Section 5, shall cease, and all
such rights shall thereupon become vested in the Collateral Agent, which shall
have the sole and exclusive right and authority to exercise such voting and
consensual rights and powers, provided that, unless otherwise directed by the
Required Lenders, the Collateral Agent shall have the right from time to time
following and during the continuance of an Event of Default to permit the
Pledgors to exercise such rights. After all Events of Default have been cured or
waived, such Pledgor will have the right to exercise the voting and consensual
rights and powers that it would otherwise be entitled to exercise pursuant to
the terms of clause (a)(i).
SECTION 6. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, subject to applicable regulatory and legal
requirements, the Collateral Agent may sell the Collateral, or any part thereof,
at public or private sale or at any broker's board or on any securities
exchange, for cash, upon credit or for future delivery as the Collateral Agent
shall deem appropriate. The Collateral Agent shall be authorized at any such
sale (if it deems it advisable to do so) to restrict the prospective bidders or
purchasers to persons who will represent and agree that they are purchasing the
Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and upon consummation of any such sale the
Collateral Agent shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such purchaser at
any such sale shall hold the property sold absolutely free from any claim or
right on the part of any Pledgor, and, to the extent permitted by applicable
law, the Pledgors hereby waive all rights of redemption, stay, valuation and
appraisal any Pledgor now has or may at any time in the future have under any
rule of law or statute now existing or hereafter enacted.
The Collateral Agent shall give a Pledgor 10 days' prior written notice
(which each Pledgor agrees is reasonable notice within the meaning of Section 9-
504(3) of the Uniform Commercial Code as in effect in the State of New York or
its equivalent in other jurisdictions) of the Collateral Agent's intention to
make any sale of such Pledgor's Collateral. Such notice, in the case of a
public sale, shall state the time and place for such sale and, in the case of a
sale at a broker's board or on a securities exchange, shall state the board or
exchange at which such sale is to be made and the day on which the Collateral,
or portion thereof, will first be offered for sale at such board or exchange.
Any such public sale shall be held at such time or times within ordinary
business hours and at such place or places as the Collateral Agent may fix and
state in the notice of such sale. At any such sale, the Collateral, or portion
thereof, to be sold may be sold in one lot as an entirety or in separate
parcels, as the Collateral Agent may (in its sole and absolute discretion)
determine. The Collateral Agent shall not be obligated to make any sale of any
Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of such Collateral shall have been given. The Collateral Agent
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned. In case any sale of all or any
part of the Collateral is made on credit or for future delivery, the Collateral
so sold may be retained by the Collateral Agent until the sale price is paid in
full by the purchaser or purchasers thereof, but the Collateral Agent shall not
incur any liability in case any such purchaser or purchasers shall fail to take
up and pay for the Collateral so sold and, in case of any such failure, such
Collateral may be sold again upon like notice. At any public (or, to the extent
permitted by applicable law, private) sale made pursuant to this Section 6, any
Secured Party may bid for or purchase, free from any right of redemption, stay
or appraisal on the part of any Pledgor (all said rights being also hereby
waived and released), the Collateral or any part thereof offered for sale and
may make payment on account thereof by using any claim then due and payable to
it from such Pledgor as a credit against the purchase price, and it may, upon
compliance with the
<PAGE>
6
terms of sale, hold, retain and dispose of such property without further
accountability to such Pledgor therefor. For purposes hereof, (a) a written
agreement to purchase the Collateral or any portion thereof shall be treated as
a sale thereof, (b) the Collateral Agent shall be free to carry out such sale
pursuant to such agreement and (c) such Pledgor shall not be entitled to the
return of the Collateral or any portion thereof subject thereto, notwithstanding
the fact that after the Collateral Agent shall have entered into such an
agreement all Events of Default shall have been remedied and the Obligations
paid in full. As an alternative to exercising the power of sale herein conferred
upon it, the Collateral Agent may proceed by a suit or suits at law or in equity
to foreclose upon the Collateral and to sell the Collateral or any portion
thereof pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver. Any sale
pursuant to the provisions of this Section 6 shall be deemed to conform to the
commercially reasonable standards as provided in Section 9-504(3) of the Uniform
Commercial Code as in effect in the State of New York or its equivalent in other
jurisdictions.
SECTION 7. Application of Proceeds of Sale. The proceeds of any sale of
Collateral pursuant to Section 6, as well as any Collateral consisting of cash,
shall be applied by the Collateral Agent as follows:
FIRST, to the payment of all costs and expenses incurred by the
Collateral Agent in connection with such sale or otherwise in connection
with this Agreement, any other Credit Document or any of the Obligations,
including all court costs and the reasonable fees and expenses of its
agents and legal counsel, the repayment of all advances made by the
Collateral Agent hereunder or under any other Credit Document on behalf of
any Pledgor and any other costs or expenses incurred in connection with the
exercise of any right or remedy hereunder or under any other Credit
Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the Pledgors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the purchase money by the Collateral Agent or of the officer
making the sale shall be a sufficient discharge to the purchaser or purchasers
of the Collateral so sold and such purchaser or purchasers shall not be
obligated to see to the application of any part of the purchase money paid over
to the Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
SECTION 8. Reimbursement of Collateral Agent. (a) Each Pledgor agrees
to pay upon demand to the Collateral Agent the amount of any and all reasonable
expenses, including the reasonable fees, other charges and disbursements of its
counsel and of any experts or agents, that the Collateral Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collec tion from, or other realization upon,
any of the Collateral, (iii) the exercise or enforcement of any of the rights of
the Collateral Agent hereunder or (iv) the failure by such Pledgor to perform or
observe any of the provisions hereof.
<PAGE>
7
(b) Without limitation of its indemnification obligations under the other
Credit Documents, each Pledgor agrees to indemnify the Collateral Agent and the
Indemnitees (as defined in Section 9.05 of the Credit Agreement) against, and
hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel fees, other
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 Credit Document or any agreement or
instrument contemplated hereby or thereby, the performance by the parties hereto
of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby or (ii) 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 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.
(c) Any amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 8 shall remain operative and in full force and effect regardless
of the termination 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 Credit
Document or any investigation made by or on behalf of the Collateral Agent or
any other Secured Party. All amounts due under this Section 8 shall be payable
on written demand therefor and shall bear interest at the rate specified in
Section 2.06 of the Credit Agreement.
SECTION 9. Collateral Agent Appointed Attorney-in-Fact. Each Pledgor
irrevocably makes, constitutes and appoints the Collateral Agent (and all
officers, employees or agents designated by the Collateral Agent) as such
Pledgor's true and lawful agent and attorney-in-fact, and in such capacity the
Collateral Agent shall have the right, with power of substitution for each
Pledgor and in each Pledgor's name or otherwise, for the use and benefit of the
Collateral Agent and the Secured Parties, upon the occurrence and during the
continuance of an Event of Default, to ask for, demand, sue for, collect,
receive and give acquittance for any and all moneys due or to become due under
and by virtue of any Collateral, to endorse checks, drafts, orders and other
instruments for the payment of money payable to the Pledgor representing any
interest or dividend or other distribution payable in respect of the Collateral
or any part thereof or on account thereof and to give full discharge for the
same, to settle, compromise, prosecute or defend any action, claim or proceeding
with respect thereto, and to sell, assign, endorse, pledge, transfer and to make
any agreement respecting, or otherwise deal with, the same; provided, however,
that nothing herein contained shall be construed as requiring or obligating the
Collateral Agent to make any commitment or to make any inquiry as to the nature
or sufficiency of any payment received by the Collateral Agent, or to present or
file any claim or notice, or to take any action with respect to the Collateral
or any part thereof or the moneys due or to become due in respect thereof or any
property covered thereby. The Collateral Agent and the other Secured Parties
shall be accountable only for amounts actually received as a result of the
exercise of the powers granted to them herein, and neither they nor their
officers, directors, employees or agents shall be responsible to any Pledgor for
any act or failure to act hereunder, except for their own gross negligence or
wilful misconduct.
SECTION 10. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder 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
<PAGE>
8
exercise of any other right or power. The rights and remedies of the Collateral
Agent hereunder and of the other Secured Parties under the other Credit
Documents are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provisions of this Agreement or
consent to any departure by any Pledgor therefrom shall in any event be
effective unless the same shall be permitted by clause (b), 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 any Pledgor in any case shall entitle
such Pledgor to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Collateral Agent and the Pledgor or Pledgors with respect to which such waiver,
amendment or modification is to apply, subject to any consent required in
accordance with Section 9.08 of the Credit Agreement.
SECTION 11. Securities Act, etc. In view of the position of the Pledgors
in relation to the Pledged Securities, or because of other current or future
circumstances, a question may arise under the Securities Act of 1933, as now or
hereafter in effect, or any similar statute hereafter enacted analogous in
purpose or effect (such Act and any such similar statute as from time to time in
effect being called the "Federal Securities Laws") with respect to any
disposition of the Pledged Securities permitted hereunder. Each Pledgor
understands that compliance with the Federal Securities Laws might very strictly
limit the course of conduct of the Collateral Agent if the Collateral Agent were
to attempt to dispose of all or any part of the Pledged Securities, and might
also limit the extent to which or the manner in which any subsequent transferee
of any Pledged Securities could dispose of the same. Similarly, there may be
other legal restrictions or limitations affecting the Collateral Agent in any
attempt to dispose of all or part of the Pledged Securities under applicable
Blue Sky or other state securities laws or similar laws analogous in purpose or
effect. Each Pledgor recognizes that in light of such restrictions and
limitations the Collateral Agent may, with respect to any sale of the Pledged
Securities, limit the purchasers to those who will agree, among other things, to
acquire such Pledged Securities for their own account, for investment, and not
with a view to the distribution or resale thereof. Each Pledgor acknowledges
and agrees that in light of such restrictions and limitations, the Collateral
Agent, in its sole and absolute discretion, (a) may proceed to make such a sale
whether or not a registration statement for the purpose of registering such
Pledged Securities or part thereof shall have been filed under the Federal
Securities Laws and (b) may approach and negotiate with a single potential
purchaser to effect such sale. Each Pledgor acknowledges and agrees that any
such sale might result in prices and other terms less favorable to the seller
than if such sale were a public sale without such restrictions. In the event of
any such sale, the Collateral Agent shall incur no responsibility or liability
for selling all or any part of the Pledged Securities at a price that the
Collateral Agent, in its sole and absolute discretion, may in good faith deem
commercially reasonable under the circumstances, notwithstanding the possibility
that a substantially higher price might have been realized if the sale were
deferred until after registration as aforesaid or if more than a single
purchaser were approached. The provi sions of this Section 11 will apply
notwithstanding the existence of a public or private market upon which the
quotations or sales prices may exceed substantially the price at which the
Collateral Agent sells.
SECTION 12. Registration, etc. Each Pledgor agrees that, upon the
occurrence and during the continuance of an Event of Default hereunder, if for
any reason the Collateral Agent desires to sell any of the Pledged Securities of
the Borrower at a public sale, it will, at any time and from time to time, upon
the written request of the Collateral Agent, use its best efforts to take or to
cause the issuer of such Pledged Securities to take such action and prepare,
distribute and/or file such documents, as are required or advisable in the
reasonable
<PAGE>
9
opinion of counsel for the Collateral Agent to permit the public sale of such
Pledged Securities. Each Pledgor further agrees to indemnify, defend and hold
harmless the Collateral Agent, each other Secured Party, any underwriter and
their respective officers, directors, affiliates and controlling persons from
and against all loss, liability, expenses, costs of counsel (including, without
limitation, reasonable fees and expenses to the Collateral Agent of legal
counsel), and claims (including the costs of investigation) that they may incur
insofar as such loss, liability, expense or claim arises out of or is based upon
any alleged untrue statement of a material fact contained in any prospectus (or
any amendment or supplement thereto) or in any notification or offering
circular, or arises out of or is based upon any alleged omission to state a
material fact required to be stated therein or necessary to make the statements
in any thereof not misleading, except insofar as the same may have been caused
by any untrue statement or omission based upon information furnished in writing
to such Pledgor or the issuer of such Pledged Securities by the Collateral Agent
or any other Secured Party expressly for use therein. Each Pledgor further
agrees, upon such written request referred to above, to use its best efforts to
qualify, file or register, or cause the issuer of such Pledged Securities to
qualify, file or register, any of the Pledged Securities under the Blue Sky or
other securi ties laws of such states as may be requested by the Collateral
Agent and keep effective, or cause to be kept effective, all such
qualifications, filings or registrations. Each Pledgor will bear all costs and
expenses of carrying out its obligations under this Section 12. Each Pledgor
acknowledges that there is no adequate remedy at law for failure by it to comply
with the provisions of this Section 12 and that such failure would not be
adequately compensable in damages, and therefore agrees that its agreements
contained in this Section 12 may be specifically enforced.
SECTION 13. Security Interest Absolute. All rights of the Collateral
Agent hereunder, the grant of a security interest in the Collateral and all
obligations of each Pledgor hereunder, shall be absolute and unconditional
irrespective of (a) any lack of validity or enforceability of the Credit
Agreement, any other Credit Document, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Credit Agreement, any other Credit
Document or any other agreement or instrument relating to any of the foregoing,
(c) any exchange, release or nonperfection of any other collateral, or any
release or amendment or waiver of or consent to or departure from any guaranty,
for all or any of the Obligations or (d) any other circumstance that might
otherwise constitute a defense available to, or a discharge of, any Pledgor in
respect of the Obligations or in respect of this Agreement (other than the
indefeasible payment in full of all the Obligations).
SECTION 14. Termination or Release. (a) This Agreement and the security
interests granted hereby shall terminate when all the Obligations (other than
inchoate indemnification and expense reimbursement obligations) have been
indefeasibly paid in full and the Lenders have no further commitment to lend
under the Credit Agreement, the L/C Exposure has been reduced to zero and the
Issuing Bank has no further obligation to issue Letters of Credit under the
Credit Agreement.
(b) Upon any sale or other transfer by any Pledgor of any Collateral that
is permitted under the Credit Agreement to any person that is not a Pledgor, or,
upon the effectiveness of any written consent to the release of the security
interest granted hereby in any Collateral pursuant to Section 9.08(b) of the
Credit Agreement, the security interest in such Collateral shall be
automatically released.
(c) In connection with any termination or release pursuant to clause (a)
or (b), the Collateral Agent shall execute and deliver to any Pledgor, at such
Pledgor's expense, all
<PAGE>
10
documents that such Pledgor shall reasonably request to evidence such
termination or release. Any execution and delivery of documents pursuant to this
Section 14 shall be without recourse to or warranty by the Collateral Agent.
SECTION 15. Notices. All communications and notices hereunder shall be
in writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to any Subsidiary Pledgor shall be given to
it in care of the Borrower.
SECTION 16. Further Assurances. Each Pledgor agrees to do such further
acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Collateral Agent may at any time
reasonably request in connection with the administration and enforcement of this
Agreement or with respect to the Collateral or any part thereof or in order
better to assure and confirm unto the Collateral Agent its rights and remedies
hereunder.
SECTION 17. Binding Effect; Several Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of any Pledgor that are contained in
this Agreement shall bind and inure to the benefit of its successors and
assigns. This Agreement shall become effective as to any Pledgor when a
counterpart hereof executed on behalf of such Pledgor shall have been delivered
to the Collateral Agent and a counterpart hereof shall have been executed on
behalf of the Collateral Agent, and thereafter shall be binding upon such
Pledgor and the Collateral Agent and their respective successors and assigns,
and shall inure to the benefit of such Pledgor, the Collateral Agent and the
other Secured Parties, and their respective successors and assigns, except that
no Pledgor shall have the right to assign its rights hereunder or any interest
herein or in the Collateral (and any such attempted assignment shall be void),
except as expressly contemplated by this Agreement or the other Credit
Documents. If all of the capital stock of a Pledgor is sold, transferred or
otherwise disposed of to a person that is not an Affiliate of the Borrower
pursuant to a transaction permitted by Section 6.05 of the Credit Agreement,
such Pledgor shall be released from its obligations under this Agreement without
further action. This Agreement shall be construed as a separate agreement with
respect to each Pledgor and may be amended, modified, supplemented, waived or
released with respect to any Pledgor without the approval of any other Pledgor
and without affecting the obligations of any other Pledgor hereunder
SECTION 18. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by each Pledgor herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Credit Document shall be considered
to have been relied upon by the Collateral Agent and the other Secured Parties
and shall survive the making by the Lenders of the Loans, the issuance of the
Letters of Credit by the Issuing Bank and the execution and delivery to the
Lenders of the Notes evidencing such Loans, regardless of any investigation made
by the Secured Parties 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 any
other fee or amount payable under this Agreement or any other Credit Document is
outstanding and unpaid or the L/C Exposure does not equal zero and as long as
the Commitments and the L/C Commitments have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any
<PAGE>
11
other jurisdiction). 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 19. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 20. 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 a single contract, and shall become effective
as provided in Section 17. Delivery of an executed counterpart of a signature
page to this Agreement by facsimile transmission shall be as effective as
delivery of a manually executed counterpart of this Agreement.
SECTION 21. Rules of Interpretation. The rules of interpretation
specified in Section 1.02 of the Credit Agreement shall be applicable to this
Agreement. Section headings 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 22. Jurisdiction; Consent to Service of Process. (a) Each
Pledgor 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 Credit Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that, to the extent permitted by applicable law, all
claims in respect of any such action or proceeding may be heard and determined
in such New York State court or, to the extent permitted by law, in such Federal
court. Each of the parties hereto agrees that a final judgment in any 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 the Collateral Agent or
any other Secured Party may otherwise have to bring any action or proceeding
relating to this Agreement or the other Credit Documents against any Pledgor or
its properties in the courts of any jurisdiction.
(b) Each Pledgor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that 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 Credit 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 15. 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 23. 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. EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
<PAGE>
12
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
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 BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 24. Additional Pledgors. Pursuant to Section 5.11 of the Credit
Agreement, each Restricted Subsidiary of the Borrower that was not in existence
or not a Subsidiary on the date of the Credit Agreement is required to enter in
this Agreement as a Subsidiary Pledgor upon becoming a Restricted Subsidiary if
such Subsidiary owns or possesses property of a type that would be considered
Collateral hereunder. Upon execution and delivery by the Collateral Agent and a
Subsidiary of an instrument in the form of Annex 1, such Subsidiary shall become
a Subsidiary Pledgor hereunder with the same force and effect as if originally
named as a Subsidiary Pledgor herein. The execution and delivery of such
instrument shall not require the consent of any Pledgor hereunder. The rights
and obligations of each Pledgor hereunder shall remain in full force and effect
notwithstanding the addition of any new Subsidiary Pledgor as a party to this
Agreement.
SECTION 25. Certain Other Rights. (a) The Pledgors authorize the
Collateral Agent, without notice or demand and without affecting their liability
hereunder, from time to time, either before or after revocation hereof, to (i)
renew, compromise, extend, accelerate, or otherwise change the time for payment
of, or otherwise change the terms of the indebtedness or any part thereof,
including increase or decrease of the rate of interest thereon; (ii) receive and
hold security for the payment of the Obligations, and exchange, enforce, waive,
release, fail to perfect, sell, or otherwise dispose of any such security; (iii)
apply such security and direct the order or manner of sale thereof as the
Collateral Agent in its discretion may determine; and (iv) release or substitute
any one or more of the endorsers or guarantors.
(b) The Pledgors waive any right to require the Collateral Agent to (i)
proceed against the Borrower; (ii) proceed against or exhaust any security held
from the Borrower; or (iii) pursue any other remedy in the Collateral Agent's
power whatsoever. The Pledgors waive any defense arising by reason of any
disability or other defense of the Borrower, or the cessation from any cause
whatsoever of the liability of the Borrower, or any claim that the Pledgors'
obligations exceed or are more burdensome than those of the Borrower. Until the
indebtedness shall have been paid in full, even though the indebtedness is in
excess of the Pledgors' liability hereunder, the Pledgors will not pursue any
right of subrogation, reimbursement, indemnification, and contribution
(contractual, statutory, or otherwise) including, without limitation, any claim
or right of subrogation under the Bankruptcy Code (Title 11, United States Code)
or any successor statute, arising from the existence or performance of this
Agreement, and until such payment in full, the Pledgors will not pursue any
right to enforce any remedy which the Collateral Agent and the Lenders now have
or may hereafter have against the Borrower and will not pursue any benefit of,
and any right to participate in, any security now or hereafter held by the
Collateral Agent. The Pledgors waive all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of dishonor,
and notices of acceptance of this Agreement and of the existence, creation, or
incurring of new or additional indebtedness.
(c) (i) The Pledgors understand and acknowledge that if the Collateral
Agent forecloses, either by judicial foreclosure or by exercise of power of
sale, any deed of trust securing the Obligations, that foreclosure could impair
or destroy any ability that the Pledgors may have to seek reimbursement,
contribution, or indemnification from the Borrower or others based on any right
the Pledgors may have of subrogation, reimbursement, contribution, or
indemnification for any amounts paid by the Pledgors under this Agreement.
<PAGE>
13
The Pledgors further understand and acknowledge that in the absence of this
paragraph, such potential impairment or destruction of the Pledgors' rights, if
any, may entitle the Pledgors to assert a defense to this Agreement based on
Section 580d of the California Code of Civil Procedure as interpreted in Union
-----
Bank v. Gradsky, 265 Cal. App. 2d 40 (1968). By executing this Agreement, the
- ---------------
Pledgors freely, irrevocably, and unconditionally: (A) waive and relinquish that
defense and agree that the Pledgors will be fully liable under this Agreement
even though the Collateral Agent may foreclose, either by judicial foreclosure
or by exercise of power of sale, any deed of trust securing the Obligations; (B)
agree that the Pledgors will not assert that defense in any action or proceeding
which the Collateral Agent may commence to enforce this Agreement; (C)
acknowledge and agree that the rights and defenses waived by the Pledgors in
this Agreement include any right or defense that the Pledgors may have or be
entitled to assert based upon or arising out of any one or more of Sections
580a, 580b, 580d, or 726 of the California Civil Code; and (iv) acknowledge and
agree that the Collateral Agent and the Lenders are relying on this waiver in
creating the indebtedness, and that this waiver is a material part of the
consideration which the Collateral Agent and the Lenders are receiving for
creating the indebtedness.
(ii) The Pledgors waive any rights and defenses that are or may become
available to the Pledgors by reason of Sections 2787 to 2855, inclusive, of the
California Civil Code.
(iii) The Pledgors waive all rights and defenses that the Pledgors may
have because any of the indebtedness is secured by real property. This means,
among other things: (A) the Collateral Agent may collect from the Pledgors
without first foreclosing on any real or personal property collateral pledged by
the Borrower; and (B) if the Collateral Agent forecloses on any real property
collateral pledged by the Borrower: (x) the amount of the indebtedness may be
reduced only by the price for which that collateral is sold at the foreclosure
sale, even if the collateral is worth more than the sale price, and (y) the
Collateral Agent may collect from the Pledgors even if the Collateral Agent, by
foreclosing on the real property collateral, has destroyed any right the
Pledgors may have to collect from the Borrower. This is an unconditional and
irrevocable waiver of any rights and defenses the Pledgors may have because any
of the indebtedness is secured by real property. These rights and defenses
include, but are not limited to, any rights or defenses based upon Section 580a,
580b, 580d, or 726 of the California Code of Civil Procedure.
(iv) The Pledgors waive any right or defense they may have at law or
equity, including California Code of Civil Procedure Section 580a, to a fair
market value hearing or action to determine a deficiency judgment after a
foreclosure.
(v) No provision or waiver in this Agreement shall be construed as
limiting the generality of any other waiver contained in this Agreement.
(d) The Pledgors acknowledge and agree that they shall have the sole
responsibility for obtaining from the Borrower such information concerning the
Borrower's financial conditions or business operations as the Pledgors may
require, and that the Collateral Agent has no duty at any time to disclose to
the Pledgors any information relating to the business operations or financial
conditions of the Borrower.
<PAGE>
14
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
RIVER HOLDING CORP,
by /s/ Charles P. Rullman
---------------------------------
Name: Charles P. Rullman
Title: President
HUDSON RESPIRATORY CARE INC.,
by /s/ Richard W. Johansen
---------------------------------
Name: Richard W. Johansen
Title: President and Chief
Executive Officer
by /s/ Jay R. Ogram
---------------------------------
Name: Jay R. Ogram
Title: Chief Financial Officer
BANKERS TRUST COMPANY, as Collateral Agent,
by /s/ Robert R. Telesca
---------------------------------
Name: Robert R. Telesca
Title: Assistant Vice President
<PAGE>
EXHIBIT 10.4
Recording Requested by: Bankers Trust Company, as Agent
When Recorded Return to: Robert Harvey, Esq.
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
DEED OF TRUST, SECURITY AGREEMENT, FIXTURE FILING
AND ASSIGNMENT OF LEASES AND RENTS
THIS DEED OF TRUST SECURES AN OBLIGATION WHICH PROVIDES FOR A
REVOLVING LINE OF CREDIT AND VARIABLE INTEREST RATE
THIS DEED OF TRUST, SECURITY AGREEMENT, FIXTURE FILING AND
ASSIGNMENT OF LEASES AND RENTS dated as of April 7, 1998 (this
"Deed of Trust"), by HUDSON RESPIRATORY CARE INC., a California
corporation ("Hudson RCI"), having an office at 27711 Diaz Road,
Temecula, CA 92580-9020 (the "Grantor"), to CHICAGO TITLE
INSURANCE COMPANY (the "Trustee") for the benefit of BANKERS
TRUST COMPANY, a New York banking corporation ("BTCo."), having
an office at 300 South Grand Avenue, Floor 41, Los Angeles, CA
90071, as collateral agent (in such capacity, the "Collateral
Agent") for the benefit of the Secured Parties (as defined below)
(the "Beneficiary");
WITNESSETH THAT:
A. Reference is made to the Senior Secured Credit Agreement dated as of
April 7, 1998 (as amended, supplemented or otherwise modified from time to time,
the "Credit Agreement"), among the Grantor as Borrower, River Holding Corp., a
Delaware corporation, the financial institutions party thereto as lenders (the
"Lenders") and BTCo. as Administrative Agent, Collateral Agent and Issuing Bank
for the Lenders. As used herein, the term "Secured Parties" shall mean (i) the
Lenders, (ii) the Administrative
<PAGE>
2
Agent, (iii) the Collateral Agent, (iv) the Issuing Bank, (v) each counterparty
to a Rate Protection Agreement entered into with the Grantor if such
counterparty was a Lender at the time the Rate Protection Agreement was entered
into, (vi) the beneficiaries of each indemnification obligation undertaken by
the Grantor under any Credit Document and (vii) the successors and permitted
assigns of each of the foregoing. Pursuant to the Credit Agreement, (a) the
Lenders have lent or agreed to lend to the Grantor (i) on a term basis, Term
Loans (such term and each other capitalized term used herein but not defined
herein shall have the meaning assigned to such term in the Credit Agreement) in
an aggregate principal amount not in excess of $40,000,000, and (ii) on a
revolving basis, Revolving Loans, 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 $50,000,000 in each case on the terms and subject
to the conditions of the Credit Agreement and (b) the Issuing Bank has agreed to
issue Letters of Credit for the account of the Grantor in an aggregate face
amount at any time outstanding not in excess of $7,500,000 upon terms and
subject to the conditions of the Credit Agreement.
B. The obligations of the Lenders to make Loans and of the Issuing Bank
to issue Letters of Credit under the Credit Agreement are conditioned upon,
among other things, the execution and delivery by the Grantor of this Deed of
Trust in the form hereof, to secure (a) the due and punctual payment of (i) the
principal of and premium, if any, and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (ii) each payment required to be
made by the Grantor under the Credit Agreement in respect of any Letter of
Credit, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral and
(iii) all other monetary obligations, including fees, costs, expenses and
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including deficiency judgments and monetary obligations incurred during the
pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding), of
the Grantor to the Secured Parties under the Credit Agreement, this Deed of
Trust and the other Credit Documents to which the Grantor is or is to be a
party, (b) the due and punctual performance of all covenants, agreements,
obligations and liabilities of the Grantor under or pursuant to the Credit
Agreement, this Deed of Trust and the other Credit Documents to which the
Grantor is or is to be a party and (c) the due and punctual payment and
performance of all obligations of the Grantor under each Rate Protection
Agreement entered into with a counterparty that was a Lender at the time such
Rate Protection Agreement was entered into (all the obligations referred to in
the preceding clauses (a) through (c) being referred to collectively, as the
"Obligations").
Pursuant to the requirements of the Credit Agreement, the Grantor is
entering into this Deed of Trust to create a security interest in the Trust
Property (as defined herein) to secure the performance and payment by the
Grantor of the Obligations. The Credit Agreement also requires the granting by
the Grantor and the Subsidiaries (the "Other Mortgages") that create security
interests in certain Mortgaged Properties other than the Trust Property to
secure the performance of the Obligations.
Granting Clauses
<PAGE>
3
NOW THEREFORE, IN CONSIDERATION OF the foregoing and in order to secure (A)
the due and punctual payment and performance of the Obligations, (B) the due and
punctual payment by the Grantor of all taxes and insurance premiums relating to
the Trust Property and (C) all disbursements made by Beneficiary for the payment
of taxes, common area charges or insurance premiums, all fees, expenses or
advances in connection with or relating to the Trust Property, and interest on
such disbursements and other amounts not timely paid in accordance with the
terms of the Credit Agreement, this Deed of Trust and the other Credit
Documents, Grantor hereby grants, conveys, mortgages, assigns and pledges, with
mortgage covenants, to the Trustee, IN TRUST FOREVER, with power of sale, for
the benefit of the Beneficiary (for the ratable benefit of the Secured Parties),
a security interest in, all the following described property (the "Trust
Property") whether now owned or held or hereafter acquired:
(1) all Grantor's right, title and interest in all the fee estate in
the land more particularly described on Exhibit A hereto (the "Land"),
together with all rights appurtenant thereto, including the easements over
certain other adjoining land granted by any easement agreements, covenant
or restrictive agreements and all air rights, mineral rights, water rights,
oil and gas rights and development rights, if any, relating thereto, and
also together with all of the other easements, rights, privileges,
interests, hereditaments and appurtenances thereunto belonging or in anyway
appertaining and all of the estate, right, title, interest, claim or demand
whatsoever of Grantor therein and in the streets and ways adjacent thereto,
either in law or in equity, in possession or expectancy, now or hereafter
acquired (the "Premises");
(2) all Grantor's right, title and interest in all buildings,
improvements, structures, paving, parking areas, walkways and landscaping
now or hereafter erected or located upon the Land, and all fixtures of
every kind and type affixed to the Premises or attached to or forming part
of any structures, buildings or improvements and replacements thereof now
or hereafter erected or located upon the Land (the "Improvements");
(3) all Grantor's right, title and interest in all general intangibles
relating to design, development, operation, management and use of the
Premises or the Improvements, all certificates of occupancy, zoning
variances, building, use or other permits, approvals, authorizations and
consents obtained from and all materials prepared for filing or filed with
any governmental agency in connection with the development, use, operation
or management of the Premises and Improvements, all construction, service,
engineering, consulting, leasing, architectural and other similar contracts
concerning the design, construction, management, operation, occupancy
and/or use of the Premises and Improvements, all architectural drawings,
plans, specifications, soil tests, feasibility studies, appraisals,
environmental studies, engineering reports and similar materials relating
to any portion of or all of the Premises and Improvements, and all payment
and performance bonds or warranties or guarantees relating to the Premises
or the Improvements, all to the extent assignable (the "Permits, Plans and
Warranties");
(4) Grantor's interest in and rights under any and all now or
hereafter existing leases or licenses (under which Grantor is landlord or
licensor) and subleases (under which Grantor is sublandlord), concession,
management, mineral
<PAGE>
4
or other agreements of a similar kind that permit the use or occupancy of
the Premises or the Improvements for any purpose in return for any payment,
or the extraction or taking of any gas, oil, water or other minerals from
the Premises in return for payment of any fee, rent or royalty
(collectively, "Leases"), and all agreements or contracts for the sale or
other disposition of all or any part of the Premises or the Improvements,
now or hereafter entered into by Grantor, together with all charges, fees,
income, issues, profits, receipts, rents, revenues or royalties payable
thereunder ("Rents");
(5) all Grantor's right, title and interest in and to all real estate
tax refunds and all proceeds of the conversion, voluntary or involuntary,
of any of the Trust Property into cash or liquidated claims ("Proceeds"),
including Proceeds of insurance maintained by the Grantor and condemnation
awards, any awards that may become due by reason of the taking by eminent
domain or any transfer in lieu thereof of the whole or any part of the
Premises or Improvements or any rights appurtenant thereto, and any awards
for change of grade of streets, together with any and all moneys now or
hereafter on deposit for the payment of real estate taxes, assessments or
common area charges levied against the Trust Property, unearned premiums on
policies of fire and other insurance maintained by the Grantor covering any
interest in the Trust Property or required by the Credit Agreement; and
(6) all Grantor's right, title and interest in and to all extensions,
improvements, betterments, renewals, substitutes and replacements of and
all additions and appurtenances to, the Land, the Premises, the
Improvements, the Personal Property, the Permits, Plans and Warranties and
the Leases, hereinafter acquired by or released to the Grantor or
constructed, assembled or placed by the Grantor on the Land, the Premises
or the Improvements, and all conversions of the security constituted
thereby, immediately upon such acquisition, release, construction,
assembling, placement or conversion, as the case may be, and in each such
case, without any further mortgage, deed of trust, conveyance, assignment
or other act by the Grantor, all of which shall become subject to the lien
of this Deed of Trust as fully and completely, and with the same effect, as
though now owned by the Grantor and specifically described herein.
TO HAVE AND TO HOLD the Trust Property unto the Trustee, its successors and
assigns, for the benefit of the Beneficiary (for the ratable benefit of the
Secured Parties), forever, subject only to the Permitted Encumbrances (as
hereinafter defined) and to satisfaction and cancelation as provided in Section
3.04. IN TRUST NEVERTHELESS upon the terms and trust herein set forth for the
benefit and security of the Beneficiary.
ARTICLE I
Representations, Warranties and Covenants of Grantor
Grantor agrees, covenants, represents and/or warrants as follows:
SECTION 1.01. Title. (a) Grantor has good and marketable title to an
indefeasible fee estate in the Land and Improvements subject to no lien, charge
or
<PAGE>
5
encumbrance, and this Deed of Trust is and will remain a valid and enforceable
first and prior lien on the Premises, Improvements and the Rents subject only
to, in each case, Liens permitted by Section 6.2 of the Credit Agreement and the
exceptions and encumbrances referred to in Schedule B to the title insurance
policy being issued to insure the lien of this Deed of Trust (collectively, the
"Permitted Encumbrances"). The Permitted Encumbrances do not materially
interfere with the current use, enjoyment or operation of the Trust Property.
(b) Grantor has good and marketable title to all the Personal Property
subject to no lien, charge or encumbrance other than this Deed of Trust and the
Permitted Encumbrances. Except as may be permitted under the Credit Agreement,
the Personal Property is not and will not become the subject matter of any lease
or other arrangement that is not a Permitted Encumbrance whereby the ownership
of any Personal Property will be held by any person or entity other than
Grantor; except as permitted under the Credit Agreement, none of the Personal
Property will be removed from the Premises or the Improvements unless the same
is no longer needed for the continued operation of the Premises and the
Improvements as currently operated (or as then operated, to the extent that any
change from the current manner of operation was permitted by the Credit
Agreement) or is replaced by other Personal Property of substantially equal or
greater utility and value; and Grantor will not create or cause to be created
(other than Permitted Encumbrances) any security interest covering any of the
Personal Property other than the security interest in the Personal Property
created in favor of Beneficiary by this Deed of Trust or any other agreement
collateral hereto. The Trust Property is served by water, gas, electric, storm
and sanitary sewage facilities, and such utilities serving the Premises and the
Improvements are located in and in the future will be located in the Premises as
is reasonable and customary for like kind Improvements in the area. There is
vehicular access to the Premises and the Improvements which is provided by,
either a public right-of-way abutting and contiguous with the Land or valid
recorded unsubordinated easements.
(c) Except as set forth on Schedule A hereto, there are no leases affecting
any portion of the Trust Property. Each Lease is in full force and effect, and,
except as set forth on Schedule A hereto, Grantor has not given, nor to
Grantor's knowledge has it received, any uncured or unwaived notice of default
with respect to any material obligation under any Lease. Each Lease is subject
to no lien, charge or encumbrance other than this Deed of Trust and the
Permitted Encumbrances.
(d) All easement agreements, covenant or restrictive agreements,
supplemental agreements and any other material instruments hereinabove referred
to and mortgaged hereby are and will remain valid, subsisting and in full force
and effect, unless the failure to remain valid, subsisting and in full force and
effect, individually or in the aggregate, could not reasonably be expected to
have a material adverse effect on the Trust Property, and Grantor is not in
default thereunder and has fully performed the material terms thereof required
to be performed through the date hereof, and has no knowledge of any default
thereunder or failure to fully perform the terms thereof by any other party, nor
of the occurrence of any event that after notice or the passage of time or both
will constitute a default thereunder.
(e) Grantor has good and lawful right and full power and authority to
mortgage the Trust Property and will forever warrant and defend its title to the
Trust Property, the rights of Beneficiary therein under this Deed of Trust and
the validity and priority of the
<PAGE>
6
lien of this Deed of Trust thereon against the claims of all persons and parties
except those having rights under Permitted Encumbrances to the extent of those
rights.
(f) This Deed of Trust, when duly recorded in the appropriate public
records and when financing statements are duly filed in the appropriate public
records, will create a valid and enforceable lien upon and security interest in
all the Trust Property and there will be no defenses or offsets to this Deed of
Trust that will be asserted by Grantor or its Affiliates (or any third party
defense or offset now known to Grantor or its Affiliates) or to any of the
Obligations secured hereby for so long as any portion of the Obligations is
outstanding, other than payment of the Obligations.
SECTION 1.02. Credit Agreement; Certain Amounts. (a) This Deed of Trust
is given pursuant to the Credit Agreement. Each and every term and provision of
the Credit Agreement, including the rights, remedies, obligations, covenants,
conditions, agreements, indemnities, representations and warranties of the
parties thereto shall be considered as if a part of this Deed of Trust and to
the extent there is a specific conflict between the terms hereof and the terms
of the Credit Agreement (except with respect to Section 1.01 hereof), the terms
of the Credit Agreement shall control.
(b) If any remedy or right of the Trustee or Beneficiary pursuant hereto is
acted upon by the Trustee or Beneficiary or if any actions or proceedings
(including any bankruptcy, insolvency or reorganization proceedings) are
commenced in which the Trustee or Beneficiary is made a party and is obliged to
defend or uphold or enforce this Deed of Trust or the rights of Beneficiary
hereunder or the terms of any Lease, or if a condemnation proceeding is
instituted affecting the Trust Property, Grantor will pay all reasonable sums,
including reasonable attorneys' fees and disbursements, incurred by the Trustee
or Beneficiary related to the exercise of any remedy or right of the Trustee or
Beneficiary pursuant hereto or for the reasonable expense of any such action or
proceeding together with all statutory or other costs, disbursements and
allowances, interest thereon from the date of demand for payment thereof at the
rate specified in clause (b) of Section 2.7 of the Credit Agreement (the
"Default Interest Rate"), and such sums and the interest thereon shall, to the
extent permissible by law, be a lien on the Trust Property prior to any right,
title to, interest in or claim upon the Trust Property attaching or accruing
subsequent to the recording of this Deed of Trust and shall be secured by this
Deed of Trust to the extent permitted by law. Any payment of amounts due to
Beneficiary under this Deed of Trust not made on or before the due date for such
payments shall accrue interest daily without notice from the due date until paid
at the Default Interest Rate, and such interest at the Default Interest Rate
shall be immediately due upon demand by the Trustee or Beneficiary.
SECTION 1.03. Payment of Taxes, Liens and Charges. (a) Except as may be
permitted by Section 5.3 of the Credit Agreement, Grantor will pay and discharge
from time to time prior to the time when the same shall become delinquent, and
before any interest or penalty accrues thereon or attaches thereto, all taxes of
every kind and nature, all general and special assessments, levies, permits,
inspection and license fees, all water and sewer rents, all vault charges, and
all other public charges, and all service charges, common area charges, private
maintenance charges, utility charges and all other private charges, whether of a
like or different nature, imposed upon or assessed against the Trust Property or
any part thereof or upon the Rents from the Trust Property or arising in respect
of the occupancy, use or possession thereof.
<PAGE>
7
(b) In the event of the passage of any state, Federal, municipal or other
governmental law, order, rule or regulation subsequent to the date hereof (i)
deducting from the value of real property for the purpose of taxation any lien
or encumbrance thereon or in any manner changing or modifying the laws now in
force governing the taxation of this Deed of Trust or debts secured by mortgages
or deeds of trust (other than laws governing income, franchise and similar taxes
generally) or the manner of collecting taxes thereon and (ii) imposing a tax to
be paid by Beneficiary, either directly or indirectly, on this Deed of Trust or
any of the Credit Documents or to require an amount of taxes to be withheld or
deducted therefrom, Grantor will promptly notify Beneficiary of such event. In
such event Grantor shall (i) agree to enter into such further instruments as may
be reasonably necessary or desirable to obligate Grantor to make any applicable
additional payments and (ii) make such additional payments.
(c) At any time that an Event of Default shall occur hereunder and be
continuing, or if required by any law applicable to Grantor or to Beneficiary,
Beneficiary shall have the right to direct Grantor to make an initial deposit on
account of real estate taxes and assessments, insurance premiums and common area
charges, levied against or payable in respect of the Trust Property in advance
and thereafter semi-annually, each such deposit to be equal to one-half of any
such annual charges estimated in a reasonable manner by Beneficiary in order to
accumulate with Beneficiary sufficient funds to pay such taxes, assessments,
insurance premiums and charges.
SECTION 1.04. Payment of Closing Costs. Grantor shall pay all costs in
connection with, relating to or arising out of the preparation, execution and
recording of this Deed of Trust, including title company premiums and charges,
inspection costs, survey costs, recording fees and taxes which are due,
reasonable attorneys', engineers', appraisers' and consultants' fees and
disbursements and all other similar reasonable expenses of every kind.
SECTION 1.05. Alterations and Waste; Plans. (a) Except as may be
permitted under the Credit Agreement, no Improvements will be materially altered
or demolished or removed in whole or in part by Grantor. Grantor will not erect
any additions to the existing Improvements or other structures on the Premises
which will materially interfere with the operation conducted thereon on the date
hereof, without the written consent of Beneficiary. Grantor will not commit any
waste on the Trust Property or make any alteration to, or change in the use of,
the Trust Property that will diminish the utility thereof for the operation of
the business except as may be permitted under the Credit Agreement or materially
increase any ordinary fire or other hazard arising out of construction or
operation, but in no event shall any such alteration or change be contrary to
the terms of any insurance policy required to be kept pursuant to Section 1.06.
Grantor will maintain and operate the Improvements and Personal Property in good
repair, working order and condition, reasonable wear and tear excepted
(notwithstanding the terms of Section 5.1 of the Credit Agreement).
(b) To the extent the same exist on the date hereof or are obtained in
connection with future permitted alterations, Grantor shall maintain a complete
set of final plans, specifications, blueprints and drawings for the Trust
Property either at the Trust Property or in a particular office at the
headquarters of Grantor to which Beneficiary shall have access upon reasonable
advance notice and at reasonable times.
SECTION 1.06. Insurance. Grantor will keep or cause to be kept the
Improvements and Personal Property insured against such risks, and in the
manner, required by Section 5.2 of the Credit Agreement.
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8
SECTION 1.06. Insurance. Grantor will keep or cause to be kept the
Improvements and Personal Property insured against such risks, and in the
manner, required by Section 5.2 of the Credit Agreement.
SECTION 1.07. Casualty; Condemnation. Beneficiary is authorized to
collect and receive insurance and condemnation proceeds as provided by Section
5.12 of the Credit Agreement.
SECTION 1.08. Assignment of Leases and Rents. (a) Grantor hereby
irrevocably and absolutely grants, transfers and assigns to the Trustee for the
benefit of Beneficiary all of its right title and interest in all Leases,
together with any and all extensions and renewals thereof for purposes of
securing and discharging the performance by Grantor of the Obligations. Grantor
has not assigned or executed any assignment of, and will not assign or execute
any assignment of, any other Lease or their respective Rents to anyone other
than the Trustee for the benefit of Beneficiary.
(b) Without Beneficiary's prior written consent, Grantor will not (i)
modify, amend, terminate or consent to the cancelation or surrender of any Lease
if such modification, amendment, termination or consent to the Trustee for the
benefit of the Beneficiary would, in the reasonable judgment of the Beneficiary,
be adverse in any material respect to the interests of the Lenders, the value of
the Trust Property or the lien created by this Deed of Trust or (ii) consent to
an assignment of any tenant's interest in any Lease or to a subletting thereof
covering a material portion of the Trust Property.
(c) Subject to Section 1.08(d), Grantor has assigned and transferred to
Beneficiary all of Grantor's right, title and interest in and to the Rents now
or hereafter arising from each Lease heretofore or hereafter made or agreed to
by Grantor, it being intended that this assignment establish, subject to Section
1.08(d), an absolute transfer and assignment of all Rents and all Leases to
Beneficiary and not merely to grant a security interest therein. Subject to
Section 1.08(d), Beneficiary may in Grantor's name and stead (with or without
first taking possession of any of the Trust Property personally or by receiver
as provided herein) operate the Trust Property and rent, lease or let all or any
portion of any of the Trust Property to any party or parties at such rental and
upon such terms as Beneficiary shall, in its sole discretion, determine, and may
collect and have the benefit of all of said Rents arising from or accruing at
any time thereafter or that may thereafter become due under any Lease.
(d) So long as an Event of Default shall not have occurred and be
continuing, Beneficiary will not exercise any of its rights under Section
1.08(c), and Grantor shall receive and collect the Rents accruing under any
Lease; but after the happening and during the continuance of any Event of
Default, Beneficiary may, at its option, receive and collect all Rents and enter
upon the Premises and Improvements through its officers, agents, employees or
attorneys for such purpose and for the operation and maintenance thereof.
Grantor hereby irrevocably authorizes and directs each tenant, if any, and each
successor, if any, to the interest of any tenant under any Lease, respectively,
to rely upon any written notice sent by Beneficiary to any such tenant or any of
such tenant's successors in interest, and thereafter to pay Rents to
Beneficiary.
(e) Beneficiary will not become a Beneficiary in possession so long as it
does not enter or take actual possession of the Trust Property. In addition,
Beneficiary shall not be responsible or liable for performing any of the
obligations of the landlord under any
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9
Lease, for any waste by any tenant, or others, for any dangerous or defective
conditions of any of the Trust Property, for negligence in the management,
upkeep, repair or control of any of the Trust Property or any other act or
omission by any other person.
(f) Grantor shall furnish to Beneficiary, within 30 days after a request by
Beneficiary to do so, a written statement containing the names of all tenants,
subtenants and concessionaires of the Premises or Improvements, the terms of any
Lease, the space occupied and the rentals or license fees payable thereunder.
SECTION 1.09. Security Agreement. This Deed of Trust is both a mortgage
of real property and a grant of a security interest in personal property, and
shall constitute and serve as a "Security Agreement" within the meaning of the
uniform commercial code as adopted in the state wherein the Premises are
located. Grantor has hereby granted unto Beneficiary a security interest in and
to all the Trust Property described in this Deed of Trust that is not real
property, and simultaneously with the recording of this Deed of Trust, Grantor
has filed or will file UCC financing statements, and will file continuation
statements prior to the lapse thereof, at the appropriate offices in the state
in which the Premises are located to perfect the security interest granted by
this Deed of Trust in all the Trust Property that is not real property. Grantor
hereby appoints Beneficiary as its true and lawful attorney-in-fact and agent,
for Grantor and in its name, place and stead, in any and all capacities, to
execute any document and to file the same in the appropriate offices (to the
extent it may lawfully do so), and to perform each and every act and thing
reasonably requisite and necessary to be done to perfect the security interest
contemplated by the preceding sentence. Beneficiary shall have all rights with
respect to the part of the Trust Property that is the subject of a security
interest afforded by the uniform commercial code as adopted in the state wherein
the Premises are located in addition to, but not in limitation of, the other
rights afforded Beneficiary hereunder and under the Security Agreement.
SECTION 1.10. Filing and Recording. Grantor will cause this Deed of
Trust, any other security instrument creating a security interest in or
evidencing the lien hereof upon the Trust Property and each instrument of
further assurance to be filed, registered or recorded in such manner and in such
places as may be required by any present or future law in order to publish
notice of and fully to protect the lien hereof upon, and the security interest
of Beneficiary in, the Trust Property. Grantor will pay all filing,
registration or recording fees, and all reasonable expenses incidental to the
execution and acknowledgment of this Deed of Trust, any mortgage supplemental
hereto, any security instrument with respect to the Personal Property, and any
instrument of further assurance and all Federal, state, county and municipal
recording, documentary or intangible taxes and other taxes, duties, imposts,
assessments and charges arising out of or in connection with the execution,
delivery and recording of this Deed of Trust, any mortgage supplemental hereto,
any security instrument with respect to the Personal Property or any instrument
of further assurance.
SECTION 1.11. Further Assurances. Upon demand by Beneficiary, Grantor
will, at the cost of Grantor and without expense to Trustee or Beneficiary, do,
execute, acknowledge and deliver all such further acts, deeds, conveyances,
mortgages or deeds of trust, as applicable, assignments, notices of assignment,
transfers and assurances as Beneficiary shall from time to time reasonably
require for the better assuring, conveying, assigning, transferring and
confirming unto Beneficiary the property and rights hereby conveyed or assigned
or intended now or hereafter so to be, or which Grantor may be or
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10
may hereafter become bound to convey or assign to Beneficiary, or for carrying
out the intention or facilitating the performance of the terms of this Deed of
Trust, or for filing, registering or recording this Deed of Trust, and on
demand, Grantor will also execute and deliver and hereby appoints Beneficiary as
its true and lawful attorney-in-fact and agent, for Grantor and in its name,
place and stead, in any and all capacities, to execute and file to the extent it
may lawfully do so, one or more financing statements, chattel mortgages or
comparable security instruments reasonably requested by Beneficiary to evidence
more effectively the lien hereof upon the Personal Property and to perform each
and every act and thing requisite and necessary to be done to accomplish the
same.
SECTION 1.12. Additions to Trust Property. All right, title and interest
of Grantor in and to all extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and appurtenances to, the
Trust Property hereafter acquired by or released to Grantor or constructed,
assembled or placed by Grantor upon the Premises or the Improvements, and all
conversions of the security constituted thereby, immediately upon such
acquisition, release, construction, assembling, placement or conversion, as the
case may be, and in each such case without any further mortgage, conveyance,
assignment or other act by Grantor, shall become subject to the lien and
security interest of this Deed of Trust as fully and completely and with the
same effect as though now owned by Grantor and specifically described in the
grant of the Trust Property above, but at any and all times Grantor will execute
and deliver to Beneficiary any and all such further assurances, mortgages,
conveyances or assignments thereof as Beneficiary may reasonably require for the
purpose of expressly and specifically subjecting the same to the lien and
security interest of this Deed of Trust.
SECTION 1.13. No Claims Against Beneficiary. Nothing contained in this
Deed of Trust shall constitute any consent or request by Trustee or Beneficiary,
express or implied, for the performance of any labor or services or the
furnishing of any materials or other property in respect of the Trust Property
or any part thereof, nor as giving Grantor any right, power or authority to
contract for or permit the performance of any labor or services or the
furnishing of any materials or other property in such fashion as would permit
the making of any claim against Trustee or Beneficiary in respect thereof.
SECTION 1.14. Fixture Filing. This Deed of Trust constitutes a financing
statement filed as a fixture filing in the Official Records of the County
Recorder of the county in which the Premises are located with respect to any and
all fixtures included within the term Trust Property that is or may become
fixtures.
ARTICLE II
Defaults and Remedies
SECTION 2.01. Events of Default. It shall be an Event of Default under
this Deed of Trust if any Event of Default (as therein defined) shall exist
pursuant to the Credit Agreement.
SECTION 2.02. Demand for Payment. If an Event of Default as set forth
herein shall occur and be continuing, then, upon written demand of Beneficiary,
Grantor will pay to Beneficiary all amounts due hereunder and such further
amount as shall be sufficient to cover the costs and expenses of collection,
including attorneys' fees,
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11
disbursements and expenses incurred by Trustee or Beneficiary and Trustee or
Beneficiary shall be entitled and empowered to institute an action or
proceedings at law or in equity for the collection of the sums so due and
unpaid, to prosecute any such action or proceedings to judgment or final decree,
to enforce any such judgment or final decree against Grantor and to collect, in
any manner provided by law, all moneys adjudged or decreed to be payable.
SECTION 2.03. Rights To Take Possession, Operate and Apply Revenues. (a)
To the extent permitted by applicable law, if an Event of Default shall occur
and be continuing, Grantor shall, upon demand of Beneficiary, forthwith
surrender to Beneficiary actual possession of the Trust Property and, if and to
the extent permitted by law, Beneficiary itself, or by such officers or agents
as it may appoint, may then enter and take possession of all the Trust Property
without the appointment of a receiver or an application therefor, exclude
Grantor and its agents and employees wholly therefrom, and have access to the
books, papers and accounts of Grantor.
(b) To the extent permitted by applicable law, if Grantor shall for any
reason fail to surrender or deliver the Trust Property or any part thereof after
such demand by Beneficiary, Beneficiary may obtain a judgment or decree
conferring upon Beneficiary the right to immediate possession or requiring
Grantor to deliver immediate possession of the Trust Property to Beneficiary, to
the entry of which judgment or decree Grantor hereby specifically consents.
Grantor will pay to Beneficiary, upon demand, all reasonable expenses of
obtaining such judgment or decree, including reasonable compensation to
Beneficiary's attorneys and agents with interest thereon at the Default Interest
Rate; and all such expenses and compensation shall, until paid, be secured by
this Deed of Trust.
(c) To the extent permitted by applicable law, upon every such entry or
taking of possession, Beneficiary may hold, store, use, operate, manage and
control the Trust Property, conduct the business thereof and, from time to time,
(i) make all necessary and proper maintenance, repairs, renewals, replacements,
additions, betterments and improvements thereto and thereon, (ii) purchase or
otherwise acquire additional fixtures, personalty and other property, (iii)
insure or keep the Trust Property insured, (iv) manage and operate the Trust
Property and exercise all the rights and powers of Grantor to the same extent as
Grantor could in its own name or otherwise with respect to the same, or (v)
enter into any and all agreements with respect to the exercise by others of any
of the powers herein granted Beneficiary, all as may from time to time be
directed or determined by Beneficiary to be in its best interest and Grantor
hereby appoints Beneficiary as its true and lawful attorney-in-fact and agent,
for Grantor and in its name, place and stead, in any and all capacities, to
perform any of the foregoing acts. Beneficiary may collect and receive all the
Rents, issues, profits and revenues from the Trust Property, including those
past due as well as those accruing thereafter, and, after deducting (i) all
expenses of taking, holding, managing and operating the Trust Property
(including compensation for the services of all persons employed for such
purposes), (ii) the costs of all such maintenance, repairs, renewals,
replacements, additions, betterments, improvements, purchases and acquisitions,
(iii) the costs of insurance, (iv) such taxes, assessments and other similar
charges as Beneficiary may at its option pay, (v) other proper charges upon the
Trust Property or any part thereof and (vi) the compensation, expenses and
disbursements of the attorneys and agents of Beneficiary, Beneficiary shall
apply the remainder of the moneys and proceeds so received first to the payment
of the
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Beneficiary for the satisfaction of the Obligations, and second, if there is any
surplus, to Grantor, subject to the entitlement of others thereto under
applicable law.
(d) To the extent permitted by applicable law, whenever, before any sale
of the Trust Property under Section 2.06, all Obligations that are then due
shall have been paid and all Events of Default fully cured, Beneficiary will
surrender possession of the Trust Property back to Grantor, its successors or
assigns. The same right of taking possession shall, however, arise again if any
subsequent Event of Default shall occur and be continuing.
SECTION 2.04. Right To Cure Grantor's Failure to Perform. After any Event
of Default at anytime (without requiring future notice) should Grantor fail in
the payment, performance or observance of any term, covenant or condition
required by this Deed of Trust or the Credit Agreement (with respect to the
Trust Property), Beneficiary may pay, perform or observe the same, and all
payments made or costs or expenses incurred by Beneficiary in connection
therewith shall be secured hereby and shall be, without demand, immediately
repaid by Grantor to Beneficiary with interest thereon at the Default Interest
Rate. Beneficiary shall be the judge using reasonable discretion of the
necessity for any such actions and of the amounts to be paid. Beneficiary is
hereby empowered to enter and to authorize others to enter upon the Premises or
the Improvements or any part thereof for the purpose of performing or observing
any such defaulted term, covenant or condition without having any obligation to
so perform or observe and without thereby becoming liable to Grantor, to any
person in possession holding under Grantor or to any other person.
SECTION 2.05. Right to a Receiver. If an Event of Default shall occur and
be continuing, Beneficiary, upon application to a court of competent
jurisdiction, shall be entitled as a matter of right to the appointment of a
receiver to take possession of and to operate the Trust Property and to collect
and apply the Rents. The receiver shall have all of the rights and powers
permitted under the laws of the state wherein the Trust Property is located.
Grantor shall pay to Beneficiary upon demand all reasonable expenses, including
receiver's fees, reasonable attorney's fees and disbursements, costs and agent's
compensation incurred pursuant to the provisions of this Section 2.05; and all
such expenses shall be secured by this Deed of Trust and shall be, without
demand, immediately repaid by Grantor to Beneficiary with interest thereon at
the Default Interest Rate.
SECTION 2.06. Foreclosure and Sale. (a) If an Event of Default shall
occur and be continuing, Beneficiary may elect to sell or to cause and direct
the Trustee to sell the Trust Property or any part of the Trust Property by
exercise of the power of foreclosure or of sale granted to Trustee and/or
Beneficiary by applicable law or this Deed of Trust. In such case, Trustee or
Beneficiary may commence a civil action to foreclose this Deed of Trust, or
Trustee may proceed and sell the Trust Property to satisfy any Obligation.
Trustee, Beneficiary or an officer appointed by a judgment of foreclosure to
sell the Trust Property, may sell all or such parts of the Trust Property as may
be chosen by Trustee or Beneficiary at the time and place of sale fixed by it in
a notice of sale, either as a whole or in separate lots, parcels or items as
Trustee or Beneficiary shall deem expedient, and in such order as it may
determine, at public auction to the highest bidder. Trustee or Beneficiary or
an officer appointed by a judgment of foreclosure to sell the Trust Property may
postpone any foreclosure or other sale of all or any portion of the Trust
Property by public announcement at such time and place of sale, and from time to
time thereafter may
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13
postpone such sale by public announcement or subsequently noticed sale. Without
further notice, Trustee or Beneficiary or an officer appointed to sell the Trust
Property may make such sale at the time fixed by the last postponement, or may,
in its discretion, give a new notice of sale. Any person, including Grantor or
Beneficiary or any designee or affiliate thereof, may purchase at such sale.
(b) The Trust Property may be sold subject to unpaid taxes and Permitted
Encumbrances, and, after deducting all costs, fees and expenses of Trustee and
Beneficiary (including costs of evidence of title in connection with the sale),
Trustee or Beneficiary or an officer that makes any sale shall apply the
proceeds of sale in the manner set forth in Section 2.08.
(c) Any foreclosure or other sale of less than the whole of the Trust
Property or any defective or irregular sale made hereunder shall not exhaust the
power of foreclosure provided for herein; and subsequent sales may be made
hereunder until the Obligations have been satisfied, or the entirety of the
Trust Property has been sold.
(d) If an Event of Default shall occur and be continuing, Trustee or
Beneficiary may instead of, or in addition to, exercising the rights described
in Section 2.06(a) above and either with or without entry or taking possession
as herein permitted, proceed by a suit or suits in law or in equity or by any
other appropriate proceeding or remedy (i) to specifically enforce payment of
some or all of the Obligations, or the performance of any term, covenant,
condition or agreement of this Deed of Trust or any other Credit Document or any
other right, or (ii) to pursue any other remedy available to Trustee or
Beneficiary, all as Trustee or Beneficiary shall determine most effectual for
such purposes.
SECTION 2.07. Other Remedies. (a) In case an Event of Default shall occur
and be continuing, Beneficiary may also exercise, to the extent not prohibited
by law, any or all of the remedies available to a secured party under the
uniform commercial code of the State wherein the Trust Property is located.
(b) In connection with a sale of the Trust Property or any Personal
Property and the application of the proceeds of sale as provided in Section
2.08, Beneficiary shall be entitled to enforce payment of and to receive up to
the principal amount of the Obligations, plus all other charges, payments and
costs due under this Deed of Trust, and to recover a deficiency judgment for any
portion of the aggregate principal amount of the Obligations remaining unpaid,
with interest.
SECTION 2.08. Application of Sale Proceeds and Rents. After any
foreclosure sale of all or any of the Trust Property, Trustee or Beneficiary
shall receive the proceeds of sale, no purchaser shall be required to see to the
application of the proceeds and Trustee or Beneficiary shall apply the proceeds
of the sale together with any Rents that may have been collected and any other
sums that then may be held by Trustee or Beneficiary under this Deed of Trust as
follows:
FIRST, to the payment of the costs and expenses of such sale,
including reasonable compensation to Trustee or to Beneficiary's attorneys
and agents, and of any judicial proceedings wherein the same may be made,
and of all expenses, liabilities and advances made or incurred by
Beneficiary under this Deed of Trust, together with interest at the Default
Interest Rate on all advances made by
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14
Beneficiary hereunder, including all taxes or assessments (except any
taxes, assessments or other charges subject to which the Trust Property
shall have been sold) and the cost of removing any Permitted Encumbrance
(except any Permitted Encumbrance subject to which the Trust Property was
sold);
SECOND, to the Beneficiary for the distribution to the Secured Parties
for the satisfaction of the Obligations owed to the Secured Parties; and
THIRD, to the Grantor, its successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
The Beneficiary shall have absolute discretion as to the time of application of
any such proceeds, moneys or balances in accordance with this Deed of Trust.
Upon any sale of the Trust Property by the Trustee or Beneficiary (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Trustee or Beneficiary or of the officer making the sale
shall be a sufficient discharge to the purchaser or purchasers of the Trust
Property so sold and such purchaser or purchasers shall not be obligated to see
to the application of any part of the purchase money paid over to the Trustee or
Beneficiary or such officer or be answerable in any way for the misapplication
thereof.
SECTION 2.09. Grantor as Tenant Holding Over. If Grantor remains in
possession of any of the Trust Property after any foreclosure sale by
Beneficiary, at Beneficiary's election Grantor shall be deemed a tenant holding
over and shall forthwith surrender possession to the purchaser or purchasers at
such sale or be summarily dispossessed or evicted according to provisions of law
applicable to tenants holding over.
SECTION 2.10. Waiver of Appraisement, Valuation, Stay, Extension and
Redemption Laws. Grantor waives, to the extent not prohibited by law, (i) the
benefit of all laws now existing or that hereafter may be enacted providing for
any appraisement of any portion of the Trust Property, (ii) the benefit of all
laws now existing or that may be hereafter enacted in any way extending the time
for the enforcement or the collection of amounts due under any of the
Obligations or creating or extending a period of redemption from any sale made
in collecting said debt or any other amounts due Beneficiary, (iii) any right to
at any time insist upon, plead, claim or take the benefit or advantage of any
law now or hereafter in force providing for any appraisement, valuation, stay,
extension or redemption, or sale of the Trust Property as separate tracts, units
or estates or as a single parcel in the event of foreclosure, and (iv) all
rights of redemption, valuation, appraisement, stay of execution, notice of
election to mature or declare due the whole of or each of the Obligations and
marshaling in the event of foreclosure of this Deed of Trust.
SECTION 2.11. Discontinuance of Proceedings. In case Trustee or
Beneficiary shall proceed to enforce any right, power or remedy under this Deed
of Trust by foreclosure, entry or otherwise, and such proceedings shall be
discontinued or abandoned for any reason, or shall be determined adversely to
Trustee or Beneficiary, then and in every such case Grantor, Trustee and
Beneficiary shall be restored to their former positions and rights hereunder,
and all rights, powers and remedies of Trustee or Beneficiary shall continue as
if no such proceeding had been taken.
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SECTION 2.12. Suits To Protect the Trust Property. Trustee and/or
Beneficiary shall have power (a) to institute and maintain suits and proceedings
to prevent any impairment of the Trust Property by any acts that may be unlawful
or in violation of this Deed of Trust, (b) to preserve or protect its interest
in the Trust Property and in the Rents arising therefrom and (c) to restrain the
enforcement of or compliance with any legislation or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of or compliance with such enactment, rule or order would impair
the security or be prejudicial to the interest of Trustee or Beneficiary
hereunder.
SECTION 2.13. Filing Proofs of Claim. In case of any receivership,
insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or
other proceedings affecting Grantor, Beneficiary shall, to the extent permitted
by law, be entitled to file such proofs of claim and other documents as may be
necessary or advisable in order to have the claims of Beneficiary allowed in
such proceedings for the Obligations secured by this Deed of Trust at the date
of the institution of such proceedings and for any interest accrued, late
charges and additional interest or other amounts due or that may become due and
payable hereunder after such date.
SECTION 2.14. Possession by Beneficiary. Notwithstanding the appointment
of any receiver, liquidator or trustee of Grantor, any of its property or the
Trust Property, Beneficiary shall be entitled, to the extent not prohibited by
law, to remain in possession and control of all parts of the Trust Property now
or hereafter granted under this Deed of Trust to Beneficiary in accordance with
the terms hereof and applicable law.
SECTION 2.15. Waiver. (a) No delay or failure by Trustee or Beneficiary
to exercise any right, power or remedy accruing upon any breach or Event of
Default shall exhaust or impair any such right, power or remedy or be construed
to be a waiver of any such breach or Event of Default or acquiescence therein;
and every right, power and remedy given by this Deed of Trust to Trustee or
Beneficiary may be exercised from time to time and as often as may be deemed
expedient by Trustee or Beneficiary. No consent or waiver by Beneficiary to or
of any breach or default by Grantor in the performance of the Obligations shall
be deemed or construed to be a consent or waiver to or of any other breach or
Event of Default in the performance of the same or any other Obligations by
Grantor hereunder. No failure on the part of Beneficiary to complain of any act
or failure to act or to declare an Event of Default, irrespective of how long
such failure continues, shall constitute a waiver by Beneficiary of its rights
hereunder or impair any rights, powers or remedies consequent on any future
Event of Default by Grantor.
(b) Even if Beneficiary (i) grants some forbearance or an extension of time
for the payment of any sums secured hereby, (ii) takes other or additional
security for the payment of any sums secured hereby, (iii) waives or does not
exercise some right granted herein or under the Credit Documents, (iv) releases
a part of the Trust Property from this Deed of Trust, (v) agrees to change some
of the terms, covenants, conditions or agreements of any of the Credit
Documents, (vi) consents to the filing of a map, plat or replat affecting the
Premises (vii) consents to the granting of an easement or other right affecting
the Premises or (viii) makes or consents to an agreement subordinating
Beneficiary's lien on the Trust Property hereunder; no such act or omission
shall preclude Beneficiary from exercising any other right, power or privilege
herein granted or intended to be granted in the event of any breach or Event of
Default then made or of any subsequent default; nor, except as otherwise
expressly provided in an instrument executed
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16
by Trustee and Beneficiary, shall this Deed of Trust be altered thereby. In the
event of the sale or transfer by operation of law or otherwise of all or part of
the Trust Property, Beneficiary is hereby authorized and empowered to deal with
any vendee or transferee with reference to the Trust Property secured hereby, or
with reference to any of the terms, covenants, conditions or agreements hereof,
as fully and to the same extent as it might deal with the original parties
hereto and without in any way releasing or discharging any liabilities,
obligations or undertakings.
SECTION 2.16. Remedies Cumulative. No right, power or remedy conferred
upon or reserved to Trustee or Beneficiary by this Deed of Trust is intended to
be exclusive of any other right, power or remedy, and each and every such right,
power and remedy shall be cumulative and concurrent and in addition to any other
right, power and remedy given hereunder or now or hereafter existing at law or
in equity or by statute.
ARTICLE III
Miscellaneous
SECTION 3.01. Partial Invalidity. In the event any one or more of the
provisions contained in this Deed of Trust shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such validity, illegality or
unenforceability shall, at the option of Beneficiary, not affect any other
provision of this Deed of Trust, and this Deed of Trust shall be construed as if
such invalid, illegal or unenforceable provision had never been contained herein
or therein.
SECTION 3.02. Notices. All notices hereunder shall be in writing and
given, in the case of communications and notices to Trustee in accordance with
the terms of the Credit Agreement at the address set forth on the first page of
this Deed of Trust and to Grantor and Beneficiary as provided in the Credit
Agreement.
SECTION 3.03. Successors and Assigns. All of the grants, covenants,
terms, provisions and conditions herein shall run with the Premises and the
Improvements and shall apply to, bind and inure to, the benefit of the permitted
successors and assigns of Grantor and the successors and assigns of Beneficiary.
SECTION 3.04. Satisfaction and Cancelation. (a) The conveyance to Trustee
of the Trust Property as security and for the benefit of Beneficiary, created
and consummated by this Deed of Trust shall be null and void when all the
Obligations have been paid in full in accordance with the terms of the Credit
Documents and the Lenders have no further commitment to make Loans under the
Credit Agreement, no Letters of Credit are outstanding and the Issuing Bank has
no further obligation to issue Letters of Credit under the Credit Agreement.
(b) The lien of this Deed of Trust shall be released from such portion of
the Trust Property as is required pursuant to and in accordance with the
operative provisions of Section 6.5 of the Credit Agreement.
(c) In connection with any termination, or release pursuant to paragraph
(a), upon written request of the Beneficiary and surrender of this Deed of Trust
to the Trustee for cancellation, and upon payment to the Trustee of its fees and
expenses by the Grantor, the
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Trustee shall reconvey without warranty the then trust property. The recitals in
any reconveyance shall be conclusive proof of the truthfulness thereof and the
grantee in any reconveyance may be described as "the person or persons legally
entitled thereto." Beneficiary and Trustee shall execute any documents
reasonably requested by Grantor to accomplish the foregoing or to accomplish any
release contemplated by paragraph (a) and Grantor will pay all costs and
expenses, including reasonable attorneys' fees, disbursements and other charges,
incurred by Beneficiary and Trustee in connection with the preparation and
execution of such documents.
SECTION 3.05. Definitions. As used in this Deed of Trust, the singular
shall include the plural as the context requires and the following words and
phrases shall have the following meanings: (a) "including" shall mean "including
but not limited to"; (b) "provisions" shall mean "provisions, terms, covenants
and/or conditions"; (c) "lien" shall mean "lien, charge, encumbrance, security
interest, mortgage or deed of trust"; (d) "obligation" shall mean "obligation,
duty, covenant and/or condition"; and (e) "any of the Trust Property" shall mean
"the Trust Property or any part thereof or interest therein". Any act that
Trustee or Beneficiary is permitted to perform hereunder may be performed at any
time and from time to time by Trustee or Beneficiary or any person or entity
designated by Trustee or Beneficiary. Any act that is prohibited to Grantor
hereunder is also prohibited to all lessees of any of the Trust Property. Each
appointment of Trustee or Beneficiary as attorney-in-fact for Grantor under this
Deed of Trust is irrevocable, with power of substitution and coupled with an
interest. Subject to the applicable provisions hereof, Beneficiary has the
right to refuse to grant its consent, approval or acceptance or to indicate its
satisfaction, in its sole discretion, whenever such consent, approval,
acceptance or satisfaction is required hereunder.
SECTION 3.06. Multisite Real Estate Transaction. Grantor acknowledges
that this Deed of Trust is one of a number of Other Mortgages and Security
Documents that secure the Obligations. Grantor agrees that the lien of this
Deed of Trust shall be absolute and unconditional and shall not in any manner be
affected or impaired by any acts or omissions whatsoever of Trustee or
Beneficiary and without limiting the generality of the foregoing, the lien
hereof shall not be impaired by any acceptance by the Trustee or Beneficiary of
any security for or guarantees of any of the Obligations hereby secured, or by
any failure, neglect or omission on the part of Trustee or Beneficiary to
realize upon or protect any Obligation or indebtedness hereby secured or any
collateral security therefor including the Other Mortgages and other Security
Documents. The lien hereof shall not in any manner be impaired or affected by
any release (except as to the property released), sale, pledge, surrender,
compromise, settlement, renewal, extension, indulgence, alteration, changing,
modification or disposition of any of the Obligations secured or of any of the
collateral security therefor, including the Other Mortgages and other Security
Documents or of any guarantee thereof, and Trustee or Beneficiary may at its
discretion foreclose, exercise any power of sale, or exercise any other remedy
available to it under any or all of the Other Mortgages and other Security
Documents without first exercising or enforcing any of its rights and remedies
hereunder. Such exercise of Beneficiary's rights and remedies under any or all
of the Other Mortgages and other Security Documents shall not in any manner
impair the indebtedness hereby secured or the lien of this Deed of Trust and any
exercise of the rights or remedies of Trustee or Beneficiary hereunder shall not
impair the lien of any of the Other Mortgages and other Security Documents or
any of Trustee's or Beneficiary's rights and remedies thereunder. The Grantor
specifically consents and agrees that Trustee or Beneficiary may exercise its
rights and remedies hereunder and under the Other Mortgages and other
<PAGE>
18
Security Documents separately or concurrently and in any order that it may deem
appropriate and waives any rights of subrogation.
ARTICLE IV
Particular Provisions
This Deed of Trust is subject to the following provisions relating to the
particular laws of the state wherein the Premises are located:
SECTION 4.01. Applicable Law. Pursuant to the terms thereof, the Credit
Agreement and all of the other Credit Documents (other than this Deed of Trust)
are to be governed by and construed and interpreted in accordance with the
internal law of the State of New York without giving effect to the conflicts-of-
law rules and principles of such state. The Grantor and Beneficiary
acknowledge, agree, and stipulate that the State of New York has a substantial
relationship to the parties involved in this transaction and to the underlying
transaction secured by this Deed of Trust. The rights and obligations of the
parties under this Deed of Trust shall, however, be governed by and construed
and interpreted in accordance with the internal law of the State of California
without giving effect to the conflicts-of-law rules and principles of California
and the Grantor and the Beneficiary agree to submit to jurisdiction and the
laying of venue for any suit on this Deed of Trust in California; provided,
however, that nothing is this section shall in any event be construed to provide
that the substantive law of the State of California shall apply to the
Obligations secured by this Deed of Trust or evidenced by the other Credit
Documents, which are and shall continue to be governed by the substantive law of
the State of New York. In such connection, the Grantor further acknowledges and
agrees that: (a) the Beneficiary may enforce its rights under the Credit
Documents, including its right to sue the Grantor, to collect any outstanding
indebtedness, or to obtain a judgment against the Grantor for any deficiency
prior to or following foreclosure, in accordance with New York law, and if the
Beneficiary obtains a deficiency judgment in a state other than in California,
then the Beneficiary shall have the right to enforce such judgment in
California, as well as in other states; (b) California's antideficiency, one-
action, and security-first rules (including, without limitation, California Code
of Civil Procedure Sections 580a, 580b, 580c, and 580d) are inapplicable to the
Obligations secured by this Deed of Trust and to the enforcement or realization
by the Beneficiary of its rights and remedies relating thereto; and (c) Section
726 of the California Code of Civil Procedure shall not apply (i) to prevent or
limit exercise or enforcement or any other rights or remedies of the Beneficiary
(including, but not limited to, the Beneficiary's right to obtain a deficiency
judgment) either prior to or following foreclosure, or (ii) to prevent or limit
the Beneficiary's right to foreclosure judicially or nonjudicially following
any exercise or enforcement of any other rights or remedies of the Beneficiary.
SECTION 4.02. Trustee's Powers and Liabilities. (a) Trustee, by acceptance
hereof, covenants faithfully to perform and fulfill the trusts herein created,
being liable, however, only for gross negligence, bad faith or wilful
misconduct, and hereby waives any statutory fee and agrees to accept reasonable
compensation, in lieu thereof, for any services rendered by it in accordance
with the terms hereof. All authorities, powers and discretions given in this
Deed of Trust to Trustee and/or Beneficiary may be exercised by either, without
the other, with the same effect as if exercised jointly.
<PAGE>
19
(b) Trustee may resign at any time upon giving 30 days' notice in writing
to Grantor and to Beneficiary.
(c) Beneficiary may remove Trustee at any time or from time to time and
select a successor trustee. In the event of the death, removal, resignation,
refusal to act, inability to act or absence of Trustee from the state in which
the premises are located, or in its sole discretion for any reason whatsoever,
Beneficiary may, upon notice to the Grantor and without specifying the reason
therefor and without applying to any court, select and appoint a successor
trustee, and all powers, rights, duties and authority of the former Trustee, as
aforesaid, shall thereupon become vested in such successor. Such substitute
trustee shall not be required to give bond for the faithful performance of his
duties unless required by Beneficiary. Such substitute trustee shall be
appointed by written instrument duly recorded in the county where the Land is
located. Grantor hereby ratifies and confirms any and all acts that the herein
named Trustee, or his successor or successors in this trust, shall do lawfully
by virtue hereof. Grantor hereby agrees, on behalf of itself and its heirs,
executors, administrators and assigns, that the recitals contained in any deed
or deeds executed in due form by any Trustee or substitute trustee, acting under
the provisions of this instrument, shall be prima facie evidence of the facts
recited, and that it shall not be necessary to prove in any court, otherwise
than by such recitals, the existence of the facts essential to authorize the
execution and delivery of such deed or deeds and the passing of title thereby.
(d) Trustee shall not be required to see that this Deed of Trust is
recorded, nor liable for its validity or its priority as a first deed of trust,
or otherwise, nor shall Trustee be answerable or responsible for performance or
observance of the covenants and agreements imposed upon Grantor or Beneficiary
by this Deed of Trust or any other agreement. Trustee, as well as Beneficiary,
shall have authority in their respective discretion to employ agents and
attorneys in the execution of this trust and to protect the interest of the
Beneficiary hereunder, and to the extent permitted by law they shall be
compensated and all expenses relating to the employment of such agents and/or
attorneys, including expenses of litigations, shall be paid out of the proceeds
of the sale of the Trust Property conveyed hereby should a sale be had, but if
no such sale be had, all sums so paid out shall be recoverable to the extent
permitted by law by all remedies at law or in equity.
(e) At any time, or from time to time, without liability therefor and with
10 days' prior written notice to Grantor, upon written request of Beneficiary
and without affecting the effect of this Deed of Trust upon the remainder of the
Trust Property, Trustee may (i) reconvey any part of the Trust Property, (ii)
consent in writing to the making of any map or plat thereof, so long as Grantor
has consented thereto, (iii) join in granting any easement thereon, so long as
Grantor has consented thereto, or (iv) join in any extension agreement or any
agreement subordinating the lien or charge hereof.
<PAGE>
20
IN WITNESS WHEREOF, this Deed of Trust has been duly authorized and has
been executed and delivered to Trustee and Beneficiary by Grantor on the date
first written above.
HUDSON RESPIRATORY CARE
INC., a California corporation,
by /s/ Richard W. Johansen
----------------------------------
Name: Richard W. Johansen
Title: President and Chief
Executive Officer
by /s/ Jay R. Ogram
----------------------------------
Name: Jay R. Ogram
Title: Chief Financial Officer
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On April 7, before me, Robert Harvey, a Notary Public in and for said
state, personally appeared Richard W. Johansen and Jay R. Ogram, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
persons whose names are subscribed to the within instrument and acknowledged to
me that he/she executed the same in his/her authorized capacity, and that by
his/her signature on the instrument, the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Robert Harvey
______________________________________
Notary Public in and for said State
[SEAL]
<PAGE>
EXHIBIT 10.5
HOLDING GUARANTEE AGREEMENT dated as of April 7, 1998, between
RIVER HOLDING CORP., a Delaware corporation (the "Guarantor") and
BANKERS TRUST COMPANY, a New York banking corporation, as collateral
agent (the "Collateral Agent") for the Secured Parties (as defined in
the Credit Agreement referred to below).
Reference is made to the Credit Agreement dated as of April 7, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among Hudson Respiratory Care Inc., a California corporation (the
"Borrower"), the Guarantor, the lenders from time to time party thereto (the
"Lenders"), Bankers Trust Company, as administrative agent for the Lenders (in
such capacity, the "Administrative Agent"), Collateral Agent and issuing bank
(in such capacity, the "Issuing Bank"). Capitalized terms used herein and not
defined herein shall have the meanings assigned to such terms in the Credit
Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. As the owner of all of the issued and outstanding capital stock of
the Borrower, the Guarantor acknowledges that it will derive substantial benefit
from the making of the Loans by the Lenders and the issuance of the Letters of
Credit by the Issuing Bank. The obligations of the Lenders to make Loans and of
the Issuing Bank to issue Letters of Credit are conditioned on, among other
things, the execution and delivery by the Guarantor of a Guarantee Agreement in
the form hereof. As consideration therefor and in order to induce the Lenders
to make Loans and the Issuing Bank to issue Letters of Credit, the Guarantor is
willing to execute this Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. The Guarantor unconditionally guarantees, as a
primary obligor and not merely as a surety, (a) the due and punctual payment of
(i) the principal of and premium, if any, and interest (including interest
accruing during the pendency of any bankruptcy, insolvency, receivership or
other similar proceeding, regardless of whether allowed or allowable in such
proceeding) on the Loans, when and as due, whether at maturity, by acceleration,
upon one or more dates set for prepayment or otherwise, (ii) each payment
required to be made by the Borrower under the Credit Agreement in respect of any
Letter of Credit, when and as due, including payments in respect of
reimbursement of disbursements, interest thereon and obligations to provide cash
collateral and (iii) all other monetary obligations, including fees, costs,
expenses and indemnities, whether primary, secondary, direct, contingent, fixed
or otherwise (including monetary obligations incurred during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding), of the Credit Parties to the
Secured Parties under the Credit Agreement and the other Credit Documents and
(b) unless otherwise agreed upon in writing by the applicable Lender party
thereto, all monetary obligations of the Borrower, under each Interest Rate
Protection Agreement entered into with a counterparty that was a Lender at the
time such Interest Rate Protection Agreement was entered into (all the monetary
obligations referred to in the preceding clauses (a) through (b) being
collectively called the "Obligations"). The Guarantor further agrees that the
Obligations may be extended or renewed, in whole or in part, without notice to
or further assent from it, and that it will remain bound upon its guarantee
notwithstanding any extension or renewal of any Obligation.
<PAGE>
2
Anything contained in this Agreement to the contrary notwithstanding, the
obligations of the Guarantor hereunder shall be limited to a maximum aggregate
amount equal to the greatest amount that would not render the Guarantor's
obligations hereunder subject to avoidance as a fraudulent transfer or
conveyance under Section 548 of Title 11 of the United States Code or any
provisions of applicable state law (collectively, the "Fraudulent Transfer
Laws"), in each case after giving effect to all other liabilities of the
Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws (specifically excluding, however, any liabilities of the Guarantor
(a) in respect of intercompany indebtedness to the Borrower or Affiliates of the
Borrower to the extent that such indebtedness would be discharged in an amount
equal to the amount paid by the Guarantor hereunder and (b) under any Guarantee
of senior unsecured indebtedness or Indebtedness subordinated in right of
payment to the Obligations which Guarantee contains a limitation as to maximum
amount similar to that set forth in this clause, pursuant to which the liability
of the Guarantor hereunder is included in the liabilities taken into account in
determining such maximum amount) and after giving effect as assets to the value
(as determined under the applicable provisions of the Fraudulent Transfer Laws)
of any rights to subrogation, contribution, reimbursement, indemnity or similar
rights of the Guarantor pursuant to (i) applicable law or (ii) any agreement
providing for an equitable allocation among the Guarantor and other Affiliates
of the Borrower of obligations arising under Guarantees by such parties
(including the Indemnity, Subrogation and Contribution Agreement).
SECTION 2. Obligations Not Waived. To the fullest extent permitted by
applicable law, the Guarantor waives presentment to, demand of payment from and
protest to the Borrower of any of the Obligations, and also waives notice of
acceptance of its guarantee and notice of protest for nonpayment. To the
fullest extent permitted by applicable law, the obligations of the Guarantor
hereunder shall not be affected by (a) the failure of the Collateral Agent or
any other Secured Party to assert any claim or demand or to enforce or exercise
any right or remedy against the Borrower or any other guarantor of the
Obligations under the provisions of the Credit Agreement, any other Credit
Document or otherwise, (b) any rescission, waiver, amendment or modification of,
or any release from any of the terms or provisions of this Agreement, any other
Credit Document, any Guarantee or any other agreement, including with respect to
any other guarantor of the Obligations or (c) the failure to perfect any
security interest in, or the release of, any of the security held by or on
behalf of the Collateral Agent or any other Secured Party.
SECTION 3. Security. The Guarantor authorizes the Collateral Agent and
each of the other Secured Parties to (a) take and hold security for the payment
of this Guarantee and the Obligations and exchange, enforce, waive and release
any such security, (b) apply such security and direct the order or manner of
sale thereof as they in their sole discretion may determine and (c) release or
substitute any one or more endorsees, other guarantors or other obligers.
SECTION 4. Guarantee of Payment. The Guarantor further agrees that its
guarantee constitutes a guarantee of payment when due and not of collection, and
waives any right to require that any resort be had by the Collateral Agent or
any other Secured Party to any of the security held for payment of the
Obligations or to any balance of any deposit account or credit on the books of
the Collateral Agent or any other Secured Party in favor of the Borrower or any
other person.
<PAGE>
3
SECTION 5. No Discharge or Diminishment of Guarantee. The obligations of
the Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than the indefeasible payment in
full in cash of the Obligations), including any claim of waiver, release,
surrender, alteration or compromise of any of the Obligations, and shall not be
subject to any defense or setoff, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of the Guarantor hereunder shall not be discharged or impaired or
otherwise affected by the failure of the Collateral Agent or any other Secured
Party to assert any claim or demand or to enforce any remedy under the Credit
Agreement, any other Credit Document or any other agreement, by any waiver or
modification of any provision of any thereof, by any default, failure or delay,
wilful or otherwise, in the performance of the Obligations, or by any other act
or omission that may or might in any manner or to any extent vary the risk of
the Guarantor or that would otherwise operate as a discharge of the Guarantor as
a matter of law or equity (other than the indefeasible payment in full in cash
of all the Obligations).
SECTION 6. Defenses of Borrower Waived. To the fullest extent permitted
by applicable law, the Guarantor waives any defense based on or arising out of
any defense of the Borrower or the unenforceability of the Obligations or any
part thereof from any cause, or the cessation from any cause of the liability of
the Borrower, other than the final and indefeasible payment in full in cash of
the Obligations. The Collateral Agent and the other Secured Parties may, at
their election, foreclose on any security held by one or more of them by one or
more judicial or nonjudicial sales, accept an assignment of any such security in
lieu of foreclosure, compromise or adjust any part of the Obligations, make any
other accommodation with the Borrower or any other guarantor or exercise any
other right or remedy available to them against the Borrower or any other
guarantor, without affecting or impairing in any way the liability of the
Guarantor hereunder except to the extent the Obligations have been fully,
finally and indefeasibly paid in cash. To the fullest extent permitted by
applicable law, the Guarantor waives any defense arising out of any such
election even though such election operates, pursuant to applicable law, to
impair or to extinguish any right of reimbursement or subrogation or other right
or remedy of the Guarantor against the Borrower or any other guarantor, as the
case may be, or any security.
SECTION 7. Agreement to Pay; Subrogation. In furtherance of the
foregoing and not in limitation of any other right that the Collateral Agent or
any other Secured Party has at law or in equity against the Guarantor by virtue
hereof, upon the failure of the Borrower or any other Credit Party to pay any
Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice of prepayment or otherwise, the Guarantor hereby
promises to and will forthwith pay, or cause to be paid, to the Collateral Agent
or such other Secured Party as designated thereby in cash the amount of such
unpaid Obligations. Upon payment by the Guarantor of any sums to the Collateral
Agent or any Secured Party as provided above, all rights of the Guarantor
against the Borrower arising as a result thereof by way of right of subrogation,
contribution, reimbursement, indemnity or otherwise shall in all respects be
subordinate and junior in right of payment to the prior indefeasible payment in
full in cash of all the Obligations. In addition, any indebtedness of the
Borrower now or hereafter held by the Guarantor is hereby subordinated in right
of payment to the prior payment in full of the Obligations. If any amount shall
erroneously be paid to the Guarantor on account of (i) such subrogation,
contribution, reimbursement, indemnity or similar right or (ii) any such
indebtedness of the Borrower, such amount shall be held in trust for the benefit
of the Secured Parties and shall forthwith be paid to the
<PAGE>
4
Collateral Agent to be credited against the payment of the Obligations, whether
matured or unmatured, in accordance with the terms of the Credit Documents.
SECTION 8. Information. The Guarantor assumes all responsibility for
being and keeping itself informed of the Borrower's financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the Obligations and the nature, scope and extent of the risks that the Guarantor
assumes and incurs hereunder, and agrees that none of the Collateral Agent or
the other Secured Parties will have any duty to advise the Guarantor of
information known to it or any of them regarding such circumstances or risks.
SECTION 9. Representations and Warranties. The Guarantor represents and
warrants as to itself that all representations and warranties relating to it
contained in the Credit Agreement are true and correct.
SECTION 10. Termination. The Guarantee made hereunder (a) shall
terminate when all the Obligations (other than inchoate indemnification and
expense reimbursement obligations) have been indefeasibly paid in full and the
Lenders have no further commitment to lend under the Credit Agreement, the L/C
Exposure has been reduced to zero and the Issuing Bank has no further obligation
to issue Letters of Credit under the Credit Agreement and (b) shall continue to
be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of any Obligation is rescinded or must otherwise be restored
by any Secured Party or the Guarantor upon the bankruptcy or reorganization of
the Borrower, the Guarantor or otherwise.
SECTION 11. Binding Agreement; Assignments. Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of the Guarantor that are contained in this
Agreement shall bind and inure to the benefit of each party hereto and their
respective successors and assigns. This Agreement shall become effective when a
counterpart hereof executed on behalf of the Guarantor shall have been delivered
to the Collateral Agent and a counterpart hereof shall have been executed on
behalf of the Collateral Agent, and thereafter shall be binding upon the
Guarantor and the Collateral Agent and their respective successors and assigns,
and shall inure to the benefit of the Guarantor, the Collateral Agent and the
other Secured Parties, and their respective successors and assigns, except that
the Guarantor shall not have the right to assign its rights or obligations
hereunder or any interest herein (and any such attempted assignment shall be
void).
SECTION 12. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder 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 Collateral Agent hereunder
and of the other Secured Parties under the other Credit 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 consent to any departure by the
Guarantor therefrom shall in any event be effective unless the same shall be
permitted by clause (b), 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 the Guarantor in any case shall entitle the Guarantor to any other or
further notice or demand in similar or other circumstances.
<PAGE>
5
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Guarantor and the Collateral Agent, with the prior written consent of the
Required Lenders (except as otherwise provided in the Credit Agreement).
SECTION 13. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 14. Notices. All communications and notices hereunder shall be
in writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to the Guarantor shall be given to it at
27711 Diaz Road, P.O. Box 9020, Temecula, CA 92589-9020.
SECTION 15. Survival of Agreement. (a) All covenants, agreements,
representations and warranties made by the Guarantors herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Credit Document shall be considered to
have been relied upon by the Collateral Agent and the other Secured Parties and
shall survive the making by the Lenders of the Loans and the issuance of the
Letters of Credit by the Issuing Bank regardless of any investigation made by
the Secured Parties 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 any
other fee or amount payable under this Agreement or any other Credit Document is
outstanding and unpaid or the L/C Exposure does not equal zero and as long as
the Commitments and the L/C Commitment have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Credit 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 (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). 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 16. Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute a single contract, and shall become effective as
provided in Section 10. Delivery of an executed signature page to this
Agreement by facsimile transmission shall be as effective as delivery of a
manually executed counterpart of this Agreement.
SECTION 17. Rules of Interpretation. The rules of interpretation
specified in Section 1.02 of the Credit Agreement shall be applicable to this
Agreement.
SECTION 18. Jurisdiction; Consent to Service of Process. (a) The
Guarantor 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 Credit Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby
<PAGE>
6
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 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 the Collateral Agent or any other Secured Party may otherwise have to
bring any action or proceeding relating to this Agreement or the other Credit
Documents against the Guarantor or its properties in the courts of any
jurisdiction.
(b) The Guarantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that 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 Credit 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 14. 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 19. 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 THE OTHER CREDIT 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
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 CREDIT DOCUMENTS, AS APPLICABLE, BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 19.
SECTION 20. Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Secured Party 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 Secured Party to
or for the credit or the account of the Guarantor against any or all the
obligations of the Guarantor now or hereafter existing under this Agreement and
the other Credit Documents held by such Secured Party, irrespective of whether
or not such Secured Party shall have made any demand under this Agreement or any
other Credit Document and although such obligations may be unmatured. The
rights of each Secured Party under this Section 20 are in addition to other
rights and remedies (including other rights of setoff) which such Secured Party
may have.
SECTION 21. Certain Other Rights. (a) The Guarantor authorizes the
Collateral Agent, without notice or demand and without affecting its liability
hereunder, from time to time, either before or after revocation hereof, to (i)
renew, compromise, extend, accelerate, or
<PAGE>
7
otherwise change the time for payment of, or otherwise change the terms of the
indebtedness or any part thereof, including increase or decrease of the rate of
interest thereon; (ii) receive and hold security for the payment of the
Obligations, and exchange, enforce, waive, release, fail to perfect, sell, or
otherwise dispose of any such security; (iii) apply such security and direct the
order or manner of sale thereof as the Collateral Agent in its discretion may
determine; and (iv) release or substitute any one or more of the endorsers or
guarantors.
(b) The Guarantor waives any right to require the Collateral Agent to (i)
proceed against the Borrower; (ii) proceed against or exhaust any security held
from the Borrower; or (iii) pursue any other remedy in the Collateral Agent's
power whatsoever. The Guarantor waive any defense arising by reason of any
disability or other defense of the Borrower, or the cessation from any cause
whatsoever of the liability of the Borrower, or any claim that the Guarantor's
obligations exceed or are more burdensome than those of the Borrower. Until the
indebtedness shall have been paid in full, even though the indebtedness is in
excess of the Guarantor's liability hereunder, the Guarantor will not pursue any
right of subrogation, reimbursement, indemnification, and contribution
(contractual, statutory, or otherwise) including, without limitation, any claim
or right of subrogation under the Bankruptcy Code (Title 11, United States Code)
or any successor statute, arising from the existence or performance of this
Guarantee Agreement, and until such payment in full, the Guarantor will not
pursue any right to enforce any remedy which the Collateral Agent and the
Lenders now have or may hereafter have against the Borrower and will not pursue
any benefit of, and any right to participate in, any security now or hereafter
held by the Collateral Agent. The Guarantor waives all presentments, demands
for performance, notices of nonperformance, protests, notices of protest,
notices of dishonor, and notices of acceptance of this Guarantee Agreement and
of the existence, creation, or incurring of new or additional indebtedness.
(c) (i) The Guarantor understands and acknowledges that if the Collateral
Agent forecloses, either by judicial foreclosure or by exercise of power of
sale, any deed of trust securing the Obligations, that foreclosure could impair
or destroy any ability that the Guarantor may have to seek reimbursement,
contribution, or indemnification from the Borrower or others based on any right
the Guarantor may have of subrogation, reimbursement, contribution, or
indemnification for any amounts paid by the Guarantor under this Guarantee
Agreement. The Guarantor further understands and acknowledges that in the
absence of this paragraph, such potential impairment or destruction of the
Guarantor's rights, if any, may entitle the Guarantor to assert a defense to
this Guarantee Agreement based on Section 580d of the California Code of Civil
Procedure as interpreted in Union Bank v. Gradsky, 265 Cal. App. 2d 40 (1968).
---------------------
By executing this Guarantee Agreement, the Guarantor freely, irrevocably, and
unconditionally: (A) waives and relinquishes that defense and agrees that the
Guarantor will be fully liable under this Guarantee Agreement even though the
Collateral Agent may foreclose, either by judicial foreclosure or by exercise of
power of sale, any deed of trust securing the Obligations; (B) agrees that the
Guarantor will not assert that defense in any action or proceeding which the
Collateral Agent may commence to enforce this Guarantee Agreement; (C)
acknowledges and agrees that the rights and defenses waived by the Guarantor in
this Guarantee Agreement include any right or defense that the Guarantor may
have or be entitled to assert based upon or arising out of any one or more of
Sections 580a, 580b, 580d, or 726 of the California Civil Code; and (iv)
acknowledges and agrees that the Collateral Agent and the Lenders are relying on
this waiver in creating the indebtedness, and that this waiver is a material
part of the consideration which the Collateral Agent and the Lenders are
receiving for creating the indebtedness.
<PAGE>
8
(ii) The Guarantor waives any rights and defenses that are or may
become available to the Guarantor by reason of Sections 2787 to 2855, inclusive,
of the California Civil Code.
(iii) The Guarantor waive all rights and defenses that the Guarantor
may have because any of the indebtedness is secured by real property. This
means, among other things: (A) the Collateral Agent may collect from the
Guarantor without first foreclosing on any real or personal property collateral
pledged by the Borrower; and (B) if the Collateral Agent forecloses on any real
property collateral pledged by the Borrower: (x) the amount of the indebtedness
may be reduced only by the price for which that collateral is sold at the
foreclosure sale, even if the collateral is worth more than the sale price, and
(y) the Collateral Agent may collect from the Guarantor even if the Collateral
Agent, by foreclosing on the real property collateral, has destroyed any right
the Guarantor may have to collect from the Borrower. This is an unconditional
and irrevocable waiver of any rights and defenses the Guarantor may have because
any of the indebtedness is secured by real property. These rights and defenses
include, but are not limited to, any rights or defenses based upon Section 580a,
580b, 580d, or 726 of the California Code of Civil Procedure.
(iv) The Guarantor waives any right or defense they may have at law or
equity, including California Code of Civil Procedure Section 580a, to a fair
market value hearing or action to determine a deficiency judgment after a
foreclosure.
(v) No provision or waiver in this Guarantee Agreement shall be
construed as limiting the generality of any other waiver contained in this
Guarantee Agreement.
(d) The Guarantor acknowledges and agrees that it shall have the sole
responsibility for obtaining from the Borrower such information concerning the
Borrower's financial conditions or business operations as the Guarantor may
require, and that the Collateral Agent has no duty at any time to disclose to
the Guarantor any information relating to the business operations or financial
conditions of the Borrower.
<PAGE>
9
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
RIVER HOLDING CORP., as
Guarantor,
by /s/ Charles P. Rullman
---------------------------------
Name: Charles P. Rullman
Title: President
BANKERS TRUST COMPANY, as Collateral
Agent,
by /s/ Robert R. Telesca
---------------------------------
Name: Robert R. Telesca
Title: Assistant Vice President
<PAGE>
EXHIBIT 10.6
INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT dated as
of April 7, 1998, among HUDSON RESPIRATORY INC., a California
corporation (the "Borrower"), RIVER HOLDING CORP., a Delaware
Corporation ("Holding"), each Subsidiary of the Borrower listed
on Schedule I hereto (each such subsidiary individually a
"Subsidiary Guarantor" and collectively the "Subsidiary
Guarantors"; Holding and Subsidiary Guarantors are referred to
collectively herein as the "Guarantors") and BANKERS TRUST
COMPANY, a New York banking corporation ("BTCo."), as collateral
agent (in such capacity, the "Collateral Agent") for the Secured
Parties (as defined in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of April 7, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, RIVER HOLDING CORP., the lenders from time to
time party thereto (the "Lenders") and BTCo., as administrative agent for the
Lenders (in such capacity, the "Administrative Agent"), Collateral Agent,
swingline lender and issuing bank (in such capacity, the "Issuing Bank") and (b)
the Holding Guarantee Agreement dated as of April 7, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Holding Guarantee
Agreement"), between Holding and the Collateral Agent.
The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. The Guarantors have guaranteed such Loans and the other Obligations
(as defined in the Guarantee Agreement) of the Borrower under the Credit
Agreement pursuant to the Guarantee Agreement; certain Guarantors have granted
Liens on and security interests in certain of their assets to secure such
guarantees. The obligations of the Lenders to make Loans and of the Issuing Bank
to issue Letters of Credit are conditioned on, among other things, the execution
and delivery by the Borrower and the Guarantors of an agreement in the form
hereof.
Accordingly, the Borrower, each Guarantor and the Collateral Agent agree as
follows:
SECTION 1. Indemnity and Subrogation. In addition to all such rights of
indemnity and subrogation as the Guarantors may have under applicable law (but
subject to Section 3), the Borrower agrees that (a) in the event a payment shall
be made by any Guarantor under the Guarantee Agreement, the Borrower shall
indemnify such Guarantor for the full amount of such payment and such Guarantor
shall be subrogated to the rights of the person to whom such payment shall have
been made to the extent of such payment and (b) in the event any assets of any
Guarantor shall be sold pursuant to any Security Document to satisfy a claim of
any Secured Party, the Borrower shall indemnify such Guarantor in an amount
equal to the greater of the book value or the fair market value of the assets so
sold.
SECTION 2. Contribution and Subrogation. Each Guarantor (a "Contributing
Guarantor") agrees (subject to Section 3) that, in the event a payment shall be
made by
<PAGE>
2
any other Guarantor under the Guarantee Agreement or assets of any other
Guarantor shall be sold pursuant to any Security Document to satisfy a claim of
any Secured Party and such other Guarantor (the "Claiming Guarantor") shall not
have been fully indemnified by the Borrower as provided in Section 1, the
Contributing Guarantor shall indemnify the Claiming Guarantor in an amount equal
to the amount of such payment or the greater of the book value or the fair
market value of such assets, as the case may be, in each case multiplied by a
fraction of which the numerator shall be the net worth of the Contributing
Guarantor on the date hereof and the denominator shall be the aggregate net
worth of all the Guarantors on the date hereof (or, in the case of any Guarantor
becoming a party hereto pursuant to Section 12, the date of the Supplement
hereto executed and delivered by such Guarantor). Any Contributing Guarantor
making any payment to a Claiming Guarantor pursuant to this Section 2 shall be
subrogated to the rights of such Claiming Guarantor under Section 1 to the
extent of such payment.
SECTION 3. Subordination. Notwithstanding any provision of this
Agreement to the contrary, all rights of the Guarantors under Sections 1 and 2
and all other rights of indemnity, contribution or subrogation under applicable
law or otherwise shall be fully subordinated to the indefeasible payment in full
in cash of the Obligations. No failure on the part of the Borrower or any
Guarantor to make the payments required by Sections 1 and 2 (or any other
payments required under applicable law or otherwise) shall in any respect limit
the obligations and liabilities of any Guarantor with respect to its obligations
hereunder, and each Guarantor shall remain liable for the full amount of the
obligations of such Guarantor hereunder.
SECTION 4. Termination. This Agreement shall survive and be in full
force and effect so long as any Obligation is outstanding and has not been
indefeasibly paid in full in cash, and so long as the L/C Exposure has not been
reduced to zero or any of the Commitments under the Credit Agreement have not
been terminated, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment, or any part thereof, of any Obligation is
rescinded or must otherwise be restored by any Secured Party or any Guarantor
upon the bankruptcy or reorganization of the Borrower, any Guarantor or
otherwise.
SECTION 5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 6. No Waiver; Amendment. (a) No failure on the part of the
Collateral Agent or any Guarantor to exercise, and no delay in exercising, any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy by the
Collateral Agent or any Guarantor preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law. None of
the Collateral Agent and the Guarantors shall be deemed to have waived any
rights hereunder unless such waiver shall be in writing and signed by such
parties.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Borrower, the Guarantors and the Collateral Agent, with the prior written
consent of the Required Lenders (except as otherwise provided in the Credit
Agreement).
<PAGE>
3
SECTION 7. Notices. All communications and notices hereunder shall be in
writing and given as provided in the Guarantee Agreement and addressed as
specified therein.
SECTION 8. Binding Agreement; Assignments. Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of the parties that are contained in this
Agreement shall bind and inure to the benefit of their respective successors and
assigns. Neither the Borrower nor any Guarantor may assign or transfer any of
its rights or obligations hereunder (and any such attempted assignment or
transfer shall be void) without the prior written consent of the Required
Lenders. Notwithstanding the foregoing, at the time any Guarantor is released
from its obligations under the Guarantee Agreement in accordance with such
Guarantee Agreement and the Credit Agreement, such Guarantor will cease to have
any rights or obligations under this Agreement.
SECTION 9. Survival of Agreement; Severability. (a) All covenants and
agreements made by the Borrower and each Guarantor herein and in the
certificates or other instruments prepared or delivered in connection with
this Agreement or the other Credit Documents shall be considered to have been
relied upon by the Collateral Agent, the other Secured Parties and each
Guarantor and shall survive the making by the Lenders of the Loans and the
issuance of the Letters of Credit by the Issuing Bank, and shall continue in
full force and effect as long as the principal of or any accrued interest on any
Loans or any other fee or amount payable under the Credit Agreement or this
Agreement or under any of the other Credit Documents is outstanding and unpaid
or the L/C Exposure does not equal zero and as long as the Commitments have not
been terminated.
(b) In case any one or more of the provisions contained in this Agreement
should be held invalid, illegal or unenforceable in any respect, no party hereto
shall be required to comply with such provision for so long as such provision is
held to be invalid, illegal or unenforceable, but the validity, legality and
enforceability of the remaining provisions contained herein 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. Counterparts. This Agreement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Agreement shall be effective with respect to any
Guarantor when a counterpart bearing the signature of such Guarantor shall have
been delivered to the Collateral Agent. Delivery of an executed signature page
to this Agreement by facsimile transmission shall be as effective as delivery of
a manually signed counterpart of this Agreement.
SECTION 11. Rules of Interpretation. The rules of interpretation
specified in Section 1.02 of the Credit Agreement shall be applicable to this
Agreement.
SECTION 12. Jurisdiction; Consent to Service of Process. (a) Each
Guarantor 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 Credit Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that, to the extent permitted by
<PAGE>
4
applicable law, all claims in respect of any such action or proceeding may be
heard and determined in such New York State court or, to the extent permitted by
law, in such Federal court. Each of the parties hereto agrees that a final
judgment in any 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 the
Collateral Agent or any other Secured Party may otherwise have to bring any
action or proceeding relating to this Agreement or the other Credit Documents
against any Guarantor or its properties in the courts of any jurisdiction.
(b) Each Guarantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that 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 Credit 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 7. 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 13. Additional Guarantors. Pursuant to Section 5.11 of the
Credit Agreement, each Domestic Subsidiary of the Borrower that was not in
existence or not such a Subsidiary on the date of the Credit Agreement is
required to enter into the Guarantee Agreement as a Guarantor upon becoming such
a Subsidiary. Upon execution and delivery, after the date hereof, by the
Collateral Agent and such a Subsidiary of an instrument in the form of Annex 1
hereto, such Subsidiary shall become a Guarantor hereunder with the same force
and effect as if originally named as a Guarantor hereunder. The execution and
delivery of any instrument adding an additional Guarantor as a party to this
Agreement shall not require the consent of any Guarantor hereunder. The rights
and obligations of each Guarantor hereunder shall remain in full force and
effect notwithstanding the addition of any new Guarantor as a party to this
Agreement.
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first appearing above.
HUDSON RESPIRATORY INC.,
by /s/ Richard W. Johansen
-------------------------
Name: Richard W. Johansen
Title: President and Chief
Financial Officer
by /s/ Jay R. Ogram
-------------------------
Name: Jay R. Ogram
Title: Chief Financial Officer
RIVER HOLDING CORP., as a Guarantor,
by /s/ Charles P. Rullman
-------------------------
Name: Charles P. Rullman
Title: President
BANKERS TRUST COMPANY, as Collateral
Agent,
by /s/ Robert R. Telesca
-------------------------
Name: Robert R. Telesca
Title: Assistant Vice President
<PAGE>
EXHIBIT 10.7
================================================================================
SHAREHOLDERS AGREEMENT
BY AND AMONG
RIVER HOLDING CORP.
THE HELEN LOVAAS SEPARATE PROPERTY TRUST U/D/T
DATED JULY 17, 1997
THE FS ENTITIES
AND
HUDSON RESPIRATORY CARE INC.
APRIL 7, 1998
================================================================================
<PAGE>
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (this "Agreement") is made and entered
into as of April 7, 1998 by and among HUDSON RESPIRATORY CARE INC. (the
"Company"), RIVER HOLDING CORP., a Delaware corporation ("Holding"), THE HELEN
LOVAAS SEPARATE PROPERTY TRUST U/D/T dated July 17, 1997 (the "Trust"), FS
Equity Partners III, L.P., FS Equity Partners International, L.P., and FS Equity
Partners IV, L.P. (the "FS Entities").
R E C I T A L S:
- - - - - - - -
A. Pursuant to an Amended and Restated Merger Agreement dated as of
March 15, 1998 among the Company, Holding and the Trust (among others) (the
"Merger Agreement"), Holding is making a substantial investment in the Common
Stock and Preferred Stock of the Company.
B. The execution and delivery of this Agreement by the parties is
required by Section 6.11 and Section 7.05 of the Merger Agreement and is a
material inducement to each of Holding, the FS Entities and the Trust to enter
into and perform their obligations under the Merger Agreement and the other
documents and instruments contemplated therein.
C. The Company, Holding, the Trust and the FS Entities wish to
establish through this Agreement certain rights, obligations and restrictions
with respect to the securities of the Company.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:
1. Definitions. As used in this Agreement, the following
-----------
capitalized terms shall have the following meanings:
Additional Securities: All Securities which are issued and sold by
---------------------
the Company other than (i) the Initial Shares, (ii) any Securities issued or
issuable to all of the holders of Common Stock then outstanding on a
proportionate basis, (iii) issuances of additional shares of capital stock in
payment of dividends on any outstanding shares of capital stock of the Company,
(iv) any Securities issued or issuable upon the exchange of Holding Preferred
Stock or the Preferred Stock, (v) any Securities issued or issuable to any
Employees pursuant to any equity incentive plan, individual agreement, bonus,
award, stock purchase plan, stock option plan or other stock agreement or
arrangement approved by the Company's Board of Directors (a "Benefit Plan");
(vi) any Securities
1
<PAGE>
issued in exchange for debt securities of the Company or any Subsidiary or to
any source of, or to any party (other than Holding, the FS Entities or their
Affiliates or Associates) arranging, financing for the Company or any Subsidiary
of the Company, (vii) any Securities issued pursuant to a public offering
registered under the Securities Act, (viii) any Securities that are issued or
issuable in connection with the acquisition by the Company or any Subsidiary of
any business, business assets or securities from any Person; (ix) any Securities
that are issued or issuable upon the exercise of rights, options or warrants to
purchase Securities, or upon the conversion or exchange of Securities
convertible into or exchangeable for Securities, where the parties to this
Agreement received (or were not required to receive) an Issuance Notice pursuant
to Section 2.1 of this Agreement; and (x) Securities issued in connection with
the transactions described in Section 7.
Affiliate or Associate: Such terms shall have the meanings given them
----------------------
pursuant to Rule 12b-2 of the General Rules and Regulations promulgated under
the Securities Exchange Act of 1934, as amended.
Board: The Board of Directors of the Company.
-----
Charitable Organization: Shall mean Internal Revenue Code (S)
-----------------------
501(c)(3) charitable organizations or one or more trusts for the benefit of such
organizations.
Common Stock: The Common Stock, par value $.01 per share, of the
------------
Company.
Employee: Any employee, director or consultant of the Company or any
--------
Subsidiary of the Company.
Exchangeable Preferred Stock Shall mean the 11 1/2% Senior
----------------------------
Exchangeable Preferred Stock of the Company.
Family Members: Shall mean Helen Lovaas, Lee Lovaas, the issue of Lee
--------------
Lovaas, and the issue of Helen Lovaas' brother, David Bartlett.
FS Entities: FS Equity Partners III, L.P., FS Equity Partners
-----------
International, L.P. and FS Equity Partners IV, L.P.
FS Principals: Mark J. Doran, Bradford M. Freeman, Todd W. Halloran,
-------------
J. Frederick Simmons, Ronald P. Spogli, Jon D. Ralph, John M. Roth, Charles P.
Rullman, Jr. and William M. Wardlaw.
Holding Common Stock: The Common Stock, par value $.01 per share, of
--------------------
Holding.
Holding Preferred Stock: Shall mean the 11 1/2% Senior Exchangeable
-----------------------
Preferred Stock of Holding.
2
<PAGE>
Initial Shares: Shall mean the 7,800,000 shares of Common Stock and
--------------
the 300,000 shares of Preferred Stock issued and outstanding on the date hereof
and held beneficially and of record by the Shareholders as follows:
<TABLE>
<CAPTION>
INITIAL SHARES
-----------------------
PREFERRED
STOCKHOLDER COMMON STOCK STOCK
- ------------ ------------ -----
<S> <C> <C>
Holding 6,300,000 300,000
The Trust 1,500,000 ---
</TABLE>
Permitted Transferee: Subject to Section 5.1, Permitted Transferee
--------------------
shall mean, (y) with respect to Holding or the FS Entities, (i) an Affiliate,
which shall include any Person that is (A) an Affiliate or a shareholder of
Holding or (B) organized and controlled by three or more of the FS Principals or
(ii) after the Initial Public Offering (as defined below) any limited or general
partner or employee of Holding, FS Entities or an Affiliate thereof; (z) with
respect to the Trust, (i) The Helen Lovaas Foundation; (ii) Lee Lovaas; (iii) a
trust solely for the benefit of Helen Lovaas, Lee Lovaas or any other Family
Member; (iv) a partnership or limited liability company whose members consist
solely of Helen Lovaas and Family Members; (v) one or more Charitable
Organizations.
Person: Any individual, corporation, entity, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization or
other entity.
Preferred Stock: The 11 1/2% Senior Preferred Stock of the Company.
---------------
Public Market Sale: Any sale of Common Stock after the Initial Public
------------------
Offering which is made pursuant to Rule 144 promulgated by the SEC under the
Securities Act or which is made pursuant to a registration statement filed with
and declared effective by the SEC.
Public Offering: A public offering of shares of Voting Securities of
---------------
the Company registered under the Securities Act, but shall not include an
offering registered on Form S-4 or Form S-8 (or any substitute form that is
adopted by the SEC), or an offering of Voting Securities in connection with a
sale of debt securities of the Company. The term "Initial Public Offering"
shall mean an underwritten Public Offering of Voting Securities which results in
gross proceeds to the Company in excess of $25 million from the sale of Voting
Securities.
SEC: The Securities and Exchange Commission.
---
Securities: Shall mean (i) Voting Securities, (ii) all rights,
----------
options, warrants to purchase such Voting Securities or the securities described
in the following clause and (iii) all other securities or capital stock of any
type whatsoever, including, without limitation, (A) preferred stock, debt
securities and securities that are, or may become, convertible into or
exchangeable for, or that entitle the holder to purchase, Voting Securities, (B)
preferred stock and (C) debt securities. The
3
<PAGE>
provisions of this Agreement shall apply to any and all shares of capital stock
of or other securities of the Company or any successor and assign of the Company
which may be issued in respect of, in exchange for or in substitution of, the
Securities by reason of any stock dividend, stock split, reverse split,
recapitalization, reclassification, combination, merger, consolidation or
otherwise, and such shares or other securities shall be encompassed within the
term "Securities" for purposes of this Agreement.
Securities Act: The Securities Act of 1933, as amended.
--------------
Shareholders: Holding and the Trust.
------------
Subsidiary: With respect to any Person, a corporation or other entity
----------
of which a majority of the shares of stock or other ownership interests are
owned, directly or indirectly, by such Person.
Voting Securities: All Securities of the Company (or, for purposes of
-----------------
Section 6.1, securities of Holding) which possess general voting power to elect
members of the Board; provided that Voting Securities shall not include any
options or warrants to purchase Voting Securities.
2. Rights Upon Issuance of Additional Securities. The Company hereby
---------------------------------------------
grants to each Shareholder the following rights with respect to any and all
proposed issuances or sales of Additional Securities by the Company:
2.1 Issuance Notice. The Company shall give each Shareholder
---------------
written notice of the Company's intention to issue and sell Additional
Securities (the "Issuance Notice"), describing the type of Additional
Securities, the price at which the Additional Securities will be issued and sold
and the general terms upon which the Company proposes to issue and sell the
Additional Securities, including the anticipated date of such issuance or sale.
2.2 Response Notice. Each Shareholder shall have 30 days from
---------------
the date the Issuance Notice is received to agree to purchase all or any portion
of its Pro Rata Share (as defined below in Subsection 2.4) of such Additional
Securities by giving written notice to the Company of its desire to purchase
Additional Securities (the "Response Notice") and stating therein the quantity
of Additional Securities to be purchased. Such Response Notice shall constitute
the irrevocable agreement of such Shareholder to purchase the quantity of
Additional Securities indicated in the Response Notice at the price and upon the
terms stated in the Issuance Notice. Any purchase by Shareholders of Additional
Securities shall be consummated on the later of (1) the closing date specified
in the Issuance Notice or (2) the closing date on which Additional Securities
described in the applicable Issuance Notice are first issued and sold if other
Persons are also purchasing Additional Securities. Each Shareholder that has
elected to purchase its Pro Rata Share of Additional Securities will have the
right to purchase all or any portion of the Additional Securities unsubscribed
for by the other Shareholder and any other holder of Securities who have rights
upon the issuance of Additional Securities, up to its pro rata share of such
unsubscribed portion (determined by the number of Voting
4
<PAGE>
Securities owned by the party or parties who elect to purchase such unsubscribed
for portion) if oversubscribed.
2.3 Revised Issuance Notice. The Company shall have 90 days
-----------------------
from the date of the Issuance Notice to consummate the proposed issuance and
sale of the Additional Securities that are not being purchased by Shareholders
at a price not less than and upon the terms that are not materially less
favorable than those specified in the Issuance Notice. If the Company proposes
to issue Additional Securities after such 90-day period or at a price less than
or upon terms that are materially less favorable than those specified in the
Issuance Notice it must again comply with this Section 2.
2.4 Pro Rata Share. For purposes of this Section 2, the Pro
--------------
Rata Share of a Shareholder shall be a fraction, (1) the numerator of which
shall be the total number of shares of Voting Securities then held by the
Shareholder and (2) the denominator of which shall be the total number of shares
of Voting Securities then issued and outstanding.
2.5 Termination and Assignment. The rights provided to each of
--------------------------
the Shareholders under this Section 2 shall terminate upon the consummation of
an Initial Public Offering. A Shareholder's rights under this Section 2 will
terminate after the Shareholder has transferred a number of Voting Securities
(other than Transfers to Permitted Transferees) which represents 75% or more of
the number of Voting Securities held by the Shareholder on the date hereof. The
rights granted under this Section 2 shall not be assignable; provided, however
that a Shareholder may assign its rights with respect to the shares of Common
Stock transferred to a Permitted Transferee provided that the Permitted
Transferee executes a written undertaking to be and becomes bound by this
Agreement in the same manner and to the same extent as the Shareholder.
3. Transfer of Shares by Holding; Rights of Inclusion.
--------------------------------------------------
3.1 Right of Inclusion. Holding agrees not to sell all or any
------------------
portion of the shares of Common Stock it holds to any Person (individually, a
"Third Party" and, collectively, "Third Parties") unless the Trust is given an
opportunity to sell to the Third Party such number of shares of Common Stock
owned by the Trust as is determined in accordance with Section 3.3; provided,
--------
however, that the Trust shall have no rights pursuant to this Section 3 with
- -------
respect to sales or other transfers by Holding of Common Stock to any Permitted
Transferee of Holding or the FS Entities; provided, further, that any such
-------- -------
Permitted Transferee of Holding or an FS Entity described in clause (y)(i) of
the definition of Permitted Transferee executes a written undertaking to be and
becomes bound by this Agreement in the same manner and to the same extent as the
transferring party.
3.2 Third-Party Offer. Prior to the consummation of any sale of
-----------------
all or any portion of the shares of Common Stock held by Holding to a Third
Party, Holding shall cause each bona fide offer from such Third Party to
purchase such shares from Holding (a "Third-Party Offer") to be reduced to
writing and shall send written notice of such Third-Party Offer (the "Initial
Offer Notice") to the Trust. Each Third-Party Offer shall include an offer to
purchase shares of Common
5
<PAGE>
Stock from the Trust in the amounts determined in accordance with Section 3.3,
at the same time, at the same price and on the same terms as the sale by Holding
to the Third Party, and according to the terms and conditions of this Agreement.
The Initial Offer Notice shall be accompanied by a true copy of the Third-Party
Offer. If the Trust desires to accept the offer contained in the Initial Offer
Notice, the Trust shall furnish written notice to Holding, within 20 days after
its receipt of the Initial Offer Notice, indicating the Trust's irrevocable
acceptance of the offer included in the Initial Offer Notice and setting forth
the maximum number of shares of Common Stock the Trust agrees to sell to the
Third Party (the "Acceptance Notice"). If the Trust does not furnish an
Acceptance Notice to Holding in accordance with these provisions by the end of
such 20-day period, the Trust shall be deemed to have irrevocably rejected the
offer contained in the Initial Offer Notice. All shares of Common Stock set
forth in the Acceptance Notice of the Trust together with the shares of Common
Stock proposed to be sold by Holding to the Third Party are referred to
collectively as "All Offered Shares". Within three days after the date on which
the Third Party informs Holding of the total number of shares of Common Stock
which such Third Party has agreed to purchase in accordance with the terms
specified in the Initial Offer Notice, Holding shall send written notice (the
"Final Notice") to the Trust setting forth the number of shares of Common Stock
the Trust shall sell to the Third Party as determined in accordance with Section
3.3, which number shall not exceed the maximum number specified by the Trust in
its Acceptance Notice. Within five days after the date of the Final Notice (or
such shorter period as may reasonably be requested by Holding to facilitate the
sale), the Trust shall furnish to Holding (i) a written undertaking to deliver,
upon the consummation of the sale of Common Stock to the Third Party as
indicated in the Final Notice, the certificates representing the shares of
Common Stock held by the Trust which will be transferred pursuant to such Third-
Party Offer (such shares shall be referred to herein as the "Included Shares")
and (ii) a limited power-of-attorney authorizing Holding to transfer the
Included Shares pursuant to the terms of such Third-Party Offer. Each
Shareholder shall be required to make representations and warranties in
connection with such transfer with respect to its own authority to transfer and
its title to the shares of Common Stock transferred. In any such transaction the
Company will cooperate with all Shareholders to facilitate the transaction.
3.3 Allocation of Included Shares. The maximum number of shares
-----------------------------
of Common Stock that may be sold by Holding and the Trust and all other holders
of Common Stock who have rights to participate in sales of Common Stock by
Holding pursuant to written agreements by and between Holding and any such
holder (the "Other Tag-Along Rights Holders") in any sale governed by this
Section 3 shall be (i) All Offered Shares in the event the Third Party has
agreed to purchase All Offered Shares and all shares of Common Stock that the
Other Tag-Along Rights Holders who have elected to participate in such sale seek
to include in such sale or (ii) such number of shares of Common Stock equal to
the product of (a) the total number of shares of Common Stock which the Third
Party has agreed to purchase times (b) a fraction, the numerator of which is the
total number of shares of Common Stock owned by Holding, the Trust or each Other
Tag-Along Rights Holder who has elected to participate in such sale, as the case
may be, on the date of the Final Notice and the denominator of which is the
total number of shares of Common Stock owned on the date of the Final Notice by
Holding, the Trust and the Other Tag-Along Rights Holders who have elected to
participate in such sale; provided, however, that, in the event Holding, the
-------- -------
Trust or any Other Tag-
6
<PAGE>
Along Rights Holder elects to sell a number of shares of Common Stock which is
less than the number of shares such holder could sell pursuant to clause (ii)
above, the shares of Common Stock that the others of such holders can sell in
such transaction shall be increased by an aggregate amount equal to the number
of shares which any of Holding, the Trust or any Other Tag-Along Rights Holder
could have sold in such transaction but chose not to sell, and any such increase
shall be allocated among such other holders on a pro rata basis based upon the
total number of shares of Common Stock owned on the date of the Final Notice by
such other holders.
3.4 Consummation. Holding shall have 180 days from the date of
------------
the Final Notice in which to sell to the Third Party the shares of Common Stock
owned by Holding and the Included Shares of the Trust on terms which are not
materially less favorable to the sellers of shares of Common Stock than those
specified in the applicable Initial Offer Notice; provided, however, that in the
-------- -------
event there is a decrease in the price to be paid by the Third Party for the
shares of Common Stock to be sold from the price set forth in the Initial Offer
Notice, which decrease is acceptable to Holding, or other material change in
terms which are less favorable to Holding, but which are acceptable to Holding,
Holding shall notify the Trust of such decrease or change in terms, and the
Trust shall have five business days from the date of receipt of the notice of
such decrease or change in terms to reduce the number of shares of Common Stock
it will sell to such Third Party as previously indicated in the applicable
Acceptance Notice and the number of shares that all other participating
Shareholders (including Other Tag-Along Rights Holders) may transfer shall be
increased in accordance with the provisions of Section 3.3. Holding shall act
as agent for the Trust in connection with such sale and shall cause to be
remitted to the Trust the total sales price of the Included Shares of the Trust
sold pursuant thereto, which consideration shall be in the same form as the
consideration received by Holding and as specified in the applicable Initial
Offer Notice, net of the Trust's pro rata portion (based on the number of shares
of Common Stock sold) of the reasonable, out-of-pocket expenses (not including
any expenses paid or payable to an Affiliate or Associate of Holding) incurred
and paid by Holding in connection with such sale. Holding shall furnish, or
shall cause to be furnished, such other evidence of the completion and time of
completion of such sale and the terms thereof as may be reasonably requested by
the Trust including, without limitation, evidence of the expenses incurred by
Holding in connection with such sale. If and to the extent that, at the end of
180 days following the date of the Final Notice, Holding has not completed the
sale contemplated thereby, Holding shall return to the Trust all certificates
representing the Included Shares and all powers-of-attorney which the Trust may
have transmitted pursuant to the terms hereof.
3.5 Termination and Assignment. The obligations of Holding
--------------------------
pursuant to the provisions of this Section 3 shall terminate upon the later to
occur of (i) one year after the consummation of an Initial Public Offering or
(ii) at such time as less than 20% of the outstanding Common Stock is held by
the Shareholders and their Permitted Transferees (a "Liquidity Event"). A
Shareholder's rights under this Section 3 will terminate after the Shareholder
has transferred a number of Voting Securities which represents 75% or more of
the number of Voting Securities held on the date hereof other than transfers to
a Permitted Transferee. The rights granted to the Trust under this Section 3
shall not be assignable except to a Permitted Transferee in accordance with
Section 5.1, provided that the Permitted Transferee executes a written
undertaking to be and becomes
7
<PAGE>
bound by this Agreement in the same manner and to the same extent as the Trust.
The transactions contemplated by Section 7.4 shall not give rise to any rights
under this Section 3.
3A. Transfer of Holding Shares by the FS Entities; Rights of
--------------------------------------------------------
Inclusion.
- ---------
3A.1 Right of Inclusion. Each of the FS Entities agrees not
------------------
to sell all or any portion of the shares of Holding Common Stock it holds to any
Person (individually, a "Third Party" and, collectively, "Third Parties") unless
the Trust is given an opportunity to sell to the Third Party such number of
shares of Common Stock owned by the Trust as is determined in accordance with
Section 3A.3; provided, however, that the Trust shall have no rights pursuant to
-------- -------
this Section 3A with respect to sales or other transfers by the FS Entities of
Holding Common Stock to any Permitted Transferee of the FS Entities; provided,
--------
further, that any such Permitted Transferee of an FS Entity described in clause
- -------
(y)(i) of the definition of Permitted Transferee executes a written undertaking
to be and becomes bound by this Agreement in the same manner and to the same
extent as the transferring party.
3A.2 Third-Party Offer. Prior to the consummation of any
-----------------
sale of all or any portion of the shares of Holding Common Stock held by any of
the FS Entities to a Third Party, such FS Entity shall cause each bona fide
offer from such Third Party to purchase such shares from such FS Entity (an "FS
Third-Party Offer") to be reduced to writing and shall send written notice of
such FS Third-Party Offer (the "FS Initial Offer Notice") to the Trust. Each FS
Third-Party Offer shall include an offer to purchase shares of Common Stock from
the Trust in the amounts determined in accordance with Section 3A.3, at the same
time, at the same price and on the same terms as the sale by the FS Entity to
the Third Party, and according to the terms and conditions of this Agreement.
The FS Initial Offer Notice shall be accompanied by a true copy of the FS Third-
Party Offer. If the Trust desires to accept the offer contained in the FS
Initial Offer Notice, the Trust shall furnish written notice to the FS Entities,
within 20 days after its receipt of the FS Initial Offer Notice, indicating the
Trust's irrevocable acceptance of the offer included in the FS Initial Offer
Notice and setting forth the maximum number of shares of Common Stock the Trust
agrees to sell to the Third Party (the "FS Acceptance Notice"). If the Trust
does not furnish an FS Acceptance Notice to the FS Entities in accordance with
these provisions by the end of such 20-day period, the Trust shall be deemed to
have irrevocably rejected the offer contained in the FS Initial Offer Notice.
All shares of Common Stock set forth in the FS Acceptance Notice of the Trust
together with the shares of Holding Common Stock proposed to be sold by the FS
Entities to the Third Party are referred to collectively as "All Holding and
Company Offered Shares". Within three days after the date on which the Third
Party informs the FS Entities of the total number of shares of Holding Common
Stock (and Common Stock, in the case of the Trust) which such Third Party has
agreed to purchase in accordance with the terms specified in the FS Initial
Offer Notice, the FS Entities shall send written notice (the "FS Final Notice")
to the Trust setting forth the number of shares of Common Stock the Trust shall
sell to the Third Party as determined in accordance with Section 3A.3, which
number shall not exceed the maximum number specified by the Trust in its FS
Acceptance Notice. Within five days after the date of the FS Final Notice (or
such shorter period as may reasonably be requested by the FS Entities to
facilitate the sale), the Trust shall furnish to the FS Entities (i) a written
undertaking
8
<PAGE>
to deliver, upon the consummation of the sale of Holding Common Stock to the
Third Party as indicated in the FS Final Notice, the certificates representing
the shares of Common Stock held by the Trust which will be transferred pursuant
to such FS Third-Party Offer (such shares shall be referred to herein as the
"Trust Included Shares") and (ii) a limited power-of-attorney authorizing the FS
Entities to transfer the Trust Included Shares pursuant to the terms of such FS
Third-Party Offer. Each of the FS Entities and the Trust shall be required to
make representations and warranties in connection with such transfer with
respect to its own authority to transfer and its title to the shares of Holding
Common Stock (or Common Stock, in the case of the Trust) transferred. In any
such transaction Holding will cooperate with the FS Entities and the Trust to
facilitate the transaction.
3A.3 Allocation of Included Shares. The maximum number of
-----------------------------
shares of Holding Common Stock and Common Stock, as the case may be, that may be
sold by the FS Entities and the Trust and all other holders of Holding Common
Stock or Common Stock who have rights to participate in sales of Holding Common
Stock by the FS Entities pursuant to written agreements by and between the FS
Entities and any such holder (the "Other FS Tag-Along Rights Holders") in any
sale governed by this Section 3A shall be (i) All Holding and Company Offered
Shares in the event the Third Party has agreed to purchase All Holding and
Company Offered Shares and all shares of Holding Common Stock or Common Stock,
as the case may be, that the Other FS Tag-Along Rights Holders who have elected
to participate in such sale seek to include in such sale or (ii) such number of
shares of Holding Common Stock and Common Stock, as the case may be, equal to
the product of (A) the total number of shares of Holding Common Stock and Common
Stock which the Third Party has agreed to purchase times (B) a fraction, the
numerator of which is the total number of shares of Holding Common Stock and/or
Common Stock owned by the FS Entities, the Trust, or each Other FS Tag-Along
Rights Holder who has elected to participate in such sale, as the case may be,
specified in the FS Final Notice on the date of the FS Final Notice and the
denominator of which is the total number of shares of Holding Common Stock and
Common Stock owned on the date of the FS Final Notice by the FS Entities, the
Trust and the Other FS Tag-Along Rights Holders who have elected to participate
in such sale provided, however, that, in the event the FS Entities, the Trust or
-------- -------
any Other FS Tag-Along Rights Holder elects to sell a number of shares of
Holding Common Stock or Common Stock which is less than the number of shares
such holder could sell pursuant to clause (ii) above, the shares of Holding
Common Stock and Common Stock that the others of such holders can sell in such
transaction shall be increased by an aggregate amount equal to the number of
shares which any of the FS Entities, the Trust or any Other FS Tag-Along Rights
Holder could have sold in such transaction but chose not to sell, and any such
increase shall be allocated among such other holders on a pro rata basis based
upon the total number of shares of Holding Common Stock and Common Stock owned
on the date of the FS Final Notice by such other holders.
3A.4 Consummation. The FS Entities shall have 180 days from
------------
the date of the FS Final Notice in which to sell to the Third Party the shares
of Holding Common Stock owned by the FS Entities and the Trust Included Shares
on terms which are not materially less favorable to the sellers of shares of
Holding Common Stock or Common Stock, as the case may be, than those specified
in the applicable Initial Offer Notice; provided, however, that in the event
-------- -------
there is a decrease in the price to be paid by the Third Party for the shares of
Holding Common Stock and Common
9
<PAGE>
Stock to be sold from the price set forth in the FS Initial Offer Notice, which
decrease is acceptable to the FS Entities, or other material change in terms
which are less favorable to the FS Entities, but which are acceptable to the FS
Entities, the FS Entities shall notify the Trust of such decrease or change in
terms, and the Trust shall have five business days from the date of receipt of
the notice of such decrease or change in terms to reduce the number of shares of
Common Stock it will sell to such Third Party as previously indicated in the
applicable FS Acceptance Notice and the number of shares that all other
participating shareholders (including Other FS Tag-Along Rights Holders) may
transfer shall be increased in accordance with the provisions of Section 3A.3.
The FS Entities shall act as agent for the Trust in connection with such sale
and shall cause to be remitted to the Trust the total sales price of the Trust
Included Shares sold pursuant thereto, which consideration shall be in the same
form as the consideration received by the FS Entities and as specified in the
applicable FS Initial Offer Notice, net of the Trust's pro rata portion (based
on the total value of the consideration received by the Trust compared to the
aggregate consideration received by all shareholders in the transaction) of the
reasonable, out-of-pocket expenses (not including any expenses paid or payable
to an Affiliate or Associate of the FS Entities) incurred and paid by the FS
Entities in connection with such sale. The FS Entities shall furnish, or shall
cause to be furnished, such other evidence of the completion and time of
completion of such sale and the terms thereof as may be reasonably requested by
the Trust including, without limitation, evidence of the expenses incurred by
the FS Entities in connection with such sale. If and to the extent that, at the
end of 180 days following the date of the FS Final Notice, the FS Entities have
not completed the sale contemplated thereby, the FS Entities shall return to the
Trust all certificates representing the Trust Included Shares and all powers-of-
attorney which the Trust may have transmitted pursuant to the terms hereof.
3A.5 Termination and Assignment. The obligations of the FS
--------------------------
Entities pursuant to the provisions of this Section 3A shall terminate upon the
later to occur of (i) one year after the consummation of an Initial Public
Offering or (ii) at such time as less than 20% of the outstanding Holding Common
Stock is held by the FS Entities and the Trust and their Permitted Transferees,
assuming for the purpose of such calculation that the shares of Common Stock
held by the Trust are shares of Holding Common Stock held by the Trust (a
"Holding Liquidity Event"). The Trust's rights under this Section 3A will
terminate after the Trust has transferred a number of Voting Securities which
represents 75% or more of the number of Voting Securities held on the date
hereof other than transfers to a Permitted Transferee. The rights granted to
the Trust under this Section 3A shall not be assignable except to a Permitted
Transferee in accordance with Section 5.1, provided that the Permitted
Transferee executes a written undertaking to be and becomes bound by this
Agreement in the same manner and to the same extent as the Trust. The
transactions contemplated by Section 7.4 shall not give rise to any rights under
this Section 3A.
4. Obligation to Sell Securities.
-----------------------------
4.1 Sale Obligation. If Holding finds a buyer or transferee
---------------
(other than a Permitted Transferee) for all of the shares of Common Stock held
by Holding (whether such sale is by way of purchase, merger or other form of
transaction), upon the request of Holding, the Trust
10
<PAGE>
shall sell or transfer all or any portion of the Securities beneficially owned
by the Trust to such third-party buyer on the same terms and conditions
applicable to Holding, provided, however, that if the buyer is a party other
than a company whose common stock is publicly traded, the Trust shall not be
required to accept consideration other than cash, provided, further, that if the
buyer's common stock is publicly traded, the Trust shall not be obligated to
accept consideration other than cash and/or capital stock of the buyer. Subject
to the first sentence of this Section 4.1, all holders of each class of
Securities shall receive the same form and amount of consideration for such
Securities. Any Security that is convertible into Common Stock shall be
purchased on an "as converted" basis. Any series of preferred stock that is not
convertible into Common Stock shall be purchased for its stated liquidation
preference plus accrued and unpaid dividends. Any debt Security which is not
convertible into Common Stock shall be purchased at its outstanding principal
amount plus accrued and unpaid interest, plus any prepayment or redemption
premium set forth in the instruments governing such Security. The exercise price
(if any) of a Security shall be deducted from the consideration to be received;
provided however that if the exercise price of such Security is greater than the
consideration to be received, such Security shall be canceled without any
payment to its holder. The Trust agrees to such sale and to execute such
agreements, powers of attorney, voting proxies or other documents and
instruments as may be necessary to consummate such sale; provided that no
Shareholder or Permitted Transferee shall be obligated to make any
representations and warranties with respect to such sale other than with respect
to its own authority to transfer, no conflicts with other agreements and its
title to the Securities transferred, provided, further, that if a Shareholder or
Permitted Transferee elects to make other representations and warranties, it
shall not obligate any other Shareholder or Permitted Transferee to do so. The
Shareholders and their Permitted Transferees shall have no obligation to
indemnify a buyer with respect to representations and warranties regarding the
Company, provided, that if a Shareholder or Permitted Transferee elects to
indemnify a buyer, it shall not obligate any other Shareholder or Permitted
Transferee to do so. The Trust further agrees to timely take such other actions
as Holding may reasonably request to enforce its obligation to sell its
Securities, and otherwise as necessary in connection with the approval of the
consummation of such sale, including voting all Securities in favor of such sale
and waiving any appraisal or dissenters rights. Each Shareholder shall pay its
pro rata portion (based on the total value of the consideration received by such
Shareholder compared to the aggregate consideration received by all Shareholders
in the transaction without giving effect to any deduction of exercise price of a
Security) of the reasonable out-of-pocket expenses (not including any expenses
paid or payable to an Affiliate or Associate of Holding) incurred and paid by
Holding in connection with a sale consummated pursuant to this Section 4.1.
4.2 Termination and Assignment. The obligations of the Trust
--------------------------
pursuant to Section 4.1 shall be binding on any transferee of Securities held by
the Trust, other than transferees in a Public Market Sale, and the Trust shall
obtain and deliver to Holding a written commitment to be bound by such
provisions from each such transferee prior to any transfer. The rights of
Holding under Section 4.1 shall not be assignable except to a Permitted
Transferee or to a purchaser of more than 50% of the Shares of Common Stock then
held by Holding (a "50% Transferee") and its Permitted Transferees (considered
collectively) and shall terminate in the event that Holding, such Permitted
Transferees and 50% Transferees (considered collectively) hold a number of
shares of
11
<PAGE>
Common Stock which represents less than 20% of the total number of shares of
Common Stock outstanding at any time.
4.3 FS Sale Obligation. If the FS Entities find a buyer or
------------------
transferee (other than a Permitted Transferee) for all of the shares of Holding
Common Stock held by the FS Entities (whether such sale is by way of purchase,
merger or other form of transaction), upon the request of the FS Entities, the
Trust shall sell or transfer all or any portion of the Securities beneficially
owned by the Trust to such third-party buyer on the same terms and conditions
applicable to the FS Entities, provided, however, that if the buyer is a party
other than a company whose common stock is publicly traded, the Trust shall not
be required to accept consideration other than cash, provided, further, that if
the buyer's common stock is publicly traded, the Trust shall not be obligated to
accept consideration other than cash and/or capital stock of the buyer. Subject
to the first sentence of this Section 4.3, all holders of each class of
Securities shall receive the same form and amount of consideration for such
Securities, and shares of Holding Common Stock and Common Stock shall receive
the same form and amount of consideration per share. Any Security that is
convertible into Holding Common Stock or Common Stock shall be purchased on an
"as converted" basis. Any series of preferred stock that is not convertible
into Holding Common Stock or Common Stock shall be purchased for its stated
liquidation preference plus accrued and unpaid dividends. Any debt Security
which is not convertible into Holding Common Stock or Common Stock shall be
purchased at its outstanding principal amount plus accrued and unpaid interest,
plus any prepayment or redemption premium set forth in the instruments governing
such Security. The exercise price (if any) of a Security shall be deducted from
the consideration to be received; provided however that if the exercise price of
such Security is greater than the consideration to be received, such Security
shall be canceled without any payment to its holder. The Trust agrees to such
sale and to execute such agreements, powers of attorney, voting proxies or other
documents and instruments as may be necessary to consummate such sale; provided
that no Shareholder, FS Entity or Permitted Transferee shall be obligated to
make any representations and warranties with respect to such sale other than
with respect to its own authority to transfer, no conflicts with other
agreements and its title to the Securities transferred, provided, further, that
if a Shareholder or FS Entity or a Permitted Transferee elects to make other
representations and warranties, it shall not obligate any other Shareholder, FS
Entity or Permitted Transferee to do so. The Shareholders, the FS Entities and
their Permitted Transferees shall have no obligation to indemnify a buyer with
respect to representations and warranties regarding the Company or Holding,
provided, that if a Shareholder or FS Entity or a Permitted Transferee elects to
indemnify a buyer, it shall not obligate any other Shareholder, FS Entity or
Permitted Transferee to do so. The Trust further agrees to timely take such
other actions as the FS Entities may reasonably request to enforce its
obligation to sell its Securities, and otherwise as necessary in connection with
the approval of the consummation of such sale, including voting all Securities
in favor of such sale and waiving any appraisal or dissenters rights. Each of
the FS Entities and the Trust shall pay its pro rata portion (based on the total
value of the consideration received by such party compared to the aggregate
consideration received by all parties in the transaction without giving effect
to any deduction of exercise price of a Security) of the reasonable out-of-
pocket expenses (not including any expenses paid or payable to an Affiliate or
Associate of the FS Entities) incurred and paid by the FS Entities in connection
with a sale consummated pursuant to this Section 4.3.
12
<PAGE>
4.4 Termination and Assignment. The obligations of the Trust
--------------------------
pursuant to Section 4.3 shall be binding on any transferee of Securities held by
the Trust, other than transferees in a Public Market Sale, and the Trust shall
obtain and deliver to the FS Entities a written commitment to be bound by such
provisions from each such transferee prior to any transfer. The rights of the
FS Entities under Section 4.3 shall not be assignable except to a Permitted
Transferee or to a purchaser of more than 50% of the Shares of Holding Common
Stock then held by the FS Entities (an "FS 50% Transferee") and their Permitted
Transferees (considered collectively) and shall terminate in the event that the
FS Entities, such Permitted Transferees and FS 50% Transferees (considered
collectively) hold a number of shares of Holding Common Stock which represents
less than 25% of the total number of shares of Holding Common Stock outstanding
at any time.
5. Restrictions on Transfers of Securities; Right of First Offer.
-------------------------------------------------------------
5.1 Transfer Restrictions. (A) A Shareholder shall not (i)
---------------------
pledge, hypothecate or encumber any Securities; (ii) sell, assign, transfer, or
otherwise dispose of or convey or distribute to its beneficiaries (in the case
of the Trust) ("Transfer") any Securities, or any right, title or interest
therein, except in compliance with the Securities Act and all applicable state
securities laws or (iii) Transfer any Securities, or any right, title or
interest therein except for sales of Securities expressly permitted by and in
compliance with this Agreement, including (without limitation) Section 5.2;
provided that the Trust may not Transfer any Securities, or any right, title or
interest therein, until April 7, 2000 (the "Transfer Restriction Period"),
except to a Permitted Transferee, provided further, however, that following the
Transfer Restriction Period the Trust may Transfer Securities, and/or its right,
title or interest therein, to any party subject to compliance with Section 5.2
and the other terms and conditions of this Agreement. At any time, the Trust
may Transfer Securities with the consent of Holding, which Holding may withhold
in its sole discretion. At any time, the Trust may Transfer Securities with the
consent of Holding, which Holding may withhold in its sole discretion. Any
attempt to Transfer, pledge, hypothecate or encumber Securities, or any right,
title or interest therein, not in compliance with this Agreement shall be null
and void, and the Company shall not give effect to any such attempted
transaction or Transfer. Any Securities Transferred pursuant to the terms and
requirements of this Agreement shall be Transferred free and clear of all
mortgages, liens, pledges, charges and security interests or encumbrances, or
any obligations or liabilities in connection therewith, except as expressly
provided otherwise in this Agreement. Each Shareholder, on the execution and
delivery of this Agreement, agrees that such Shareholder will not Transfer any
Securities (other than to a Permitted Transferee) prior to delivery to the
Company of an opinion of counsel in form and substance satisfactory to the
Company with respect to compliance with the Securities Act, or until a
registration statement with respect to such Securities under the Securities Act
has become effective. Except to the extent set forth below, all transferees of
Securities will be bound by this Agreement in the same manner and to the same
extent as the transferor and prior to any Transfer must deliver to the Company
and the Shareholders a written undertaking to be and become so bound. A
transferee of shares from the FS Entities described in clause (ii) of the
definition of Permitted Transferee who receives such shares in connection with a
partnership distribution thereof by the FS Entities shall not be bound by this
Agreement. Upon completion of any
13
<PAGE>
Transfer in compliance with this Agreement, the transferee shall become a
Shareholder and entitled to the rights hereunder which may be duly and validly
assigned to such transferee. The Trust at any time may transfer Securities to a
Permitted Transferee provided that (i) such transferee executes and delivers to
the Company and Holding a written undertaking to be and becomes bound by this
Agreement in the same manner and to the same extent as the transferring
Shareholder and an irrevocable power of attorney held by Helen Lovaas and one
other person authorizing and requiring the attorneys-in-fact to perform the drag
along obligation of the Permitted Transferee under Section 4 and to act as the
Permitted Transferee's agent for the purpose of complying with such Permitted
Transferee's obligations of first offer under Section 5.2 and, at Holding's
election and expense, also delivers a legal opinion reasonably satisfactory to
Holding that such undertaking is binding and enforceable; (ii) the Trust
consults Holding to discuss the possible impact of a proposed transfer on the
recapitalization treatment of the transactions contemplated by the Merger
Agreement; (iii) Securities may not be transferred directly or indirectly by the
Trust to more than five Charitable Organizations during the Transfer Restriction
Period and the three-year period thereafter (or, if sooner, until the Initial
Public Offering) or a total of 10 such Organizations prior to the Initial Public
Offering; and (iv) a Permitted Transferee that is a Family Member or trust for
the benefit of Family Members, a foundation, trust partnership or limited
liability company controlled by the Trust or Helen Lovaas, or a Charitable
Organization or foundation or trust not controlled by the Trust or Helen Lovaas
shall be entitled to Transfer Securities it holds following the Transfer
Restriction Period to the same extent as the Trust is entitled to Transfer such
Securities, subject to Section 5.2. Except as permitted in this Section 5.1, a
Permitted Transferee of the Trust may not subsequently transfer the Securities,
except transfers of Securities back to the transferring Shareholder. Any
Shareholder or Permitted Transferee shall, if requested by the underwriter in
the Company's Initial Public Offering, execute and deliver a customary lockup
agreement under which such Shareholder or Permitted Transferee will agree not to
sell any Securities until six months after the consummation of the Initial
Public Offering.
5.2 Right of First Offer. The Trust hereby agrees not to
--------------------
Transfer any of the Securities held by it to any Person (other than a Permitted
Transferee) unless Holding (or its designee) is given the right to acquire such
Securities pursuant to the provisions of this Section 5.2. If the Trust receives
an offer from any Person to acquire any Securities, or decides to solicit or
cause to be solicited a proposal or proposals to acquire Securities, the Trust
(the "Offering Shareholder") shall first give Holding (the "Offeree"), written
notice (the "Shareholder Notice") of such intention, which notice shall include
a term sheet stating, among other material terms, the minimum cash sales price
(the "Target Price") that the Offering Shareholder would entertain for the
Securities to be sold (the "Offered Securities"). The Offeree shall have the
right for a period of 15 days following the delivery of the Shareholder Notice
(the "Acceptance Period") to accept the offer to purchase all but not less than
all of the Offered Securities at the Target Price and upon the other terms
provided with the Shareholder Notice; provided that all and not less than all of
the Offered Securities are purchased. The Offeree (or its designee) shall
exercise its rights under this Section 5.2 by delivering to the Offering
Shareholder written notice of its election prior to 5:00 p.m. Los Angeles time
on the final day of the Acceptance Period. If the Offeree (or its designee)
exercises its rights under this Section 5.2, the sale of such Securities shall
be consummated within 30 days of the final day of the
14
<PAGE>
Acceptance Period (the "Purchase Period"). If the Offeree does not elect to
purchase such Securities on such terms or fails to consummate a purchase of such
Securities within the Purchase Period, the Offering Shareholder shall have the
right to consummate the sale of such Securities for a sales price equal to or
greater than the Target Price and on terms not materially more favorable to the
purchaser than specified in the Shareholder Notice for a period of 90 days (the
"Consummation Period") after the expiration of the Acceptance Period or, if
applicable, the Purchase Period. If the Offering Shareholder does not complete
such sale, transfer or conveyance within the Consummation Period, the Offering
Shareholder shall not have the right to sell, transfer or convey any of such
Securities without again complying with this Section 5.2. In the event the
Offering Shareholder intends to sell Securities for consideration other than
cash, the Offering Shareholder shall notify the Offeree of the terms of such
non-cash consideration. The Offeree may elect within ten days of such notice to
have the fair market value of such non-cash consideration determined, with the
parties jointly selecting an investment banking firm to resolve any dispute
regarding the fair market value of such non-cash consideration; in the absence
of agreement on such firm, Goldman, Sachs & Co. shall determine such fair market
value. If the sum of the fair market value of the non-cash consideration and the
cash consideration (in the case of a sale that is partially for cash) is less
than the cash price offered to the Offeree pursuant to this Section 5.2, the
Offeree (or its designee) may, within 10 days of the determination of the fair
market value of the non-cash consideration, elect to purchase the Securities
proposed to be sold for a lump sum cash amount equal to the sum of (i) the fair
market value of the non-cash consideration and (ii) the cash consideration, if
any. Such purchase must be consummated within 20 days of the determination of
fair market value. If the Offering Shareholder receives a written offer for such
Securities at any time during the Consummation Period which is acceptable to the
Offering Shareholder but is less than the Target Price or is upon terms
materially less favorable to the Offering Shareholder than the terms provided to
the Offeree in the Shareholder Notice (the "Below Target Price Offer"), the
Offering Shareholder shall promptly deliver a copy of such written offer to the
Offeree (or its designee). During the 15-day period following delivery of such
written offer, the Offeree shall have the right to accept the offer to purchase
the Securities offered on the terms reflected in such written offer. The Offeree
(or its designee) shall, if it so desires, exercise such right by delivery to
the Offering Shareholder written notice of its election to purchase all but not
less than all of the Offered Securities prior to 5:00 p.m. Los Angeles time on
the final day of such additional 15 day period and the sale of such Securities
shall be consummated within 30 days of the delivery of such written notice. If
the Offeree (or its designee) does not elect to accept the offer to purchase the
Offered Securities on such terms or fails to consummate the purchase of the
Offered Securities within 30 days of the date of the Offerees' acceptance of the
Below Target Price Offer, the Offering Shareholder shall have 90 days to
consummate the sale of the Offered Securities at a price and upon terms that are
not materially less favorable to the Offering Shareholder than the price and
terms specified in the written offer delivered to the Offeree. In the event a
Below Target Price Offer involves any non-cash consideration, the procedures for
valuing such non-cash consideration set forth above in this Section 5.2 shall be
utilized to determine the fair market value of such non-cash consideration.
5.3 Termination and Assignment. The obligations of a
--------------------------
Shareholder pursuant to this Section 5 shall terminate upon an Initial Public
Offering. The rights granted to
15
<PAGE>
Holding under this Section 5 shall be assignable to its Permitted Transferees or
any designee(s); provided, that such Permitted Transferees or designees execute
and deliver to the Company and the Trust an irrevocable power of attorney held
by Holding authorizing and requiring the attorney-in-fact to act as agent for
the purpose of exercising such Permitted Transferee's or designee's rights under
Section 5. Any transferee of Securities from a Shareholder other than a
purchaser of shares from a Shareholder after the Shareholder has duly complied
with its obligations under this Section 5 with respect to such sale, shall be
bound by the provisions of this Section 5 and such Shareholder shall obtain and
deliver to each other Shareholder a written commitment to be bound by such
provisions from each such transferee prior to any transfer.
6. Representation on the Board of Directors.
----------------------------------------
6.1 The Board. Subject to the terms and conditions of this
---------
Section 6, at each annual or special meeting of shareholders of Holding or in
any written consent executed in lieu of a shareholder meeting, at or pursuant to
which persons are being elected to fill positions on the Board of Directors of
Holding, the FS Entities agree to exercise, or cause to be exercised, voting
rights with respect to the shares of Voting Securities of Holding then held of
record or beneficially owned by them, in such a manner that Helen Lovaas shall
be elected to the Board of Directors of Holding. Subject to the terms and
conditions of this Section 6, at each annual or special meeting of shareholders
of the Company, or in any written consent executed in lieu of a shareholder
meeting, at or pursuant to which persons are being elected to fulfill positions
on the Board, Holding and the Trust agree to exercise, or cause to be exercised,
voting rights with respect to the shares of Voting Securities then held of
record or beneficially owned by them, in such manner that Helen Lovaas shall be
elected to the Board and all other nominees proposed for election by Holding to
the Board shall be elected. If necessary, the Boards of the Company and Holding
shall elect such additional independent members, if any, as may be required
under applicable law or stock exchange requirements or by the National
Association of Securities Dealers or underwriters in connection with the Initial
Public Offering, and Holding and the Trust shall each take all actions necessary
in connection therewith.
If at any time from and after the date hereof, Holding shall give
notice of its desire to remove any director previously nominated by it to serve
on the Board, Holding and the Trust agree to exercise or cause to be exercised
voting rights with respect to all shares of Voting Securities held of record or
beneficially owned by it or them so as to remove such director of the Company.
If at any time from and after the date hereof, any director previously nominated
by Holding to serve on the Board ceases to be a director (whether by reason of
death, resignation, removal or otherwise), Holding shall be entitled to nominate
a successor director to fill the vacancy created thereby, and Holding and the
Trust agree to exercise voting rights with respect to the shares of Voting
Securities held of record or beneficially owned by them so as to elect such
nominee as a director of the Company.
6.2 Termination and Assignment. Holding's rights contained in
--------------------------
this Section 6 shall terminate upon the occurrence of a Liquidity Event or a
Holding Liquidity Event or upon the sale by Holding or its Permitted Transferees
of more than 50% of its Initial Shares to
16
<PAGE>
transferees (other than Permitted Transferees) and shall not be assignable other
than to Permitted Transferees. Helen Lovaas' rights under Section 6.1 shall
terminate if the Trust and its Permitted Transferees own less then 5% of the
issued and outstanding shares of Common Stock, and shall likewise terminate on
the death of Helen Lovaas.
7. Other Agreements.
----------------
7.1 Capitalization. Subject to Sections 7.3 and 7.4, Holding
--------------
agrees that the number of outstanding shares of Holding Common Stock will at all
times equal the number of outstanding shares of Common Stock. Holding further
agrees that the number of shares of Holding Preferred Stock will equal the
number of outstanding shares of Preferred Stock, provided that these numbers may
differ to the extent that Holding declares and pays dividends on the Holding
Preferred Stock in additional shares and the Company does not declare and pay
dividends on its Preferred Stock in additional shares and to the extent that the
Holding Preferred Stock is exchanged for shares of Exchangeable Preferred Stock.
Upon Holding's determination to exchange the Holding Preferred Stock for
Exchangeable Preferred Stock, as provided under the terms of the Holding
Preferred Stock, the Company shall issue such Exchangeable Preferred Stock in
accordance with Holding's request and shall reserve 600,000 shares of preferred
stock to effect such exchange and issuance.
7.2 Business Activities of Holding. Holding will not engage in
------------------------------
any business other than its ownership of Securities and activities incidental
thereto.
7.3 Employee Stock Matters. (i) The Company may issue
----------------------
Securities to Employees, pursuant to employee benefit plans approved by the
Board. In addition, Holding may issue shares of its capital stock to Employees
pursuant to employee benefit plans approved by its board of directors.
(ii) Upon contribution to the Company by Holding, of cash
and Employee Equity Interests (as defined below) delivered by Employees in
connection with the purchase of capital stock of Holding by such Employees, the
Company shall issue to Holding, a number of Shares equal to the number of shares
of capital stock of Holding so purchased.
(iii) Subject to clause (iv) below, at the request of
Holding, the Company shall distribute funds to Holding, in order to permit
Holding to repurchase its capital stock from Employees upon termination of
service, or pursuant to a right of first refusal with respect to capital stock
of Holding held by such Employees, and shall also distribute to Holding, upon
request, any related promissory note, pledge agreement and certificates for
shares of capital stock (collectively, the "Employee Equity Interest"), as
necessary to permit Holding to repurchase such capital stock. The Company shall
also distribute the Employee Equity Interests as necessary in connection with an
Initial Public Offering.
(iv) Immediately upon any distribution referred to in
clause (iii) (other than a distribution of Employee Equity Interests in
connection with an Initial Public Offering) to Holding, the Company shall retire
a number of shares of capital stock of the Company held by
17
<PAGE>
Holding equal to the number of shares of capital stock of Holding repurchased
with the funds so distributed.
7.4 Liquidation. Upon the approval of the Company's Board of
-----------
Directors to effect an Initial Public Offering, the Company and the Shareholders
agree as follows: (i) Holding will transfer to the Company each share of Common
Stock it holds in exchange for a new share of Common Stock, (ii) Holding shall
either (A) cause the Company to redeem a number of shares of Preferred Stock
held by Holding having an aggregate liquidation preference equal to the
outstanding Holding Preferred Stock, and thereafter redeem the outstanding
shares of Holding Preferred Stock or (B) cause the Company to issue to Holding
in redemption thereof the Securities provided in the terms of the Holding
Preferred Stock in an aggregate principal amount or having an aggregate
liquidation preference, as the case may be, equal to the aggregate liquidation
preference of the Holding Preferred Stock and thereafter exchange the
outstanding shares of Holding Preferred Stock for such Securities, and (iii)
Holding will liquidate and distribute a share of Common Stock in respect of each
share of Holding Common Stock. This Agreement will continue in full force and
effect and the rights and obligations of Holding under this Agreement will enure
to the benefit of and will bind the FS Entities upon Holdings' liquidation and
the other parties hereto will execute an amendment to this Agreement, in form
and substance satisfactory to the FS Entities, to confirm the foregoing.
7.5 Registration Rights. Upon the consummation of an Initial
-------------------
Public Offering, the Company will grant registration rights to the FS Entities
and the Trust and commencing six months after the Initial Public Offering, three
demand registration to the FS Entities and its affiliates and one demand
registration to the Trust and its Permitted Transferees in substantially the
form of Exhibit A hereto. If necessary, shares of Common Stock held by
---------
employees, directors or consultants of the Company will be registered on a Form
S-8 Registration Statement.
7.6 Further Action. All parties hereto agree to take all such
--------------
actions, including voting, as may be necessary to give effect to transactions
undertaken in accordance with this Section 7 and to execute such agreements,
powers of attorney, consents or waivers of appraisal or dissenters rights, or
other documents or instruments as may be necessary in connection with any such
transactions. Subject to the provisions of this Section 7, all parties hereto
shall use all reasonable efforts to take, or cause to be taken, all actions and
to do or cause to be done, all things necessary (including without limitation,
in connection with obtaining any requisite approval) to expeditiously consummate
any transaction undertaken in accordance with this Section 7.
8. Copy of Agreement. A copy of this Agreement and all amendments
-----------------
hereto shall be filed with the Secretary of Company and shall be kept at the
principal executive offices of Company.
9. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of California without
regard to the conflicts of laws rules thereof.
18
<PAGE>
10. Representations and Warranties. Each Shareholder represents and
------------------------------
warrants (a) that such Shareholder has full power, capacity, right and
authority, and any requisite approvals or consents to enter into and perform
this Agreement; (b) that this Agreement and the performance of its obligations
hereunder (i) will not violate any other agreement or organizational document of
such Shareholder and (ii) have been duly authorized, and that this Agreement has
been duly executed and delivered by such Shareholder and is a valid and binding
agreement, enforceable against such Shareholder in accordance with its terms;
(c) that such Shareholder owns beneficially and of record the shares of Common
Stock and Preferred Stock and the rights, options or warrants to purchase any
capital stock of the Company set forth opposite its name under the definition of
"Initial Shares" free and clear of any lien, claim, charge, option, security
interest, restriction or encumbrance, and (d) that such Shareholder does not own
beneficially or of record any other securities or rights, options or warrants to
purchase any securities of the Company. The Trust further represents and
warrants that it is a trust duly organized, validly existing and in good
standing under the laws of the State of California. During the lifetime of
Helen Lovaas, the sole Trust beneficiary will be Helen Lovaas, and upon her
death, the transferees of the Securities held by the Trust will only be
Permitted Transferees.
11. Amendment and Waiver; Successors. This Agreement may be amended,
--------------------------------
modified or supplemented, and compliance with any provision hereof may be
waived, only with the written consent of those shareholders then holding a
majority of the shares of Voting Securities now held by Holding and those
shareholders then holding a majority of the shares of Voting Securities now held
by the Trust, and any amendment, modification, supplement or waiver so consented
to in writing shall be binding upon the parties hereto and their successors and
permitted transferees and assigns. This Agreement shall be binding on the
parties hereto and, their successors, transferees, assigns, heirs and personal
representatives; provided however, that unless expressly permitted herein, this
Agreement under the rights granted hereunder shall not be assignable without the
written consent of all of the parties hereto, which consent may be withheld in
each such party's sole discretion. This Agreement shall apply to all Securities
now owned or hereafter acquired by any Shareholder and the term "Securities"
includes any securities into which such Securities may hereafter be changed.
12. Interpretation. The headings of the Sections contained in this
--------------
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect the meaning or interpretation of this
Agreement.
13. Notices. All notices and other communications provided for or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or delivered by telecopier, on the date of such
delivery or transmission, or three (3) days after deposit in the mail, by
registered or certified mail (return receipt requested) postage prepaid (i) if
to Company, at the address or telecopier number set forth in the Merger
Agreement, (ii) if to Holding, care of Freeman Spogli & Co. Incorporated, 11100
Santa Monica Boulevard, Suite 1900, Los Angeles, California 90025, Attention:
William M. Wardlaw, telecopier: (310) 444-1870, (iii) if to the Trust c/o Helen
Lovaas, 40 Via Largo, Bonsall, CA 92003, with a copy to Gerard J. Kenny, Gibson,
Dunn & Crutcher LLP, 4 Park Plaza, Suite 1700, Irvine, CA 92614-8557 (or at such
other address or telecopier number for any party as shall be specified by like
notice provided that notices of a change of address or telecopier number shall
be effective only upon receipt thereof).
19
<PAGE>
14. Legends. All certificates evidencing Securities which are issued
-------
to any of Shareholders shall be legended as follows (in addition to any other
legend required to be placed thereon):
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS AND OBLIGATIONS WITH RESPECT TO THE TRANSFER,
PLEDGE, HYPOTHECATION AND VOTING THEREOF AS SET FORTH IN THAT CERTAIN
SHAREHOLDERS AGREEMENT DATED AS OF APRIL 7, 1998, WHICH MAY BE
REVIEWED AT THE PRINCIPAL PLACE OF BUSINESS OF THE CORPORATION AND A
COPY OF WHICH MAY BE OBTAINED FROM THE CORPORATION WITHOUT CHARGE UPON
WRITTEN REQUEST THEREFOR."
15. Further Assurances. The Shareholders shall exercise, or cause to
------------------
be exercised, voting rights with respect to Voting Securities held of record or
beneficially owned by them in a manner so that, and shall otherwise take any
necessary actions in order that, the covenants and understandings of the parties
set forth in this Agreement shall be implemented. Each party hereto agrees to
perform any further acts and execute and deliver any documents which may be
reasonably necessary to carry out the intent of this Agreement and to make
appropriate changes to the procedures set forth herein to implement such rights
to the extent necessary to conform to the California Corporations Code or other
applicable law. Each party hereto further agrees not to take any action
violating the intent and purpose of this Agreement. The Company covenants and
agrees that it will act in good faith to preserve for each of the Shareholders
the benefits of this Agreement and that it will take no voluntary action to
impair the benefit hereof or to avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder or to deny
to any of the Shareholders any of the benefits or protections contemplated
hereby.
16. Injunctive Relief; Disputes. It is acknowledged that it will be
---------------------------
impossible to measure in money the damages that would be suffered if the parties
hereto fail to comply with any of the obligations herein imposed on them and
that, in the event of any such failure, an aggrieved party hereto will be
irreparably damaged and will not have an adequate remedy at law. Any such party
shall, therefore, be entitled to injunctive relief, including specific
performance, to enforce such obligations, and if any action should be brought in
equity to enforce any of the provisions of this Agreement, none of the parties
hereto shall raise the defense that there is an adequate remedy at law. In the
event of any dispute among the parties arising out of this Agreement, the
prevailing party shall be entitled to recover from the non-prevailing party the
reasonable expenses of the prevailing party, including, without limitation,
reasonable attorneys' fees.
17. Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect to the maximum extent permitted by applicable
law. Upon such determination that any term or other provision is invalid,
illegal or
20
<PAGE>
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that this Agreement
be enforced as originally contemplated to the greatest extent possible.
18. Entire Agreement. This Agreement, together with the Company's
----------------
Articles of Incorporation and Bylaws as in effect on the date hereof constitute
the entire agreement and understanding among the parties pertaining to the
subject matter hereof and supersede any and all prior agreements, whether
written or oral, relating hereto.
19. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
21
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
HUDSON RESPIRATORY CARE INC.
By: /s/ Richard W. Johansen
-------------------------
Title: President and Chief Executive Officer
---------------------------------------
By: /s/ Jay R. Ogram
------------------
Title: Chief Financial Officer
-------------------------
RIVER HOLDING CORP.
By: /s/ Charles P. Rullman
------------------------
Title: President
-----------
By: /s/ Sanjay K. Morey
---------------------
Title: Assistant Secretary
---------------------
THE HELEN LOVAAS SEPARATE PROPERTY TRUST U/D/T
JULY 17, 1997
By: /s/ Helen Hudson Lovaas
--------------------------
By:
---------------------------
22
<PAGE>
FS EQUITY PARTNERS III, L.P., a Delaware limited
partnership
By: FS Capital Partners L.P.
Its: General Partner
By: FS Holdings, Inc.
Its: General Partner
By: /s/ Charles P. Rullman
----------------------
Name: Charles P. Rullman
Title:
FS EQUITY PARTNERS INTERNATIONAL, L.P., a Delaware
limited partnership
By: FS & Co. International, L.P.
Its: General Partner
By: FS International Holdings Limited
Its: General Partner
By: /s/ Charles P. Rullman
----------------------
Name: Charles P. Rullman
Title:
FS EQUITY PARTNERS IV, L.P., a Delaware limited
partnership
By: FS Capital Partners LLC
Its: General Partner
By: /s/ Charles P. Rullman
----------------------
Name: Charles P. Rullman
Title: Managing Member
23
<PAGE>
EXHIBIT 10.8
STOCK SUBSCRIPTION AGREEMENT
THIS STOCK SUBSCRIPTION AGREEMENT (the "Subscription Agreement") is made as
of this 7th day of April 1998 by and among:
RIVER ACQUISITION CORP., a corporation organized and existing under
the laws of the State of California (the "Company"); and
RIVER HOLDING CORP., a corporation organized and existing under the
laws of the State of Delaware ("Investor"), which is subscribing for
and purchasing 5,500,000 shares of common stock of the Company par
value $ .01 per share (the "Shares").
1. Subscription of Shares.
----------------------
1.1 Subscriptions. Upon the terms and subject to the conditions of this
-------------
Subscription Agreement, Investor hereby subscribes for the Shares, for a
purchase price of $10.00 per Share, for an aggregate purchase price of
$55,000,000.
1.2 Closing. Upon the terms and subject to the conditions of this
-------
Agreement, the closing (the "Closing") of the transactions contemplated by this
Subscription Agreement shall take place at the same time and place and
substantially concurrently with the closing under the Amended and Restated
Merger Agreement dated as of March 15, 1998, by and among the Company,
Investor, Hudson Respiratory Care Inc., a California corporation ("Hudson RCI")
and the Shareholders of Hudson RCI (the "Merger Agreement"). The only
conditions to the Closing under this Subscription Agreement shall be the
substantially concurrent satisfaction or waiver of the conditions to closing of
the transactions contemplated by the Merger Agreement. At the Closing, the
Company shall deliver to Investor a certificate for the Shares duly registered
in the name of Investor. Investor shall thereupon immediately endorse and
surrender such certificate for transfer in connection with the Merger.
1.3 Payment by Investor. At the Closing, Investor shall pay the purchase
-------------------
price by wire transfer to an account designated by the Company.
2. Representations and Warranties of Investor.
------------------------------------------
2.1 Investment Representation. Investor hereby represents and warrants to
-------------------------
the Company with respect to itself as follows: (a) Investor is acquiring the
Shares for its own account and not with a view to or for sale in connection with
any distribution of the Shares; (b) Investor (i) is familiar with the business
of the Company and Hudson RCI, (ii) has had an opportunity to discuss with
representatives of the Company and Hudson RCI the condition of any prospects for
the continued operation and financing of the Company and Hudson RCI and such
<PAGE>
other matters as Investor has deemed appropriate in considering whether to
invest in the Shares, and (iii) has been provided access to all available
information about the Company and Hudson RCI requested by Investor; and (c)
Investor understands that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), or registered or qualified under
the securities laws of any state and that Investor may not sell or otherwise
transfer the Shares unless they are subsequently registered under the Act and
registered or qualified under applicable state securities laws, or unless an
exemption is available which permits sale or other transfer without such
registration and qualification.
2.2 Indemnification of the Company. Investor hereby agrees to indemnify,
------------------------------
defend and hold harmless the Company (including its officers, directors, assigns
and successors) from and against any and all claims, actions, deficiencies,
assessments, liabilities, losses, damages, costs, expenses, judgments and
settlements, including reasonable legal fees, of any kind (collectively,
"Claims") relating to or arising out of or in connection with or incidental to
any breach of any representation or warranty of Investor under this Subscription
Agreement.
3. Representations and Warranties of the Company.
---------------------------------------------
3.1 The Company represents and warrants as follows:
(a) Organization and Corporate Authority; Binding Obligation. The
--------------------------------------------------------
Company is a corporation duly organized, validly existing and in good standing
under the laws of Delaware, and has full corporate power and authority to
execute, deliver and perform this Agreement. The Company has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly authorized by
all necessary corporate action and constitutes (or upon execution and delivery
will constitute) a legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms, except as enforcement may
be limited by equitable principles or by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to creditors' rights generally.
(b) Agreement not a Breach. The execution of this Agreement by the
----------------------
Company and the fulfillment, performance and compliance with the terms and
provisions of this Agreement by the Company will not (i) conflict with or result
in a breach of any provision of the Company's Articles of Incorporation or
Bylaws; (ii) conflict with, violate or result in a breach of the terms,
conditions or provisions of, or constitute a default or result in the
acceleration of any obligation under, or result in the cancelation or
modification of, or permit termination of, any material agreement or instrument
to which the Company is a party or by which the Company is bound; or (iii)
conflict with or violate the provisions of any law or any judgment, decree,
order, regulation, arbitration award or rule of any court or governmental
authority or any covenant or restriction binding upon the Company, including,
without limitation, the Articles of Incorporation.
3.2 Indemnification. The Company hereby agrees to indemnify, defend and
---------------
hold harmless the Investor (including its officers, directors, shareholders,
employees, assigns and
2
<PAGE>
successors and affiliates) from and against any and all claims, actions,
deficiencies, assessments, liabilities, losses, damages, costs, expenses,
judgments and settlements, including reasonable legal fees, of any kind
(collectively, "Claims") relating to or arising out of or in connection with or
incidental to (i) any breach of any representation or warranty of the Company
under this Subscription Agreement, and (ii) any liability that Investor may
incur, or litigation or Claims relating to, Investor's status as a shareholder
of the Company or its successors or assigns (including litigation that Investor
may be made party to as a result of their ownership of Common Stock or other
securities of the Company, or its successors and assigns).
4. Miscellaneous.
-------------
4.1 Legends on Certificates. Any and all certificates now or hereafter
-----------------------
issued evidencing the Shares shall have endorsed upon them a legend such legends
and shall be subject to such restrictions on transfer as may be necessary to
comply with all applicable federal and state securities laws and regulations.
4.2 Further Assurances. Each party hereto agrees to perform any further
------------------
acts and execute and deliver any document which may be reasonably necessary to
carry out the intent of this Agreement.
4.3 Binding Agreement. This Agreement shall bind and inure to the benefit
-----------------
of the successors and assigns of the Company, including Hudson Respiratory Care
Inc. upon consummation of the Merger, and the successors and assigns of
Investor.
4.4 Notices. Any notice required or permitted to be given pursuant to
-------
this Agreement shall be in writing and shall be deemed given upon personal
delivery or, if mailed, upon the expiration of 48 hours after mailing by any
form of United States mail requiring a return receipt, addressed (i) to Investor
at the address set forth on the signature page hereof, (ii) to the Company at
11100 Santa Monica Boulevard, Los Angeles, California 90025. A party may change
its address by giving written notice to the other parties setting forth the new
address for the giving of notices pursuant to this Agreement.
4.5 Amendments. This Agreement may be amended at any time by the written
----------
agreement and consent of the parties hereof.
4.6 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California.
4.7 Disputes. In the event of any dispute among the parties arising out
--------
of this Agreement, the prevailing party shall be entitled to recover from the
nonprevailing party the reasonable expenses of the prevailing party, including,
without limitation, reasonable attorneys' fees.
3
<PAGE>
4.8 Entire Agreement. This Agreement, including the agreements referred
----------------
to herein, constitutes the entire agreement and understanding among the parties
pertaining to the subject matter hereof and supersedes any and all prior
agreements, whether written or oral, relating thereto.
4.9 Headings. Introductory headings at the beginning of each section of
--------
this Agreement are solely for the convenience of the parties and shall not be
deemed to be a limitation upon or description of the contents of any such
section.
4.10 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which, when taken together, shall constitute one and the
same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
RIVER ACQUISITION CORP.
By: /s/ Charles P. Rullman
----------------------
Its: President
RIVER HOLDING CORP.
By: /s/ Charles P. Rullman
-----------------------
Charles P. Rullman
Its: President
5
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is entered into as of April 7,
1998, by and between HUDSON RESPIRATORY CARE INC., a California corporation
("Company"), and Richard W. Johansen ("Employee") (with Company and Employee
sometimes being referred to herein individually as a "party" and collectively as
the "parties").
R E C I T A L S:
- - - - - - - -
WHEREAS, Employee currently is an employee of Company; and
WHEREAS, the parties desire to provide for Company's continued
employment of Employee pursuant to the terms and provisions of this Agreement
commencing as of April 7, 1998 (the "Effective Date").
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants and conditions contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I. SERVICES AND COMPENSATION.
-------------------------
1.1 Employment of Employee. The parties hereby acknowledge that
----------------------
prior to the Effective Date Employee has been employed by Company. Commencing
as of the Effective Date, Company agrees to employ Employee and Employee agrees
to be employed by Company pursuant and subject to the terms and provisions of
this Agreement. Employee agrees to serve Company faithfully and to the best of
his/her ability in such capacity or capacities and with such duties and
responsibilities as may be determined by Company from time to time. Employee
shall devote such his or her full time and attention to the business of Company
during the term of this Agreement. Employee shall not, while employed by
Company, directly or indirectly render any services of a business, commercial or
professional nature to any other person or organization, whether for
compensation or otherwise (other than service on the Board of Directors of
Artema Medical AB), without the prior written consent of the Board of Directors.
1.2 Compensation.
------------
(a) As compensation for Employee's performance of his/her services
under this Agreement, Company shall pay Employee an annual base salary in
an amount as may be determined and adjusted by Company in its discretion
from time to time. Such compensation shall be prorated for a partial year
based on the number of days worked for
<PAGE>
Company during such year, and shall be payable in accordance with Company's
customary employee payroll practices, including but not limited to all
customary withholding practices.
(b) As additional compensation for Employee's performance of his/her
services under this Agreement, Company may pay Employee a cash bonus
pursuant to Company's management incentive programs as in effect from time
to time, provided, however, that Company shall have no obligation to pay
any such bonus to Employee, and the amount of any such bonus, if paid,
shall be entirely discretionary. Employee's eligibility to receive any
such bonus for any year is expressly conditioned upon Employee being
employed by Company as of December 31 of such year. The cash bonus (if
any) payable to Employee pursuant to this subsection (b) with respect to
any calendar year shall be paid in one lump sum on or before March 15 of
the immediately succeeding calendar year.
(c) By agreeing hereunder to pay Employee an annual salary Company is
not agreeing to employ Employee for any specified term or to pay Employee,
upon the termination of his/her employment, any amounts other than those
set forth in Section 1.4 hereof. Company may in its sole discretion adjust
Employee's compensation as it deems appropriate from time to time,
provided, however, that any such adjustment shall apply prospectively only
to years following notification to Employee of such adjustment. Without
limitation upon said discretion of Company, such compensation adjustments
may be made to reflect (i) any changes in Employee's employment position or
responsibilities, (ii) Company's evaluation of Employee's job performance,
and/or (iii) the nature and/or profitability of Company's business
activities. Nothing contained herein shall be deemed contrary to
Employee's right to effect a Qualifying Resignation under circumstances to
which the provisions of Section 1.4(c)(iii) hereof apply.
1.3 Fringe Benefits. Employee shall be entitled to participate in
---------------
all health, welfare, insurance, pension and other similar employee benefit plans
and programs of Company which are open to participation by employees holding
employment positions comparable to Employee's position; provided, however, that
such participation by Employee shall in all cases be subject to the terms and
provisions of each such employee plan or program and also to applicable federal,
state or other governmental laws and regulations.
1.4 Termination of Employment; Severance Pay.
----------------------------------------
(a) The parties hereby expressly agree that Employee's employment by
Company may be terminated by either party at any time and for any reason,
whether with or without cause.
(b) Except as provided in subsection (c) hereinbelow, if Employee's
employment with Company is involuntarily terminated by Company, or if
Employee resigns pursuant to a Qualifying Resignation (as defined
hereinbelow), then, Company
2
<PAGE>
shall pay to Employee a severance payment equal to 24 months' base salary
determined at the rate in effect as of the date of employment termination
("Severance Payment"). Employee's Severance Payment shall be paid on a
monthly basis over the 24 month period following Employee's termination of
employment.
(c) Notwithstanding the foregoing, Employee shall not be entitled to
any Severance Payment in the event of the termination of Employee's
employment with Company by reason of any one or more of the following: (i)
Cause, as defined hereinbelow; (ii) Employee's death or Permanent
Disability, as defined hereinbelow; or (iii) Employee's resignation, other
than a Qualifying Resignation, as defined hereinbelow. As used herein, the
following terms shall have the meanings set forth hereinbelow:
(i) "Cause" shall mean (i) Employee's conviction of, or
the entry of a pleading of guilty or nolo contendre by Employee to, a
felony or a crime involving moral turpitude, (ii) Employee's material
failure to perform his duties required under his employment
relationship, material failure to comply with the Company's, its
Parent's and/or any subsidiary's standard policies and procedures
generally applicable to employees, or failure to comply with any
provision of this employment agreement after having received written
notice from the Company, its Parent and/or a subsidiary identifying
such failure and after having received an opportunity of at least ten
(10) days in which to cure the failure so identified by the Company,
its Parent and/or a subsidiary if such failure is susceptible to cure,
(iii) a willful act by Employee as a result of which he receives an
improper personal benefit at the expense of the Company, its Parent
and/or a subsidiary, (iv) an act of fraud or dishonesty committed by
Employee against the Company, its Parent and/or a subsidiary, or (v)
any other misconduct by Employee that is materially injurious to the
business or reputation of the Company, its Parent and/or a subsidiary.
"Parent" means River Holding Corp.
(ii) "Permanent Disability" shall mean a disability which
qualifies Employee for disability payments under Company's long-term
disability plan.
(iii) "Qualifying Resignation" shall mean a resignation by
Employee within 60 days after any of the following: (A) a change of
Employee's title to a title lower in rank than President and Chief
Executive Officer; (B) a change of Employee's reporting responsibility
so that he no longer reports directly to the Board of Directors; (C) a
change of Employee's duties and responsibilities which cause
Employee's position to be one of materially lesser responsibility and
scope; (D) a reduction in Employee's base salary; or (E) a change to
Employee's incentive bonus compensation arrangement which results in a
material reduction in potential incentive compensation unless such
change is accompanied by an increase in base salary which, when
considered in light of the contingent nature of incentive
compensation, fairly offsets the reduction in potential incentive
compensation.
3
<PAGE>
(d) The payment of any Severance Payment as provided under this
Section 1.4 shall be subject to Company's usual and customary employee
payroll practices and also subject to all applicable withholding
requirements. Except for such Severance Payment, Employee shall not be
entitled to any further compensation or other severance benefits by reason
of a termination of his/her employment with Company.
ARTICLE II. PROHIBITED ACTIVITIES; CONFIDENTIAL INFORMATION; NONDISCLOSURE,
---------------------------------------------------------------
NONINTERFERENCE AND NONSOLICITATION COVENANTS.
---------------------------------------------
2.1 Prohibited Activity. As used herein the term "Prohibited
-------------------
Activity" means (a) the direct or indirect diversion of business to, or
solicitation of business for or on behalf of, any person, firm, corporation or
other entity which is a competitor of Company, and (b) solicitation or
inducement of any employee of Company to terminate his/her relationship with
Company for the purpose of becoming employed by or associated with a competitor
of Company. Employee hereby agrees that during the term of his/her employment
with Company he/she will not engage in any Prohibited Activity.
2.2 Confidential Information: Nondisclosure Covenant.
------------------------------------------------
(a) As used herein the term "Confidential Information" shall mean all
customer and contract lists, records, financial data, trade secrets,
business and marketing plans and studies, manuals for employee and
personnel policies, manufacturing and/or production manuals, computer
programs and software, strategic plans, formulas, manufacturing and
production processes and techniques (including without limitation types of
machinery and equipment used together with improvements and modifications
thereon), tools, applications for patents, designs, models, patterns,
drawings, tracings, sketches, blueprints, and all other similar information
developed and/or used by Company in the course of its business and which is
not known by or readily available to the general public.
(b) Employee acknowledges that, in the course of performing services
for and on behalf of Company, Employee has had and will continue to have
access to Confidential Information. Employee hereby covenants and agrees
to maintain in strictest confidence all Confidential Information in trust
for Company, its successors and assigns. During the period of Employee's
employment with Company and at any and all times following Employee's
termination of employment for any reason, including without limitation
Employee's voluntary resignation or involuntary termination with or without
cause, Employee agrees to not misappropriate, or disclose or make available
to anyone outside Company's organization, any Confidential Information or
anything relating thereto without the prior written consent of Company,
which consent may be withheld by Company for any reason or no reason at
all.
(c) Upon Employee's termination of his/her employment with Company
for any reason, including without limitation Employee's voluntary
resignation or involuntary
4
<PAGE>
termination with or without cause, Employee hereby agrees to promptly
return to Company's possession all copies of any writings, drawings or
other information relating to Confidential Information which are in
Employee's possession or control. Employee further agrees that, upon the
request of Company at any time during Employee's period of employment with
Company, Employee shall promptly return to Company all such copies of
writings, drawings or other information relating to Confidential
Information which are in Employee's possession or control.
(d) Employee hereby assigns to Company all right, title and interest
in and to any ideas, inventions, original works or authorship,
developments, improvements or trade secrets which Employee solely or
jointly has conceived or reduced to practice, or will conceive or reduce to
practice, or cause to be conceived or reduced to practice, during his/her
employment with Company. All original works of authorship which are made
by Employee (solely or jointly with others) within the scope of Employee's
services hereunder and which are protectable by copyright are "works made
for hire," as that term is defined in the United States Copyright Act.
2.3 Noninterference and Nonsolicitation Covenants. In further
---------------------------------------------
reflection of Company's important interests in its proprietary information and
trade and employee relationships, Employee agrees that, during the 24-month
period following the termination of Employee's employment with Company for any
reason, including without limitation Employee's voluntary resignation or
involuntary termination with or without cause, Employee will not do any of the
following without the prior written consent of Company:
(a) directly or indirectly, for or on behalf of any person, firm,
corporation or other entity, interfere with any contractual or other
business relationship that Company has with any of its customers, clients,
service providers or materials suppliers as of the date of Employee's
termination of employment; or
(b) directly or indirectly solicit or induce any employee of Company
to terminate his/her employment relationship with Company.
2.4 Severance Payment Forfeiture for Breach. If Employee at any time
---------------------------------------
breaches his/her covenants or obligations under the foregoing provisions of
Sections 2.1, 2.2 and/or 2.3, Employee shall forfeit any remaining Severance
Payments otherwise payable to Employee under this Agreement.
2.5 Injunctive Remedy. In the case of any breach or threatened
-----------------
breach by Employee of any of his/her covenants or obligations under Sections
2.1, 2.2 and/or 2.3, the parties hereto agree that damages may not be an
adequate remedy for Company and that, in the event of any such breach or
threatened breach, the Company may, either with or without pursuing any
potential damage remedies, immediately obtain and enforce an injunction
prohibiting Employee from committing or continuing to commit such breach or
threatened breach.
5
<PAGE>
ARTICLE III MISCELLANEOUS
-------------
3.1 Notices. All notices, requests, or other communications
-------
(hereinafter collectively referred to as "Notices") required or permitted to be
given hereunder or which are given with respect to this Agreement shall be in
writing and may be personally delivered, or may be deposited in the United
States mail, postage prepaid and addressed as follows:
To Company at: Hudson Respiratory Care Inc.
27711 Diaz Street
Temecula, CA 92390
To Employee at: Employee's current residential mailing address as
reflected in Company's employee records
A Notice which is delivered personally shall be deemed given as of the date of
personal delivery, and a Notice mailed as provided herein shall be deemed given
on the second business day following the date so mailed. Either party may
change its address for purposes of Notices hereunder pursuant to a Notice, given
as provided herein, advising the other party of such change.
3.2 Effective Date. Employee and Company understand and acknowledge
--------------
that, as of the date of execution of this Agreement, Employee is an employee of
Company. Employee and Company agree, however, that the employment relationship
between Employee and Company shall be governed in all respects by the terms and
provisions of this agreement effective as of April 7, 1998.
3.3 Governing Law. This Agreement shall be governed by, interpreted
-------------
under, and construed and enforced in accordance with the laws of the State of
California applicable to Agreements made and to be performed only within the
State of California.
3.4 Entire Agreement. The terms of this Agreement are intended by
----------------
the parties as a final expression of their agreement with respect to such terms
as are included in this Agreement and may not be contradicted by evidence of any
prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence whatsoever may be introduced into any judicial proceeding,
if any, involving this Agreement, except for written modifications as provided
under Section 3.5 hereof. The parties agree that there are no collateral
agreements of any kind concerning Employee's employment with Company. The
parties further agree that any and all prior employment agreements and
agreements relating to the Company's former Equity Participation Plan by and
between the parties are hereby revoked and superseded in their entirety by the
provisions of this Agreement.
3.5 Modifications and Amendments. This Agreement may not be amended,
----------------------------
modified, changed or supplemented, nor may any obligations hereunder be waived,
except by written instrument signed by both parties.
6
<PAGE>
3.6 Successors and Assigns. This Agreement and the provisions hereof
----------------------
shall be binding upon each of the parties, their successors, assigns and/or
heirs.
3.7 Assignment. Employee's rights, duties, and obligations under
----------
this Agreement may not be assigned by Employee without the prior written consent
of Company. In connection with any sale, transfer or other disposition of all
or any part of Company's business, Company may assign to the transferee
Company's rights, duties and obligations under this Agreement.
3.8 Third Party Rights. The parties do not intend to confer any
------------------
benefit hereunder on any person, firm or corporation other than the parties
hereto.
3.9 Non-Waiver of Rights. The failure or delay of either party in
--------------------
the exercise of any right given to such party hereunder shall not constitute a
waiver of rights unless the time specified herein for exercise of such rights
has expired, nor shall any single or partial exercise of any right preclude the
other or further exercise thereof or of any other right.
3.10 Partial Invalidity. If any provision of this Agreement is found
------------------
to be invalid or otherwise unenforceable by any court or other tribunal of
competent jurisdiction, the invalidity or unenforceability of such provision
shall not affect the validity and enforceability of the remaining provisions
hereof.
3.11 Pronouns and Plurals. Wherever the context may require, any
--------------------
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
3.12 Counterparts. This Agreement may be executed in two
------------
counterparts, each of which may be deemed an original, but both of which
together shall constitute one and the same agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as provided hereinabove.
"COMPANY"
HUDSON RESPIRATORY CARE INC.,
a California corporation
By: /s/ Jay R. Ogram
________________________
Jay R. Ogram
Chief Financial Officer
"EMPLOYEE"
By: /s/ Richard W. Johansen
------------------------
Richard W. Johansen
8
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is entered into as of April 7,
1998, by and between HUDSON RESPIRATORY CARE INC., a California corporation
("Company"), and Jay R. Ogram ("Employee") (with Company and Employee sometimes
being referred to herein individually as a "party" and collectively as the
"parties").
R E C I T A L S:
- - - - - - - -
WHEREAS, Employee currently is an employee of Company; and
WHEREAS, the parties desire to provide for Company's continued
employment of Employee pursuant to the terms and provisions of this Agreement
commencing as of April 7, 1998 (the "Effective Date").
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants and conditions contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I. SERVICES AND COMPENSATION.
-------------------------
1.1. Employment of Employee. The parties hereby acknowledge that
----------------------
prior to the Effective Date Employee has been employed by Company. Commencing
as of the Effective Date, Company agrees to employ Employee and Employee agrees
to be employed by Company pursuant and subject to the terms and provisions of
this Agreement. Employee agrees to serve Company faithfully and to the best of
his/her ability in such capacity or capacities and with such duties and
responsibilities as may be determined by Company from time to time. Employee
shall devote such his or her full time and attention to the business of Company
during the term of this Agreement. Employee shall not, while employed by
Company, directly or indirectly render any services of a business, commercial or
professional nature to any other person or organization, whether for
compensation or otherwise, without the prior written consent of the President of
the Company.
1.2. Compensation.
------------
(a) As compensation for Employee's performance of his/her services
under this Agreement, Company shall pay Employee an annual base salary in
an amount as may be determined and adjusted by Company in its discretion
from time to time. Such compensation shall be prorated for a partial year
based on the number of days worked for
<PAGE>
Company during such year, and shall be payable in accordance with Company's
customary employee payroll practices, including but not limited to all
customary withholding practices.
(b) As additional compensation for Employee's performance of his/her
services under this Agreement, Company may pay Employee a cash bonus
pursuant to Company's management incentive programs as in effect from time
to time, provided, however, that Company shall have no obligation to pay
any such bonus to Employee, and the amount of any such bonus, if paid,
shall be entirely discretionary. Employee's eligibility to receive any
such bonus for any year is expressly conditioned upon Employee being
employed by Company as of December 31 of such year. The cash bonus (if
any) payable to Employee pursuant to this subsection (b) with respect to
any calendar year shall be paid in one lump sum on or before March 15 of
the immediately succeeding calendar year.
(c) By agreeing hereunder to pay Employee an annual salary Company is
not agreeing to employ Employee for any specified term or to pay Employee,
upon the termination of his/her employment, any amounts other than those
set forth in Section 1.4 hereof. Company may in its sole discretion adjust
Employee's compensation as it deems appropriate from time to time,
provided, however, that any such adjustment shall apply prospectively only
to years following notification to Employee of such adjustment. Without
limitation upon said discretion of Company, such compensation adjustments
may be made to reflect (i) any changes in Employee's employment position or
responsibilities, (ii) Company's evaluation of Employee's job performance,
and/or (iii) the nature and/or profitability of Company's business
activities. Nothing contained herein shall be deemed contrary to
Employee's right to effect a Qualifying Resignation under circumstances to
which the provisions of Section 1.4(c)(iii) hereof apply.
1.3. Fringe Benefits. Employee shall be entitled to participate in
---------------
all health, welfare, insurance, pension and other similar employee benefit plans
and programs of Company which are open to participation by employees holding
employment positions comparable to Employee's position; provided, however, that
such participation by Employee shall in all cases be subject to the terms and
provisions of each such employee plan or program and also to applicable federal,
state or other governmental laws and regulations.
1.4. Termination of Employment; Severance Pay.
----------------------------------------
(a) The parties hereby expressly agree that Employee's employment by
Company may be terminated by either party at any time and for any reason,
whether with or without cause.
(b) Except as provided in subsection (c) hereinbelow, if Employee's
employment with Company is involuntarily terminated by Company, or if
Employee resigns pursuant to a Qualifying Resignation (as defined
hereinbelow), then, Company shall pay to Employee a severance payment equal
to 18 months' base salary determined
2
<PAGE>
at the rate in effect as of the date of employment termination ("Severance
Payment"). Employee's Severance Payment shall be paid on a monthly basis
over the 18 month period following Employee's termination of employment.
(c) Notwithstanding the foregoing, Employee shall not be entitled to
any Severance Payment in the event of the termination of Employee's
employment with Company by reason of any one or more of the following: (i)
Cause, as defined hereinbelow; (ii) Employee's death or Permanent
Disability, as defined hereinbelow; or (iii) Employee's resignation, other
than a Qualifying Resignation, as defined hereinbelow. As used herein, the
following terms shall have the meanings set forth hereinbelow:
(i) "Cause" shall mean (i) Employee's conviction of, or
the entry of a pleading of guilty or nolo contendre by Employee to, a
felony or a crime involving moral turpitude, (ii) Employee's material
failure to perform his duties required under his employment
relationship, material failure to comply with the Company's, its
Parent's and/or any subsidiary's standard policies and procedures
generally applicable to employees, or failure to comply with any
provision of this employment agreement after having received written
notice from the Company, its Parent and/or a subsidiary identifying
such failure and after having received an opportunity of at least ten
(10) days in which to cure the failure so identified by the Company,
its Parent and/or a subsidiary if such failure is susceptible to cure,
(iii) a willful act by Employee as a result of which he receives an
improper personal benefit at the expense of the Company, its Parent
and/or a subsidiary, (iv) an act of fraud or dishonesty committed by
Employee against the Company, its Parent and/or a subsidiary, or (v)
any other misconduct by Employee that is materially injurious to the
business or reputation of the Company, its Parent and/or a subsidiary.
"Parent" means River Holding Corp.
(ii) "Permanent Disability" shall mean a disability which
qualifies Employee for disability payments under Company's long-term
disability plan.
(iii) "Qualifying Resignation" shall mean a resignation by
Employee within 60 days after any of the following: (A) a change of
Employee's duties and responsibilities which cause Employee's position
to be one of materially lesser responsibility and scope; or (B) a
reduction in Employee's base salary.
(d) The payment of any Severance Payment as provided under this
Section 1.4 shall be subject to Company's usual and customary employee
payroll practices and also subject to all applicable withholding
requirements. Except for such Severance Payment, Employee shall not be
entitled to any further compensation or other severance benefits by reason
of a termination of his/her employment with Company.
3
<PAGE>
ARTICLE II. PROHIBITED ACTIVITIES; CONFIDENTIAL INFORMATION; NONDISCLOSURE,
---------------------------------------------------------------
NONINTERFERENCE AND NONSOLICITATION COVENANTS.
---------------------------------------------
2.1. Prohibited Activity. As used herein the term "Prohibited
-------------------
Activity" means (a) the direct or indirect diversion of business to, or
solicitation of business for or on behalf of, any person, firm, corporation or
other entity which is a competitor of Company, and (b) solicitation or
inducement of any employee of Company to terminate his/her relationship with
Company for the purpose of becoming employed by or associated with a competitor
of Company. Employee hereby agrees that during the term of his/her employment
with Company he/she will not engage in any Prohibited Activity.
2.2. Confidential Information: Nondisclosure Covenant.
------------------------------------------------
(a) As used herein the term "Confidential Information" shall mean
all customer and contract lists, records, financial data, trade secrets,
business and marketing plans and studies, manuals for employee and
personnel policies, manufacturing and/or production manuals, computer
programs and software, strategic plans, formulas, manufacturing and
production processes and techniques (including without limitation types of
machinery and equipment used together with improvements and modifications
thereon), tools, applications for patents, designs, models, patterns,
drawings, tracings, sketches, blueprints, and all other similar information
developed and/or used by Company in the course of its business and which is
not known by or readily available to the general public.
(b) Employee acknowledges that, in the course of performing services
for and on behalf of Company, Employee has had and will continue to have
access to Confidential Information. Employee hereby covenants and agrees
to maintain in strictest confidence all Confidential Information in trust
for Company, its successors and assigns. During the period of Employee's
employment with Company and at any and all times following Employee's
termination of employment for any reason, including without limitation
Employee's voluntary resignation or involuntary termination with or without
cause, Employee agrees to not misappropriate, or disclose or make available
to anyone outside Company's organization, any Confidential Information or
anything relating thereto without the prior written consent of Company,
which consent may be withheld by Company for any reason or no reason at
all.
(c) Upon Employee's termination of his/her employment with Company
for any reason, including without limitation Employee's voluntary
resignation or involuntary termination with or without cause, Employee
hereby agrees to promptly return to Company's possession all copies of any
writings, drawings or other information relating to Confidential
Information which are in Employee's possession or control. Employee further
agrees that, upon the request of Company at any time during Employee's
period of employment with Company, Employee shall promptly return to
Company all such
4
<PAGE>
copies of writings, drawings or other information relating to Confidential
Information which are in Employee's possession or control.
(d) Employee hereby assigns to Company all right, title and interest
in and to any ideas, inventions, original works or authorship,
developments, improvements or trade secrets which Employee solely or
jointly has conceived or reduced to practice, or will conceive or reduce to
practice, or cause to be conceived or reduced to practice, during his/her
employment with Company. All original works of authorship which are made
by Employee (solely or jointly with others) within the scope of Employee's
services hereunder and which are protectable by copyright are "works made
for hire," as that term is defined in the United States Copyright Act.
2.3. Noninterference and Nonsolicitation Covenants. In further
---------------------------------------------
reflection of Company's important interests in its proprietary information and
trade and employee relationships, Employee agrees that, during the 18-month
period following the termination of Employee's employment with Company for any
reason, including without limitation Employee's voluntary resignation or
involuntary termination with or without cause, Employee will not do any of the
following without the prior written consent of Company:
(a) directly or indirectly, for or on behalf of any person, firm,
corporation or other entity, interfere with any contractual or other
business relationship that Company has with any of its customers, clients,
service providers or materials suppliers as of the date of Employee's
termination of employment; or
(b) directly or indirectly solicit or induce any employee of Company
to terminate his/her employment relationship with Company.
2.4. Severance Payment Forfeiture for Breach. If Employee at any
---------------------------------------
time breaches his/her covenants or obligations under the foregoing provisions of
Sections 2.1, 2.2 and/or 2.3, Employee shall forfeit any remaining Severance
Payments otherwise payable to Employee under this Agreement.
2.5. Injunctive Remedy. In the case of any breach or threatened
-----------------
breach by Employee of any of his/her covenants or obligations under Sections
2.1, 2.2 and/or 2.3, the parties hereto agree that damages may not be an
adequate remedy for Company and that, in the event of any such breach or
threatened breach, the Company may, either with or without pursuing any
potential damage remedies, immediately obtain and enforce an injunction
prohibiting Employee from committing or continuing to commit such breach or
threatened breach.
ARTICLE III. MISCELLANEOUS
-------------
3.1 Notices. All notices, requests, or other communications
-------
(hereinafter collectively referred to as "Notices") required or permitted to be
given hereunder or which are
5
<PAGE>
given with respect to this Agreement shall be in writing and may be personally
delivered, or may be deposited in the United States mail, postage prepaid and
addressed as follows:
To Company at: Hudson Respiratory Care Inc.
27711 Diaz Street
Temecula, CA 92390
To Employee at: Employee's current residential mailing address as
reflected in Company's employee records
A Notice which is delivered personally shall be deemed given as of the date of
personal delivery, and a Notice mailed as provided herein shall be deemed given
on the second business day following the date so mailed. Either party may
change its address for purposes of Notices hereunder pursuant to a Notice, given
as provided herein, advising the other party of such change.
3.2. Effective Date. Employee and Company understand and acknowledge
--------------
that, as of the date of execution of this Agreement, Employee is an employee of
Company. Employee and Company agree, however, that the employment relationship
between Employee and Company shall be governed in all respects by the terms and
provisions of this agreement effective as of April 7, 1998.
3.3. Governing Law. This Agreement shall be governed by, interpreted
-------------
under, and construed and enforced in accordance with the laws of the State of
California applicable to Agreements made and to be performed only within the
State of California.
3.4. Entire Agreement. The terms of this Agreement are intended by
----------------
the parties as a final expression of their agreement with respect to such terms
as are included in this Agreement and may not be contradicted by evidence of any
prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence whatsoever may be introduced into any judicial proceeding,
if any, involving this Agreement, except for written modifications as provided
under Section 3.5 hereof. The parties agree that there are no collateral
agreements of any kind concerning Employee's employment with Company. The
parties further agree that any and all prior employment agreements and
agreements relating to the Company's former Equity Participation Plan by and
between the parties are hereby revoked and superseded in their entirety by the
provisions of this Agreement.
3.5. Modifications and Amendments. This Agreement may not be amended,
----------------------------
modified, changed or supplemented, nor may any obligations hereunder be waived,
except by written instrument signed by both parties.
3.6. Successors and Assigns. This Agreement and the provisions hereof
----------------------
shall be binding upon each of the parties, their successors, assigns and/or
heirs.
6
<PAGE>
3.7. Assignment. Employee's rights, duties, and obligations under
----------
this Agreement may not be assigned by Employee without the prior written consent
of Company. In connection with any sale, transfer or other disposition of all
or any part of Company's business, Company may assign to the transferee
Company's rights, duties and obligations under this Agreement.
3.8. Third Party Rights. The parties do not intend to confer any
------------------
benefit hereunder on any person, firm or corporation other than the parties
hereto.
3.9. Non-Waiver of Rights. The failure or delay of either party in
--------------------
the exercise of any right given to such party hereunder shall not constitute a
waiver of rights unless the time specified herein for exercise of such rights
has expired, nor shall any single or partial exercise of any right preclude the
other or further exercise thereof or of any other right.
3.10. Partial Invalidity. If any provision of this Agreement is found
------------------
to be invalid or otherwise unenforceable by any court or other tribunal of
competent jurisdiction, the invalidity or unenforceability of such provision
shall not affect the validity and enforceability of the remaining provisions
hereof.
3.11. Pronouns and Plurals. Wherever the context may require, any
--------------------
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
3.12. Counterparts. This Agreement may be executed in two
------------
counterparts, each of which may be deemed an original, but both of which
together shall constitute one and the same agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as provided hereinabove.
"COMPANY"
HUDSON RESPIRATORY CARE INC.,
a California corporation
By: /s/ Richard W. Johansen
_____________________________________
Richard W. Johansen
President and Chief Executive Officer
"EMPLOYEE"
By: /s/ Jay R. Ogram
_____________________________________
Jay R. Ogram
8
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is entered into as of April 7,
1998, by and between HUDSON RESPIRATORY CARE INC., a California corporation
("Company"), and Lougene Williams ("Employee") (with Company and Employee
sometimes being referred to herein individually as a "party" and collectively as
the "parties").
R E C I T A L S:
- - - - - - - -
WHEREAS, Employee currently is an employee of Company; and
WHEREAS, the parties desire to provide for Company's continued
employment of Employee pursuant to the terms and provisions of this Agreement
commencing as of April 7, 1998 (the "Effective Date").
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants and conditions contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I. SERVICES AND COMPENSATION.
-------------------------
1.1. Employment of Employee. The parties hereby acknowledge that
----------------------
prior to the Effective Date Employee has been employed by Company. Commencing
as of the Effective Date, Company agrees to employ Employee and Employee agrees
to be employed by Company pursuant and subject to the terms and provisions of
this Agreement. Employee agrees to serve Company faithfully and to the best of
his/her ability in such capacity or capacities and with such duties and
responsibilities as may be determined by Company from time to time. Employee
shall devote such his or her full time and attention to the business of Company
during the term of this Agreement. Employee shall not, while employed by
Company, directly or indirectly render any services of a business, commercial or
professional nature to any other person or organization, whether for
compensation or otherwise, without the prior written consent of the President of
the Company.
1.2. Compensation.
------------
(a) As compensation for Employee's performance of his/her services
under this Agreement, Company shall pay Employee an annual base salary in
an amount as may be determined and adjusted by Company in its discretion
from time to time. Such compensation shall be prorated for a partial year
based on the number of days worked for
<PAGE>
Company during such year, and shall be payable in accordance with Company's
customary employee payroll practices, including but not limited to all
customary withholding practices.
(b) As additional compensation for Employee's performance of his/her
services under this Agreement, Company may pay Employee a cash bonus
pursuant to Company's management incentive programs as in effect from time
to time, provided, however, that Company shall have no obligation to pay
any such bonus to Employee, and the amount of any such bonus, if paid,
shall be entirely discretionary. Employee's eligibility to receive any
such bonus for any year is expressly conditioned upon Employee being
employed by Company as of December 31 of such year. The cash bonus (if
any) payable to Employee pursuant to this subsection (b) with respect to
any calendar year shall be paid in one lump sum on or before March 15 of
the immediately succeeding calendar year.
(c) By agreeing hereunder to pay Employee an annual salary Company is
not agreeing to employ Employee for any specified term or to pay Employee,
upon the termination of his/her employment, any amounts other than those
set forth in Section 1.4 hereof. Company may in its sole discretion adjust
Employee's compensation as it deems appropriate from time to time,
provided, however, that any such adjustment shall apply prospectively only
to years following notification to Employee of such adjustment. Without
limitation upon said discretion of Company, such compensation adjustments
may be made to reflect (i) any changes in Employee's employment position or
responsibilities, (ii) Company's evaluation of Employee's job performance,
and/or (iii) the nature and/or profitability of Company's business
activities. Nothing contained herein shall be deemed contrary to
Employee's right to effect a Qualifying Resignation under circumstances to
which the provisions of Section 1.4(c)(iii) hereof apply.
1.3. Fringe Benefits. Employee shall be entitled to participate in
---------------
all health, welfare, insurance, pension and other similar employee benefit plans
and programs of Company which are open to participation by employees holding
employment positions comparable to Employee's position; provided, however, that
such participation by Employee shall in all cases be subject to the terms and
provisions of each such employee plan or program and also to applicable federal,
state or other governmental laws and regulations.
1.4. Termination of Employment; Severance Pay.
----------------------------------------
(a) The parties hereby expressly agree that Employee's employment by
Company may be terminated by either party at any time and for any reason,
whether with or without cause.
(b) Except as provided in subsection (c) hereinbelow, if Employee's
employment with Company is involuntarily terminated by Company, or if
Employee resigns pursuant to a Qualifying Resignation (as defined
hereinbelow), then, Company shall pay to Employee a severance payment equal
to 18 months' base salary determined
2
<PAGE>
at the rate in effect as of the date of employment termination ("Severance
Payment"). Employee's Severance Payment shall be paid on a monthly basis
over the 18 month period following Employee's termination of employment.
(c) Notwithstanding the foregoing, Employee shall not be entitled to
any Severance Payment in the event of the termination of Employee's
employment with Company by reason of any one or more of the following: (i)
Cause, as defined hereinbelow; (ii) Employee's death or Permanent
Disability, as defined hereinbelow; or (iii) Employee's resignation, other
than a Qualifying Resignation, as defined hereinbelow. As used herein, the
following terms shall have the meanings set forth hereinbelow:
(i) "Cause" shall mean (i) Employee's conviction of, or
the entry of a pleading of guilty or nolo contendre by Employee to, a
felony or a crime involving moral turpitude, (ii) Employee's material
failure to perform his duties required under his employment
relationship, material failure to comply with the Company's, its
Parent's and/or any subsidiary's standard policies and procedures
generally applicable to employees, or failure to comply with any
provision of this employment agreement after having received written
notice from the Company, its Parent and/or a subsidiary identifying
such failure and after having received an opportunity of at least ten
(10) days in which to cure the failure so identified by the Company,
its Parent and/or a subsidiary if such failure is susceptible to cure,
(iii) a willful act by Employee as a result of which he receives an
improper personal benefit at the expense of the Company, its Parent
and/or a subsidiary, (iv) an act of fraud or dishonesty committed by
Employee against the Company, its Parent and/or a subsidiary, or (v)
any other misconduct by Employee that is materially injurious to the
business or reputation of the Company, its Parent and/or a subsidiary.
"Parent" means River Holding Corp.
(ii) "Permanent Disability" shall mean a disability which
qualifies Employee for disability payments under Company's long-term
disability plan.
(iii) "Qualifying Resignation" shall mean a resignation by
Employee within 60 days after any of the following: (A) a change of
Employee's duties and responsibilities which cause Employee's position
to be one of materially lesser responsibility and scope; or (B) a
reduction in Employee's base salary.
(d) The payment of any Severance Payment as provided under this
Section 1.4 shall be subject to Company's usual and customary employee
payroll practices and also subject to all applicable withholding
requirements. Except for such Severance Payment, Employee shall not be
entitled to any further compensation or other severance benefits by reason
of a termination of his/her employment with Company.
3
<PAGE>
ARTICLE II. PROHIBITED ACTIVITIES; CONFIDENTIAL INFORMATION; NONDISCLOSURE,
---------------------------------------------------------------
NONINTERFERENCE AND NONSOLICITATION COVENANTS.
---------------------------------------------
2.1. Prohibited Activity. As used herein the term "Prohibited
-------------------
Activity" means (a) the direct or indirect diversion of business to, or
solicitation of business for or on behalf of, any person, firm, corporation or
other entity which is a competitor of Company, and (b) solicitation or
inducement of any employee of Company to terminate his/her relationship with
Company for the purpose of becoming employed by or associated with a competitor
of Company. Employee hereby agrees that during the term of his/her employment
with Company he/she will not engage in any Prohibited Activity.
2.2. Confidential Information: Nondisclosure Covenant.
------------------------------------------------
(a) As used herein the term "Confidential Information" shall mean
all customer and contract lists, records, financial data, trade secrets,
business and marketing plans and studies, manuals for employee and
personnel policies, manufacturing and/or production manuals, computer
programs and software, strategic plans, formulas, manufacturing and
production processes and techniques (including without limitation types of
machinery and equipment used together with improvements and modifications
thereon), tools, applications for patents, designs, models, patterns,
drawings, tracings, sketches, blueprints, and all other similar information
developed and/or used by Company in the course of its business and which is
not known by or readily available to the general public.
(b) Employee acknowledges that, in the course of performing
services for and on behalf of Company, Employee has had and will continue
to have access to Confidential Information. Employee hereby covenants and
agrees to maintain in strictest confidence all Confidential Information in
trust for Company, its successors and assigns. During the period of
Employee's employment with Company and at any and all times following
Employee's termination of employment for any reason, including without
limitation Employee's voluntary resignation or involuntary termination with
or without cause, Employee agrees to not misappropriate, or disclose or
make available to anyone outside Company's organization, any Confidential
Information or anything relating thereto without the prior written consent
of Company, which consent may be withheld by Company for any reason or no
reason at all.
(c) Upon Employee's termination of his/her employment with
Company for any reason, including without limitation Employee's voluntary
resignation or involuntary termination with or without cause, Employee
hereby agrees to promptly return to Company's possession all copies of any
writings, drawings or other information relating to Confidential
Information which are in Employee's possession or control. Employee further
agrees that, upon the request of Company at any time during Employee's
period of employment with Company, Employee shall promptly return to
Company all such
4
<PAGE>
copies of writings, drawings or other information relating to Confidential
Information which are in Employee's possession or control.
(d) Employee hereby assigns to Company all right, title and interest
in and to any ideas, inventions, original works or authorship,
developments, improvements or trade secrets which Employee solely or
jointly has conceived or reduced to practice, or will conceive or reduce to
practice, or cause to be conceived or reduced to practice, during his/her
employment with Company. All original works of authorship which are made
by Employee (solely or jointly with others) within the scope of Employee's
services hereunder and which are protectable by copyright are "works made
for hire," as that term is defined in the United States Copyright Act.
2.3. Noninterference and Nonsolicitation Covenants. In further
---------------------------------------------
reflection of Company's important interests in its proprietary information and
trade and employee relationships, Employee agrees that, during the 18-month
period following the termination of Employee's employment with Company for any
reason, including without limitation Employee's voluntary resignation or
involuntary termination with or without cause, Employee will not do any of the
following without the prior written consent of Company:
(a) directly or indirectly, for or on behalf of any person, firm,
corporation or other entity, interfere with any contractual or other
business relationship that Company has with any of its customers, clients,
service providers or materials suppliers as of the date of Employee's
termination of employment; or
(b) directly or indirectly solicit or induce any employee of Company
to terminate his/her employment relationship with Company.
2.4. Severance Payment Forfeiture for Breach. If Employee at any time
---------------------------------------
breaches his/her covenants or obligations under the foregoing provisions of
Sections 2.1, 2.2 and/or 2.3, Employee shall forfeit any remaining Severance
Payments otherwise payable to Employee under this Agreement.
2.5. Injunctive Remedy. In the case of any breach or threatened
-----------------
breach by Employee of any of his/her covenants or obligations under Sections
2.1, 2.2 and/or 2.3, the parties hereto agree that damages may not be an
adequate remedy for Company and that, in the event of any such breach or
threatened breach, the Company may, either with or without pursuing any
potential damage remedies, immediately obtain and enforce an injunction
prohibiting Employee from committing or continuing to commit such breach or
threatened breach.
ARTICLE III MISCELLANEOUS
-------------
3.1. Notices. All notices, requests, or other communications
-------
(hereinafter collectively referred to as "Notices") required or permitted to be
given hereunder or which are
5
<PAGE>
given with respect to this Agreement shall be in writing and may be personally
delivered, or may be deposited in the United States mail, postage prepaid and
addressed as follows:
To Company at: Hudson Respiratory Care Inc.
27711 Diaz Street
Temecula, CA 92390
To Employee at: Employee's current residential mailing address as
reflected in Company's employee records
A Notice which is delivered personally shall be deemed given as of the date of
personal delivery, and a Notice mailed as provided herein shall be deemed given
on the second business day following the date so mailed. Either party may
change its address for purposes of Notices hereunder pursuant to a Notice, given
as provided herein, advising the other party of such change.
3.2 Effective Date. Employee and Company understand and acknowledge
--------------
that, as of the date of execution of this Agreement, Employee is an employee of
Company. Employee and Company agree, however, that the employment relationship
between Employee and Company shall be governed in all respects by the terms and
provisions of this agreement effective as of April 7, 1998.
3.3 Governing Law. This Agreement shall be governed by, interpreted
-------------
under, and construed and enforced in accordance with the laws of the State of
California applicable to Agreements made and to be performed only within the
State of California.
3.4 Entire Agreement. The terms of this Agreement are intended by
----------------
the parties as a final expression of their agreement with respect to such terms
as are included in this Agreement and may not be contradicted by evidence of any
prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence whatsoever may be introduced into any judicial proceeding,
if any, involving this Agreement, except for written modifications as provided
under Section 3.5 hereof. The parties agree that there are no collateral
agreements of any kind concerning Employee's employment with Company. The
parties further agree that any and all prior employment agreements and
agreements relating to the Company's former Equity Participation Plan by and
between the parties are hereby revoked and superseded in their entirety by the
provisions of this Agreement.
3.5 Modifications and Amendments. This Agreement may not be amended,
----------------------------
modified, changed or supplemented, nor may any obligations hereunder be waived,
except by written instrument signed by both parties.
3.6 Successors and Assigns. This Agreement and the provisions hereof
----------------------
shall be binding upon each of the parties, their successors, assigns and/or
heirs.
6
<PAGE>
3.7. Assignment. Employee's rights, duties, and obligations under
----------
this Agreement may not be assigned by Employee without the prior written consent
of Company. In connection with any sale, transfer or other disposition of all
or any part of Company's business, Company may assign to the transferee
Company's rights, duties and obligations under this Agreement.
3.8. Third Party Rights. The parties do not intend to confer any
------------------
benefit hereunder on any person, firm or corporation other than the parties
hereto.
3.9. Non-Waiver of Rights. The failure or delay of either party in
--------------------
the exercise of any right given to such party hereunder shall not constitute a
waiver of rights unless the time specified herein for exercise of such rights
has expired, nor shall any single or partial exercise of any right preclude the
other or further exercise thereof or of any other right.
3.10. Partial Invalidity. If any provision of this Agreement is found
------------------
to be invalid or otherwise unenforceable by any court or other tribunal of
competent jurisdiction, the invalidity or unenforceability of such provision
shall not affect the validity and enforceability of the remaining provisions
hereof.
3.11. Pronouns and Plurals. Wherever the context may require, any
--------------------
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
3.12. Counterparts. This Agreement may be executed in two
------------
counterparts, each of which may be deemed an original, but both of which
together shall constitute one and the same agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as provided hereinabove.
"COMPANY"
HUDSON RESPIRATORY CARE INC.,
a California corporation
By: /s/ Richard W. Johansen
_______________________________________
Richard W. Johansen
President and Chief Executive Officer
"EMPLOYEE"
By: /s/ Lougene Williams
_______________________________________
Lougene Williams
8
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is entered into as of April 7,
1998, by and between HUDSON RESPIRATORY CARE INC., a California corporation
("Company"), and Brian W. Morgan ("Employee") (with Company and Employee
sometimes being referred to herein individually as a "party" and collectively as
the "parties").
R E C I T A L S:
- - - - - - - -
WHEREAS, Employee currently is an employee of Company; and
WHEREAS, the parties desire to provide for Company's continued
employment of Employee pursuant to the terms and provisions of this Agreement
commencing as of April 7, 1998 (the "Effective Date").
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants and conditions contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I. SERVICES AND COMPENSATION.
-------------------------
1.1. Employment of Employee. The parties hereby acknowledge that
----------------------
prior to the Effective Date Employee has been employed by Company. Commencing
as of the Effective Date, Company agrees to employ Employee and Employee agrees
to be employed by Company pursuant and subject to the terms and provisions of
this Agreement. Employee agrees to serve Company faithfully and to the best of
his/her ability in such capacity or capacities and with such duties and
responsibilities as may be determined by Company from time to time. Employee
shall devote such his or her full time and attention to the business of Company
during the term of this Agreement. Employee shall not, while employed by
Company, directly or indirectly render any services of a business, commercial or
professional nature to any other person or organization, whether for
compensation or otherwise.
1.2. Compensation.
------------
(a) As compensation for Employee's performance of his/her services
under this Agreement, Company shall pay Employee an annual base salary in
an amount as may be determined and adjusted by Company in its discretion
from time to time. Such compensation shall be prorated for a partial year
based on the number of days worked for Company during such year, and shall
be payable in accordance with Company's customary
<PAGE>
employee payroll practices, including but not limited to all customary
withholding practices.
(b) As additional compensation for Employee's performance of his/her
services under this Agreement, Company may pay Employee a cash bonus
pursuant to Company's management incentive programs as in effect from time
to time, provided, however, that Company shall have no obligation to pay
any such bonus to Employee, and the amount of any such bonus, if paid,
shall be entirely discretionary. Employee's eligibility to receive any
such bonus for any year is expressly conditioned upon Employee being
employed by Company as of December 31 of such year. The cash bonus (if
any) payable to Employee pursuant to this subsection (b) with respect to
any calendar year shall be paid in one lump sum on or before March 15 of
the immediately succeeding calendar year.
(c) By agreeing hereunder to pay Employee an annual salary Company is
not agreeing to employ Employee for any specified term or to pay Employee,
upon the termination of his/her employment, any amounts other than those
set forth in Section 1.4 hereof. Company may in its sole discretion adjust
Employee's compensation as it deems appropriate from time to time,
provided, however, that any such adjustment shall apply prospectively only
to years following notification to Employee of such adjustment. Without
limitation upon said discretion of Company, such compensation adjustments
may be made to reflect (i) any changes in Employee's employment position or
responsibilities, (ii) Company's evaluation of Employee's job performance,
and/or (iii) the nature and/or profitability of Company's business
activities. Nothing contained herein shall be deemed contrary to
Employee's right to effect a Qualifying Resignation under circumstances to
which the provisions of Section 1.4(c)(iii) hereof apply.
1.3. Fringe Benefits.
---------------
(a) Employee shall be entitled to participate in all health, welfare,
insurance, pension and other similar employee benefit plans and programs of
Company which are open to participation by employees holding employment
positions comparable to Employee's position; provided, however, that such
participation by Employee shall in all cases be subject to the terms and
provisions of each such employee plan or program and also to applicable
federal, state or other governmental laws and regulations.
(b) Employee's eligibility for the use of a Company automobile or to
payment of an automobile allowance from Company, and the terms of such
automobile use or allowance, shall be determined from time to time by
Company in its discretion in accordance with its periodic review of all
elements of its management compensation arrangements.
2
<PAGE>
1.4. Termination of Employment; Severance Pay.
----------------------------------------
(a) The parties hereby expressly agree that Employee's employment by
Company may be terminated by either party at any time and for any reason,
whether with or without cause.
(b) Except as provided in subsection (c) hereinbelow, if Employee's
employment with Company is involuntarily terminated by Company, or if
Employee resigns pursuant to a Qualifying Resignation (as defined
hereinbelow), then, Company shall pay to Employee a severance payment equal
to 12 months' base salary determined at the rate in effect as of the date
of employment termination ("Severance Payment"). Employee's Severance
Payment shall be paid on a monthly basis over the 12 month period following
Employee's termination of employment. If Employee shall be reemployed by
another employer within 12 months following Employee's termination of
employment with Company, Employee's Severance Payment hereunder shall be
reduced by the amount of monthly base compensation which Employee shall
earn pursuant to such other employment during said 12 month period.
Employee shall be obligated (A) to exercise good-faith efforts to obtain
such other employment, and (B) to provide Company with adequate
verification of the amount of compensation which Employee will earn
pursuant to such other employment.
(c) Notwithstanding the foregoing, Employee shall not be entitled to
any Severance Payment in the event of the termination of Employee's
employment with Company by reason of any one or more of the following: (I)
Cause, as defined hereinbelow; (ii) Employee's death or Permanent
Disability, as defined hereinbelow; or (iii) Employee's resignation, other
than a Qualifying Resignation, as defined hereinbelow. As used herein, the
following terms shall have the meanings set forth hereinbelow:
(i) "Cause" shall mean (i) Employee's conviction of, or the
entry of a pleading of guilty or nolo contendre by Employee to, a
felony or a crime involving moral turpitude, (ii) Employee's material
failure to perform his duties required under his employment
relationship, material failure to comply with the Company's, its
Parent's and/or any subsidiary's standard policies and procedures
generally applicable to employees, or failure to comply with any
provision of this employment agreement after having received written
notice from the Company, its Parent and/or a subsidiary identifying
such failure and after having received an opportunity of at least ten
(10) days in which to cure the failure so identified by the Company,
its Parent and/or a subsidiary if such failure is susceptible to cure,
(iii) a willful act by Employee as a result of which he receives an
improper personal benefit at the expense of the Company, its Parent
and/or a subsidiary, (iv) an act of fraud or dishonesty committed by
Employee against the Company, its Parent and/or a subsidiary, or (v)
any other misconduct by Employee that is materially
3
<PAGE>
injurious to the business or reputation of the Company, its Parent
and/or a subsidiary. "Parent" means River Holding Corp.
(ii) "Permanent Disability" shall mean a disability which
qualifies Employee for disability payments under Company's long-term
disability plan.
(iii) "Qualifying Resignation" shall mean a resignation by
Employee within 60 days after any of the following: (A) a change of
Employee's duties and responsibilities which cause Employee's position
to be one of materially lesser responsibility and scope; or (B) a
reduction in Employee's base salary.
(d) The payment of any Severance Payment as provided under this
Section 1.4 shall be subject to Company's usual and customary employee
payroll practices and also subject to all applicable withholding
requirements. Except for such Severance Payment, Employee shall not be
entitled to any further compensation or other severance benefits by reason
of a termination of his/her employment with Company.
ARTICLE II. PROHIBITED ACTIVITIES; CONFIDENTIAL INFORMATION; NONDISCLOSURE,
---------------------------------------------------------------
NONINTERFERENCE AND NONSOLICITATION COVENANTS.
---------------------------------------------
2.1. Prohibited Activity. As used herein the term "Prohibited
-------------------
Activity" means (a) the direct or indirect diversion of business to, or
solicitation of business for or on behalf of, any person, firm, corporation or
other entity which is a competitor of Company, and (b) solicitation or
inducement of any employee of Company to terminate his/her relationship with
Company for the purpose of becoming employed by or associated with a competitor
of Company. Employee hereby agrees that during the term of his/her employment
with Company he/she will not engage in any Prohibited Activity.
2.2. Confidential Information: Nondisclosure Covenant.
------------------------------------------------
(a) As used herein the term "Confidential Information" shall mean
all customer and contract lists, records, financial data, trade secrets,
business and marketing plans and studies, manuals for employee and
personnel policies, manufacturing and/or production manuals, computer
programs and software, strategic plans, formulas, manufacturing and
production processes and techniques (including without limitation types of
machinery and equipment used together with improvements and modifications
thereon), tools, applications for patents, designs, models, patterns,
drawings, tracings, sketches, blueprints, and all other similar information
developed and/or used by Company in the course of its business and which is
not known by or readily available to the general public.
(b) Employee acknowledges that, in the course of performing services
for and on behalf of Company, Employee has had and will continue to have
access to Confidential Information. Employee hereby covenants and agrees
to maintain in strictest confidence
4
<PAGE>
all Confidential Information in trust for Company, its successors and
assigns. During the period of Employee's employment with Company and at any
and all times following Employee's termination of employment for any
reason, including without limitation Employee's voluntary resignation or
involuntary termination with or without cause, Employee agrees to not
misappropriate, or disclose or make available to anyone outside Company's
organization, any Confidential Information or anything relating thereto
without the prior written consent of Company, which consent may be withheld
by Company for any reason or no reason at all.
(c) Upon Employee's termination of his/her employment with Company for
any reason, including without limitation Employee's voluntary resignation
or involuntary termination with or without cause, Employee hereby agrees to
promptly return to Company's possession all copies of any writings,
drawings or other information relating to Confidential Information which
are in Employee's possession or control. Employee further agrees that,
upon the request of Company at any time during Employee's period of
employment with Company, Employee shall promptly return to Company all such
copies of writings, drawings or other information relating to Confidential
Information which are in Employee's possession or control.
(d) Employee hereby assigns to Company all right, title and interest
in and to any ideas, inventions, original works or authorship,
developments, improvements or trade secrets which Employee solely or
jointly has conceived or reduced to practice, or will conceive or reduce to
practice, or cause to be conceived or reduced to practice, during his/her
employment with Company. All original works of authorship which are made
by Employee (solely or jointly with others) within the scope of Employee's
services hereunder and which are protectable by copyright are "works made
for hire," as that term is defined in the United States Copyright Act.
2.3. Noninterference and Nonsolicitation Covenants. In further
---------------------------------------------
reflection of Company's important interests in its proprietary information and
trade and employee relationships, Employee agrees that, during the 12-month
period following the termination of Employee's employment with Company for any
reason, including without limitation Employee's voluntary resignation or
involuntary termination with or without cause, Employee will not do any of the
following without the prior written consent of Company:
(a) directly or indirectly, for or on behalf of any person, firm,
corporation or other entity, interfere with any contractual or other
business relationship that Company has with any of its customers, clients,
service providers or materials suppliers as of the date of Employee's
termination of employment; or
(b) directly or indirectly solicit or induce any employee of Company
to terminate his/her employment relationship with Company.
5
<PAGE>
2.4. Severance Payment Forfeiture for Breach. If Employee at any time
---------------------------------------
breaches his/her covenants or obligations under the foregoing provisions of
Sections 2.1, 2.2 and/or 2.3, Employee shall forfeit any remaining Severance
Payments otherwise payable to Employee under this Agreement.
2.5. Injunctive Remedy. In the case of any breach or threatened
-----------------
breach by Employee of any of his/her covenants or obligations under Sections
2.1, 2.2 and/or 2.3, the parties hereto agree that damages may not be an
adequate remedy for Company and that, in the event of any such breach or
threatened breach, the Company may, either with or without pursuing any
potential damage remedies, immediately obtain and enforce an injunction
prohibiting Employee from committing or continuing to commit such breach or
threatened breach.
ARTICLE III. MISCELLANEOUS
-------------
3.1. Notices. All notices, requests, or other communications
-------
(hereinafter collectively referred to as "Notices") required or permitted to be
given hereunder or which are given with respect to this Agreement shall be in
writing and may be personally delivered, or may be deposited in the United
States mail, postage prepaid and addressed as follows:
To Company at: Hudson Respiratory Care Inc.
27711 Diaz Street
Temecula, CA 92390
To Employee at: Employee's current residential mailing address as
reflected in Company's employee records
A Notice which is delivered personally shall be deemed given as of the date of
personal delivery, and a Notice mailed as provided herein shall be deemed given
on the second business day following the date so mailed. Either party may
change its address for purposes of Notices hereunder pursuant to a Notice, given
as provided herein, advising the other party of such change.
3.2. Effective Date. Employee and Company understand and
--------------
acknowledge that, as of the date of execution of this Agreement, Employee is an
employee of Company. Employee and Company agree, however, that the employment
relationship between Employee and Company shall be governed in all respects by
the terms and provisions of this agreement effective as of April 7, 1998.
3.3. Governing Law. This Agreement shall be governed by,
-------------
interpreted under, and construed and enforced in accordance with the laws of the
State of California applicable to Agreements made and to be performed only
within the State of California.
3.4. Entire Agreement. The terms of this Agreement are intended by
----------------
the parties as a final expression of their agreement with respect to such terms
as are included in this Agreement and may not be contradicted by evidence of any
prior or contemporaneous agreement.
6
<PAGE>
The parties further intend that this Agreement constitutes the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced into any judicial proceeding, if any, involving this Agreement,
except for written modifications as provided under Section 3.5 hereof. The
parties agree that there are no collateral agreements of any kind concerning
Employee's employment with Company. The parties further agree that any and all
prior employment agreements and agreements relating to the Company's former
Equity Participation Plan by and between the parties are hereby revoked and
superseded in their entirety by the provisions of this Agreement.
3.5. Modifications and Amendments. This Agreement may not be
----------------------------
amended, modified, changed or supplemented, nor may any obligations hereunder be
waived, except by written instrument signed by both parties.
3.6. Successors and Assigns. This Agreement and the provisions
----------------------
hereof shall be binding upon each of the parties, their successors, assigns
and/or heirs.
3.7. Assignment. Employee's rights, duties, and obligations under
----------
this Agreement may not be assigned by Employee without the prior written consent
of Company. In connection with any sale, transfer or other disposition of all
or any part of Company's business, Company may assign to the transferee
Company's rights, duties and obligations under this Agreement.
3.8. Third Party Rights. The parties do not intend to confer any
------------------
benefit hereunder on any person, firm or corporation other than the parties
hereto.
3.9. Non-Waiver of Rights. The failure or delay of either party in
--------------------
the exercise of any right given to such party hereunder shall not constitute a
waiver of rights unless the time specified herein for exercise of such rights
has expired, nor shall any single or partial exercise of any right preclude the
other or further exercise thereof or of any other right.
3.10. Partial Invalidity. If any provision of this Agreement is found
------------------
to be invalid or otherwise unenforceable by any court or other tribunal of
competent jurisdiction, the invalidity or unenforceability of such provision
shall not affect the validity and enforceability of the remaining provisions
hereof.
3.11. Pronouns and Plurals. Wherever the context may require, any
-------------------
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
3.12. Counterparts. This Agreement may be executed in two
------------
counterparts, each of which may be deemed an original, but both of which
together shall constitute one and the same agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as provided hereinabove.
"COMPANY"
HUDSON RESPIRATORY CARE INC.,
a California corporation
By: /s/ Richard W. Johansen
______________________________________
Richard W. Johansen
President and Chief Executive Officer
"EMPLOYEE"
By: /s/ Brian W. Morgan
________________________________________
Brian W. Morgan
8
<PAGE>
EXHIBIT 12.1
RATIO SUPPORT
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Hudson
Pro Forma
1993 1994 1995 1996 1997 1997
---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Pre-Tax Income 5,357 7,845 (118) 7,154 11,443 5,333
Fixed Charges:
Interest Expense 2,253 2,299 2,424 2,177 1,834 13,694
Amort. of Debt Expense 486 386 147 59 62 1,405
Interest Factor of Rental Expense 349 321 355 369 377 377
----- ------ ----- ----- ------ ------
Total Fixed Charges 3,088 3,006 2,926 2,605 2,273 15,476
----- ------ ----- ----- ------ ------
Total Earnings 8,445 10,851 2,808 9,759 13,716 20,809
Total Fixed Charges 3,088 3,006 2,926 2,605 2,273 15,476
----- ------ ----- ----- ------ ------
----- ------ ----- ----- ----- ------
Ratio of earnings to fixed charges 2.7 3.6 1.0 3.7 6.0 1.3
Deficiency of earnings to cover fixed charges ----- ------ ----- ----- ----- ------
</TABLE>
<TABLE>
<CAPTION>
Hudson
March 28, March 27, Pro Forma
1997 1998 27-Mar-98
--------- --------- ---------
<S> <C> <C> <C>
Earnings:
Pre-Tax Income 3,240 1,521 312
Fixed Charges:
Interest Expense 505 419 3,423
Amort. of Debt Expense 16 24 351
Interest Factor of Rental Expense 94 94 94
----- ----- -----
Total Fixed Charges 615 537 3,869
----- ----- -----
Total Earnings 3,855 2,058 4,180
Total Fixed Charges 615 537 3,869
----- ----- -----
----- ----- -----
Ratio of earnings to fixed charges 6.3 3.8 1.1
Deficiency of earnings to cover fixed charges ----- ----- -----
</TABLE>
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Hudson
Pro Forma
1993 1994 1995 1996 1997 1997
---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Pre-Tax Income 5,357 7,845 (118) 7,154 11,443 5,333
Fixed Charges:
Interest Expense 2,253 2,299 2,424 2,177 1,834 13,694
Amort. of Debt Expense 486 386 147 59 62 1,405
Interest Factor of Rental Expense 349 321 355 369 377 377
Preferred Stock Dividend Expense -- -- -- -- -- 5,915
----- ------ ----- ----- ------ ------
Total Fixed Charges 3,088 3,006 2,926 2,605 2,273 21,391
----- ------ ----- ----- ------ ------
Total Earnings 8,445 10,851 2,808 9,759 13,716 20,809
Total Fixed Charges 3,088 3,006 2,926 2,605 2,273 21,391
----- ------ ----- ----- ------ ------
----- ------ ----- ----- ------ ------
Ratio of earnings to fixed charges 2.7 3.6 1.0 3.7 6.0 1.0
and preferred stock dividends
Deficiency of earnings to cover fixed charges ----- ------ ----- ----- ------ ------
</TABLE>
<TABLE>
<CAPTION>
Hudson
March 28, March 27, Pro Forma
1997 1998 27-Mar-98
--------- --------- ---------
<S> <C> <C> <C>
Earnings:
Pre-Tax Income 3,240 1,521 312
Fixed Charges:
Interest Expense 505 419 3,423
Amort. of Debt Expense 16 24 351
Interest Factor of Rental Expense 94 94 94
Preferred Stock Dividend Expense -- -- 1,438
----- ----- ------
Total Fixed Charges 615 537 5,307
----- ----- ------
Total Earnings 3,855 2,058 4,180
Total Fixed Charges 615 537 5,307
----- ----- ------
----- ----- ------
Ratio of earnings to fixed charges 6.3 3.8 0.8
and preferred stock dividends (1,127)
Deficiency of earnings to cover fixed charges ----- ----- ------
</TABLE>
<PAGE>
<TABLE>
Computation if Interest Factor of Rental
- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating rental expense 1,047 963 1,065 1,106 1,132 1,132
Interest Factor 33% 33% 33% 33% 33% 33%
----- --- ----- ----- ----- -----
Total 349 321 355 369 377 377
===== === ===== ===== ===== =====
Computation of Preferred Stock Expense
- --------------------------------------
Preferred stock expense 863
Tax effect (1.0-40) 60%
-----
Total 1,438
=====
</TABLE>
<TABLE>
Computation if Interest Factor of Rental
- ----------------------------------------
<S> <C> <C> <C>
Operating rental expense 283 283 283
Interest Factor 33% 33% 33%
--- --- ---
Total 94 94 94
=== === ===
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF HUDSON RESPIRATORY CARE INC.
(1) Name and jurisdiction of incorporation or organization of each subsidiary
of Hudson Respiratory Care Inc.:
Industrias Hudson Hudson
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
registration statement of our reports dated February 27, 1998 except with
respect to the matter discussed in Note 11, as to which the date is April 7,
1998 included herein and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Orange County, California
June 3, 1998
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
__________________________
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
__________________________
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I. R. S. Employer
if not a U.S. national bank) Identification No.)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
__________________________
HUDSON RESPIRATORY CARE INC.
(Exact name of OBLIGOR as specified in its charter)
California 95-1867330
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
27711 Diaz Road 92589
P. O. Box 9020 (Zip code)
Temecula, CA
(Address of principal executive offices)
__________________________
9 1/8% Senior Subordinated Notes Due 2008
(Title of the indenture securities)
================================================================================
<PAGE>
- 2 -
GENERAL
1. GENERAL INFORMATION
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
-----------------------------
If the obligor is an affiliate of the trustee, describe each such affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
The obligor currently is not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15
of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
----------------
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to Form
T-1 filed on September 15, 1995 with the Commission pursuant
to the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 (Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. LIST OF EXHIBITS
----------------
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to Form
T-1 filed on September 15, 1995 with the Commission pursuant
to the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
====
As of May 12, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
__________________
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 13th day
of May 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ James E. Logan
----------------------
James E. Logan
Vice President
<PAGE>
EXHIBIT T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
------------------------
By: /S/Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1998
--------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and Due from Banks $ 303,692
Short-Term Investments 325,044
Securities, Available for Sale 650,954
Loans 1,717,101
Less: Allowance for Credit Losses 16,546
----------
Net Loans 1,700,555
Premises and Equipment 58,868
Other Assets 120,865
----------
TOTAL ASSETS $3,159,978
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 602,769
Interest Bearing 1,955,571
----------
Total Deposits 2,558,340
Short-Term Credit Facilities 293,185
Accounts Payable and Accrued Liabilities 136,396
----------
TOTAL LIABILITIES $2,987,921
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 105,214
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,307
----------
TOTAL STOCKHOLDER'S EQUITY 172,057
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $3,159,978
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
May 6, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-25-1998 DEC-26-1997
<PERIOD-END> MAR-27-1998 DEC-26-1997
<CASH> 734 470
<SECURITIES> 0 0
<RECEIVABLES> 19,044 21,540
<ALLOWANCES> (303) (258)
<INVENTORY> 15,938 16,613
<CURRENT-ASSETS> 36,333 39,516
<PP&E> 82,472 81,771
<DEPRECIATION> (49,915) (48,728)
<TOTAL-ASSETS> 73,602 77,554
<CURRENT-LIABILITIES> 11,476 33,086
<BONDS> 0 0
0 0
0 0
<COMMON> 3,789 3,789
<OTHER-SE> 20,035 18,726
<TOTAL-LIABILITY-AND-EQUITY> 73,602 77,554
<SALES> 24,265 99,509
<TOTAL-REVENUES> 0 0
<CGS> 13,026 51,732
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,923 7,085
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 419 1,834
<INCOME-PRETAX> 1,521 11,443
<INCOME-TAX> 23 150
<INCOME-CONTINUING> 1,498 11,293
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,498 11,293
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON __________
__, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
HUDSON RESPIRATORY CARE INC.
LETTER OF TRANSMITTAL
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008
To: U.S. Trust Company of New York, The Exchange Agent
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier and By Hand after 4:30 p.m.:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 843 Cooper Station 770 Broadway, 13th Floor
New York, New York 10276 New York, New York 10003
Attention: Corporate Trust Services
By Hand before 4:30 p.m.: By Facsimile:
United States Trust Company of New York (212) 780-0592
111 Broadway Attention: Customer Service
New York, New York 10006
Attention: Lower Level Confirm by telephone:
Corporate Trust Window (800) 548-6565
</TABLE>
Delivery of this instrument to an address other than as set forth
above or transmission of instructions via a facsimile number other than the one
listed above will not constitute a valid delivery. The instructions
accompanying this Letter of Transmittal should be read carefully before this
Letter of Transmittal is completed.
The undersigned acknowledges that he or she has received the
Prospectus dated June __, 1998, (the "Prospectus") of Hudson Respiratory Care
Inc. (the "Company") and this Letter of Transmittal (the "Letter of
Transmittal"), which together constitute the Company's offer (the "Exchange
Offer") to exchange $1,000 principal amount of its 9 1/8% Senior Subordinated
Notes due 2008 (the "Exchange Notes") which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which the Prospectus is a part, for each $1,000
principal amount of its outstanding 9 1/8% Senior Subordinated Notes due 2008
(the "Notes"), of which $115,000,000 principal amount is outstanding. Other
capitalized terms used but not defined herein have the meaning given to them in
the Prospectus.
The Letter of Transmittal is to be used by Holders of Notes (i) if
certificates representing the Notes are to be physically delivered herewith; or
(ii) if tender of Notes is to be made by book-entry transfer to the Exchange
Agent's account at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in the Prospectus under "The Exchange Offer - Procedures
for Tendering" by any financial institution that is a participant in DTC and
whose name appears on a security position listing as the owner of Notes; or
(iii) if tender of Notes is to be made according to the guaranteed delivery
procedures set forth in the Prospectus under "The Exchange Offer - Guaranteed
Delivery Procedures." Delivery of documents to DTC does not constitute delivery
to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person
(i) in whose name Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder; or (ii) whose Notes are held of record by DTC who desires to deliver
such Notes by book-entry transfer at DTC. The undersigned has completed,
executed and delivered this Letter of Transmittal to indicate the action the
undersigned desires to take with respect to the Exchange Offer. Holders who
wish to tender their Notes must complete this letter in its entirety.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF 9 1/8% SENIOR SUBORDINATED NOTES DUE 2008 ("NOTES"):
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NAME(S) AND ADDRESS(ES) OF AGGREGATE PRINCIPAL AMOUNT PRINCIPAL AMOUNT TENDERED
REGISTERED HOLDER(S) REPRESENTED BY CERTIFICATE(S) (MUST BE IN INTEGRAL MULTIPLE OF
(PLEASE FILL IN, IF BLANK) $1,000)*
- --------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------------------------------------------
* Unless indicated in the column labeled "Principal Amount Tendered," any tendering Holder of
Notes will be deemed to have tendered the entire aggregate principal amount represented by the
column labeled "Aggregate Principal Amount Represented by Certificate(s)."
If the space provided above is inadequate, list the principal amounts on a separate signed
schedule and affix the list to this Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount of Notes. All other tenders must be
in integral multiples of $1,000.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------- ------------------------------------------------------
<S> <C>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6) (SEE EXCHANGE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Notes in a To be completed ONLY if certificates for Notes in
principal amount not tendered or not accepted for a principal amount not tendered or not accepted for
exchange, or Exchange Notes issued in exchange for exchange, or Exchange Notes issued in exchange for
Notes accepted for exchange, are to be issued in the Notes accepted for exchange, are to be sent to
name of someone other than the undersigned, or if someone other than the undersigned, or to the
the Notes tendered by book-entry transfer that are not undersigned at an address other than that shown
accepted for exchange are to be credited to an above.
account maintained by DTC.
ISSUE CERTIFICATE(S) TO: MAIL TO:
Name_____________________________________ Nme____________________________________________
(Please Print) (Please Print)
Address___________________________________ Address________________________________________
__________________________________________ _______________________________________________
(Include Zip Code) (Include Zip Code)
__________________________________________ _______________________________________________
(Tax Identification or Social Security No.) (Tax Identification or Social Security No.)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
[_] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY DTC TO THE EXCHANGE AGENT'S ACCOUNT AT DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________________________________
DTC Book-Entry Account No. _____________________________________________________________________
Transaction Code No. _____________________________________________________________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER.
Name: _____________________________________________________________________
Address: _____________________________________________________________________
_____________________________________________________________________
[_] 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.
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND ANY OF THE NOTES YOU ARE TENDERING WERE ACQUIRED DIRECTLY
FROM THE COMPANY.
Principal Amount of Tendered Notes Acquired from the Company: $ ___________________________________
</TABLE>
2
<PAGE>
LADIES AND GENTLEMEN:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount of Notes indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount of Notes tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, the Company
all right, title and interest in and to the Notes tendered hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent its
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Company) with respect to the tendered Notes with full
power of substitution to (i) deliver certificates for such Notes to the Company,
or transfer ownership of such Notes on the account books maintained by DTC, and
deliver all accompanying evidences of transfer and authenticity to, or upon the
order of, the Company; and (ii) present such Notes for transfer on the books of
the Company and receive all benefits and otherwise exercise all rights of
beneficial ownership of such Notes, all in accordance with the terms of the
Exchange Offer. The power of attorney granted in this paragraph shall be deemed
irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, when the same are acquired by the Company. THE
UNDERSIGNED HEREBY FURTHER REPRESENTS THAT ANY EXCHANGE NOTES ACQUIRED IN
EXCHANGE FOR NOTES TENDERED HEREBY WILL HAVE BEEN ACQUIRED IN THE ORDINARY
COURSE OF BUSINESS OF THE HOLDER RECEIVING SUCH EXCHANGE NOTES, WHETHER OR NOT
THE UNDERSIGNED, THAT NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON HAS AN
ARRANGEMENT WITH ANY PERSON TO PARTICIPATE IN THE DISTRIBUTION OF SUCH EXCHANGE
NOTES AND THAT NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS AN "AFFILIATE,"
AS DEFINED UNDER RULE 405 OF THE SECURITIES ACT, OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES. 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 Notes. If the undersigned is a broker-dealer that will
receive Exchange Notes, it represents that, except to the extent indicated at
the bottom of the preceding page, the Notes to be exchanged for Exchange Notes
were acquired as a result of market-making activities or other trading
activities and not acquired directly from the Company, and it acknowledges that
it will deliver a prospectus in connection with any resale of such Exchange
Notes; 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. IF THE UNDERSIGNED IS A BROKER-DEALER, IT
ACKNOWLEDGES THAT IT MAY NOT USE THE PROSPECTUS IN CONNECTION WITH RESALES OF
EXCHANGE NOTES RECEIVED IN EXCHANGE FOR NOTES THAT WERE ACQUIRED DIRECTLY FROM
THE COMPANY. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or the Company to be necessary
or desirable to complete the assignment, transfer and purchase of the Notes
tendered hereby.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Notes when, as and if the Company has given oral or
written notice thereof to the Exchange Agent.
If any tendered Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Notes will
be returned (except as noted below with respect to tenders through DTC), without
expense, to the undersigned at the address shown below or at a different address
as may be indicated herein under "Special Payment Instructions" as promptly as
practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Notes pursuant to the
procedures described under the caption "The Exchange Offer - Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Payment Instructions," please
issue the certificates representing the Exchange Notes issued in exchange for
the Notes accepted for exchange and return any Notes not tendered or not
exchanged, in the name(s) of the undersigned (or in either such event in the
case of Notes tendered by DTC, by credit to the undersigned's account at DTC).
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please send the certificates representing the Exchange Notes issued in exchange
for the Notes accepted for exchange and any certificates for Notes not tendered
or not exchanged (and accompanying documents, as appropriate) to the undersigned
at the address shown below the undersigned's signature(s), unless, in either
event, tender is being made through DTC. In the event that both "Special
Payment Instructions" and "Special Delivery Instructions" are completed, please
issue the certificates representing the Exchange Notes issued in exchange for
the Notes accepted for exchange and return any Notes not tendered or not
exchanged in the name(s) of, and send said certificates to, the person(s) so
indicated. The undersigned
3
<PAGE>
recognizes that the Company has no obligation pursuant to the "Special Payment
Instructions" and "Special Delivery Instructions" to transfer any Notes from the
name of the registered holder(s) thereof if the Company does not accept for
exchange any of the Notes so tendered.
Holders of Notes who wish to tender their Notes and (i) whose Notes are not
immediately available, or (ii) who cannot deliver their Notes, this Letter of
Transmittal or any other documents required hereby to the Exchange Agent, or
cannot complete the procedure for book-entry transfer, prior to the Expiration
Date, may tender their Notes according to the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer - Guaranteed
Delivery Procedures". See Instruction 1 regarding the completion of the Letter
of Transmittal printed below.
PLEASE SIGN HERE WHETHER OR NOT
NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X
- --------------------------------------- ----------------------------------
Date
X
- --------------------------------------- ----------------------------------
Signature(s) of Registered Holder(s) Date
or Authorized Signatory
Area Code and Telephone Number:____________________________
The above lines must be signed by the registered holder(s) of Notes as
their name(s) appear(s) on the Notes or, if the Notes are tendered by a
participant in DTC, as such participant's name appears on a security position
listing as the owner of the Notes, or by person(s) authorized to become
registered holder(s) by a properly completed bond power from the registered
holder(s), a copy of which must be transmitted with this Letter of Transmittal.
If Notes to which this Letter of Transmittal relates are held of record by two
or more joint holders, then all such holders must sign this Letter of
Transmittal. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, such person must (i) set forth his or her full title
below and (ii) unless waived by the Company, submit evidence satisfactory to the
Company of such person's authority so to act. See Instruction 4 regarding the
completion of this Letter of Transmittal printed below.
Names(s): __________________________________________________________________
__________________________________________________________________
(Please Print)
Capacity: __________________________________________________________________
Address: __________________________________________________________________
__________________________________________________________________
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution:
(If required by Instruction 4)
__________________________________________________________________
(Authorized Signature)
__________________________________________________________________
(Name of Firm)
Dated:______________________, 1998
4
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES. The tendered Notes
(or a confirmation of a book-entry transfer into the Exchange Agent's account at
DTC of all Notes delivered electronically), as well as a properly completed and
duly executed copy of this Letter of Transmittal or facsimile hereof and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein prior to 5:00 P.M., New York City
time, on the Expiration Date. The method of delivery of the tendered Notes,
this Letter of Transmittal and all other required documents to the Exchange
Agent is at the election and risk of the Holder and, except as otherwise
provided below, the delivery will be deemed made only when actually received by
the Exchange Agent. Instead of delivery by mail, it is recommended that the
Holder use an overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure timely delivery. No Letter of Transmittal or Notes
should be sent to the Company.
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available; or (ii) who cannot deliver their Notes, this Letter of
Transmittal or any other documents required hereby to the Exchange Agent, or
cannot complete the procedure for book-entry transfer, prior to 5:00 P.M., New
York City time, on the Expiration Date must tender their Notes according to the
guaranteed delivery procedures set forth in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or through a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
or correspondent in the United States or an institution which falls within the
definition of "Eligible Guarantor Institution" contained in Regulation 17Ad-15
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, which is a member of one of the following
recognized signature guarantee programs: (A) the Securities Transfer Agents
Medallion Program (STAMP), (B) the New York Stock Exchange Medallion Signature
Program (MSP) or (C) the Stock Exchange Medallion Program (SEMP) (each, an
"Eligible Institution"); (ii) prior to the Expiration Date, the Exchange Agent
must have received from the Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the Holder of the Notes and the
principal amount of Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three New York Stock Exchange trading days
after the Expiration Date, this Letter of Transmittal (or facsimile hereof)
together with the certificate(s) representing the Notes (or a confirmation of
electronic delivery of book-entry delivery into the Exchange Agent's account at
DTC) and any other required documents will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) such properly completed and
executed Letter of Transmittal (or facsimile hereof), as well as all other
documents required by this Letter of Transmittal and the certificate(s)
representing all tendered Notes in proper form for transfer (or a confirmation
of electronic delivery of book-entry delivery into the Exchange Agent's account
at DTC), must be received by the Exchange Agent within three New York Stock
Exchange trading days after the Expiration Date, all as provided in the
Prospectus under the caption "Exchange Offer - Guaranteed Delivery Procedures."
Any Holder of Notes who wishes to tender his or her Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 P.M., New York
City time, on the Expiration Date. Upon request of the Exchange Agent, a Notice
of Guaranteed Delivery will be sent to Holders who wish to tender their Notes
according to the guaranteed delivery procedures set forth above.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Notes and withdrawal of tendered 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 Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects or irregularities or conditions of
tender as to the Exchange Offer and/or particular Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in this Letter of Transmittal) shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of Notes must be cured within such time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall be under any
duty to give notification of defects or irregularities with respect to tenders
of Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Notes will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any 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 of Notes, unless otherwise provided in this
Letter of Transmittal, as soon as practicable following the Expiration Date.
5
<PAGE>
2. TENDER BY HOLDER. Only a Holder of Notes may tender such Notes in the
Exchange Offer. Any beneficial holder of Notes who is not the registered holder
and who wishes to tender should arrange with the registered holder to execute
and deliver this Letter of Transmittal on his or her behalf or must, prior to
completing and executing this Letter of Transmittal and delivering his or her
Notes, either make appropriate arrangements to register ownership of the Notes
in such Holder's name or obtain a properly completed bond power from the
registered holder.
3. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral
multiples of $1,000. If less than the entire principal amount of any Notes is
tendered, the tendering Holder should fill in the principal amount tendered in
the third column of the box entitled "Description of 9 1/8% Senior Subordinated
Notes due 2008 ("Notes")" above. The entire principal amount of Notes delivered
to the Exchange Agent will be deemed to have been tendered unless otherwise
indicated. If the entire principal amount of all Notes is not tendered, then
Notes for the principal amount of Notes not tendered and a certificate or
certificates representing Exchange Notes issued in exchange for any Notes
accepted will be sent to the Holder at his or her registered address, unless a
different address is provided in the appropriate box on this Letter of
Transmittal, promptly after the Notes are accepted for exchange.
4. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof) is
signed by the record Holder(s) of the Notes tendered hereby, the signature must
correspond with the name(s) as written on the face of the Notes or, if the Notes
are tendered by a participant in DTC, as such participant's name appears on a
security position listing as the owner of the Notes, without alteration,
enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Notes tendered and the certificate or
certificates for Exchange Notes issued in exchange therefor are to be issued (or
any untendered principal amount of Notes is to be reissued) to the registered
Holder, the said Holder need not and should not endorse any tendered Notes, nor
provide a separate bond power. In any other case, such Holder must either
properly endorse the Notes tendered or transmit a properly completed separate
bond power with this Letter of Transmittal, with the signatures on the
endorsement or bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Notes listed, such Notes must
be endorsed or accompanied by appropriate bond powers signed as the name of the
registered Holder or Holders appears on the Notes.
If this Letter of Transmittal (or facsimile hereof) or any Notes or bond
powers are signed by trustees, executors, administrators, guardians, attorneys-
in-fact or officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Notes or signatures on bond powers required by this
Instruction 4 must be guaranteed by an Eligible Institution.
Except as otherwise provided below, all signatures on this Letter of
Transmittal (or facsimile hereof) must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed if (i) this
Letter of Transmittal is signed by the registered Holder(s) of the Notes
tendered herewith and such Holder(s) have not completed the box set forth herein
entitled "Special Payment Instructions" or the box entitled "Special Delivery
Instructions;" or (ii) such Notes are tendered for the account of an Eligible
Institution.
5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable box or boxes, the name and address to which Exchange
Notes or substitute Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of the
person signing this Letter of Transmittal (or in the case of tender of Notes
through DTC, if different from DTC). In the case of issuance in a different
name, the taxpayer identification or social security number of the person named
must also be indicated.
6. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
Holder whose offered Notes are accepted for exchange must provide the Company
(as payor) with his, her or its correct Taxpayer Identification Number ("TIN"),
which, in the case of an exchanging Holder who is an individual, is his or her
social security number. If the Company is not provided with the correct TIN or
an adequate basis for exemption, such Holder may be subject to a $50 penalty
imposed by the Internal Revenue Service (the "IRS"). In addition, delivery to
such Holder of Exchange Notes
6
<PAGE>
may be subject to backup withholding in an amount equal to 31% of the gross
proceeds resulting from the Exchange Offer. If withholding results in an
overpayment of taxes, a refund may be obtained from the IRS by the Holder.
Exempt Holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. See instructions to the enclosed Form W-9.
To prevent backup withholding, each exchanging Holder must provide his, her
or its correct TIN by completing the Form W-9 enclosed herewith, certifying that
the TIN provided is correct (or that such Holder is awaiting a TIN) and that (i)
the Holder is exempt from backup withholding; (ii) the Holder has not been
notified by the IRS that he, she or it is subject to backup withholding as a
result of a failure to report all interest or dividends; or (iii) the IRS has
notified the Holder that he, she or it is no longer subject to backup
withholding. In order to satisfy the Exchange Agent that a foreign individual
qualifies as an exempt recipient, such Holder must submit a statement signed
under penalty of perjury attesting to such exempt status. Such statements may
be obtained from the Exchange Agent. If the Notes are in more than one name or
are not in the name of the actual owner, consult the Form W-9 for information on
which TIN to report. If you do not provide your TIN to the Company within 60
days, backup withholding will begin and continue until you furnish your TIN to
the Company.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Notes pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered Holder
of the Notes tendered hereby, or if tendered Notes are registered in the name of
any person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered Holder or on any other persons) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with this Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Notes listed in this Letter of
Transmittal.
8. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend, waive or modify specified conditions in the Exchange Offer in the case of
any Notes tendered.
9. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering Holder
whose Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated herein for further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
specified in the Prospectus. Holders may also contact their broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Exchange Offer.
(DO NOT WRITE IN SPACE BELOW)
---------------------------------------------
CERTIFICATE NOTES NOTES
SURRENDERED TENDERED ACCEPTED
---------------------------------------------
---------------------------------------------
---------------------------------------------
Delivery Prepared by___________________ Checked By_____________ Date____________
7
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Name (If joint names, see attached guidelines)
- -----------------------------------------------------------------------------------------------------------------------------
Business name (Sole proprietors, see attached guidelines)
- -----------------------------------------------------------------------------------------------------------------------------
Please check appropriate box: [_] Individual/Sole Proprietor [_] Corporation [_] Partnership [_] Other
- -----------------------------------------------------------------------------------------------------------------------------
Address (number, street, and apt. or suite no.)
- -----------------------------------------------------------------------------------------------------------------------------
City, state, and ZIP code
- -----------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I -- TAXPAYER IDENTIFICATION PART II -- FOR PAYEES
NO. EXEMPT FROM BACKUP
WITHHOLDING
Form W-9 Enter your taxpayer (SEE ENCLOSED
Department of the Treasury identification number in the GUIDELINES)
Internal Revenue Service appropriate box. For most
individuals, this is your social ------------------------
security number. If you do not Social Security Number
Payer's Request for Taxpayer have a number, see How to
Identification Number (TIN) Obtain a "TIN" in the enclosed
Guidelines.
Note: If the account is more ------------------------
than one name, see the chart in Employer Identification
enclosed Guidelines to Number
determine what number to give.
- -----------------------------------------------------------------------------------------------------------------------------
PART III -- CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be
issued to me), and
(2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup
withholding.
Certification Instructions. -- You must cross out item (2) above if you have been notified by the IRS that you are subject
to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being
notified by the IRS that you are subject to backup withholding, you received another notification from the IRS that you
are no longer subject to backup withholding, do not cross out item (2).
- -----------------------------------------------------------------------------------------------------------------------------
SIGNATURE__________________________________________________ DATE________________________, 1998
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF
ANY PAYMENTS MADE TO YOU. PLEASE REVIEW ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
8
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you are
required to withhold and pay to IRS 31% of such payments under certain
conditions. This is called "backup withholding." Payments that could be subject
to backup withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee compensation, and certain payments
from fishing boat operators, but do not include real estate transactions.
If you give the requester your correct TIN, make the appropriate
certifications, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
(1) You do not furnish your TIN to the requester, or
(2) IRS notifies the requester that you furnished an incorrect TIN, or
(3) You are notified by IRS that you are subject to backup withholding because
you failed to report all your interest and dividends on your tax return (for
interest and dividend accounts only), or
(4) You fail to certify to the requester that you are not subject to backup
withholding under (3) above (for interest and dividend accounts opened after
1983 only), or
(5) You fail to certify your TIN. This applies only to interest, dividend,
broker or barter exchange accounts opened after 1983, or broker accounts
considered inactive in 1983.
For other payments, you are subject to backup withholding only if (1) or (2)
above applies.
Certain Payees and payments are exempt from backup withholding and information
reporting. See payees and Payments Exempt From Backup Withholding, below, and
Exempt Payees and Payments under Specific Instructions below if you are an
exempt payee.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. -- The following is a list
of payees exempt from backup withholding and for which no information reporting
is required. For interest and dividends, all listed payees are exempt except
item (9). For broker transactions, payees listed in (1) through (13), and a
person registered under the Investment Advisers Act of 1940 who regularly acts
as a broker are exempt. Payments subject to reporting under sections 6041 and
6041A are generally exempt from backup withholding only if made to payees
described in items (1) through (7), except that a corporation that provides
medical and health care services or bills and collects payments for such
services is not exempt from backup withholding or information reporting. Only
payees described in items (2) through (6) are exempt from backup withholding for
barter exchange transactions, patronage dividends, and payments by certain
fishing boat operators.
11. A corporation.
12. An organization exempt from tax under section 501(a), or an individual
retirement plan (IRA), or a custodial account under 403(b)(7).
13. The United States or any of its agencies or instrumentalities.
14. A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
15. A foreign government or any of its political subdivisions, agencies or
instrumentalities.
16. An international organization or any of its agencies or
instrumentalities.
17. A foreign central bank of issue.
18. A dealer in securities or commodities required to register in the U.S. or
a possession of the U.S.
19. A futures commission merchant registered with the Commodity Futures
Trading Commission.
20. A real estate investment trust.
21. An entity registered at all times during the tax year under the
Investment Company Act of 1940.
22. A common trust fund operated by a bank under section 584(a).
23. A financial institution.
24. A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate Securities,
Inc., Nominee List.
25. A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends generally not subject to backup
withholding also include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
that have at least one nonresident partner.
Payments of interest generally not subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct TIN to the payer.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A, and 6050N, and the regulations under such sections.
PENALTIES
FAILURE TO FURNISH TIN. -- If you fail to furnish your TIN to a requester, you
are subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
MISUSE OF TINS. -- If the requester discloses or uses TINs in violation of
Federal laws, the requester may be subject to civil and criminal penalties.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make
a false statement with no reasonable basis that results in no imposition of
backup withholding, you are subject to a penalty of $500.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
SPECIFIC INSTRUCTIONS
NAME. -- If you are an individual, generally provide the name shown on your
social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name and both the last name shown on
your social security card and your new last name.
SIGNING THE CERTIFICATION. --
(1) INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS THAT WERE CONSIDERED ACTIVE DURING 1983. -- You are not required
to sign the certification; however, you may do so. You are required to provide
your correct TIN.
(2) INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983
AND BROKER ACCOUNTS THAT WERE CONSIDERED INACTIVE DURING 1983. -- You must sign
the certification or backup withholding will apply. If you are subject to
backup withholding and you are merely providing your correct TIN to the
requester, you must cross out item (2) in the certification before signing the
form.
(3) OTHER PAYMENTS. -- You are required to furnish your correct TIN, but you
are not required to sign the certification unless you have been notified of an
incorrect TIN. Other payments include payments made in the course of the
requestor's trade or business for rents, royalties, goods (other than bills for
merchandise), medical and health care services, payments to a nonemployee for
services (including attorney and accounting fees), and payments to certain
fishing boat crew members.
(4) EXEMPT PAYEES AND PAYMENTS -- If you are exempt from backup withholding,
you should complete this form to avoid possible erroneous backup withholding.
Enter your correct TIN in Part I, write "EXEMPT" in the block in Part II, sign
and date the form. If you are a nonresident alien or foreign entity not subject
to backup withholding, give the requester a completed FORM W-8, Certificate of
Foreign Status.
(5) TIN "APPLIED FOR." -- Follow the instructions under How To Obtain a TIN, on
page 1, sign and date this form.
SIGNATURE.-- For a joint account, only the person whose TIN is shown in Part I
should sign the form.
PRIVACY ACT NOTICE. -- Section 6109 requires you to furnish your correct
taxpayer identification number (TIN) to persons who must file information
returns with IRS to report interest, dividends, and certain other income paid to
you, mortgage interest you paid, the acquisition or abandonment of secured
property, or contributions you made to an individual retirement arrangement
(IRA). IRS uses the numbers for identification purposes and to help verify the
accuracy of your tax return. You must provide your TIN whether or not you are
required to file a tax return. Payers must generally withhold 20% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
TIN to a payer. Certain penalties may also apply.
9
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER (TIN) ON SUBSTITUTE FORM W-9
(SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE)
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. -
- - Social Security numbers have nine digits separated by two hyphens: i.e. 000-
00-0000. Employer identification numbers have nine digits separated by only one
hyphen: i.e. 00-0000000. The table below will help determine the number to give
the payer.
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF --
- --------------------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, any one of the
individuals (1)
3. Custodian account of a minor The minor (2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings trust The grantor-trustee (1)
account (grantor is also trustee)
b. So-called trust account that is not The actual owner (1)
a legal or valid trust under State
law
5. Sole proprietorship account The owner (3)
6. Sole Proprietorship The owner (3)
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: EMPLOYER
IDENTIFICATION
NUMBER OF --
- --------------------------------------------------------------------------
<S> <C>
7. A valid trust, estate, or pension The legal entity (5)
trust
8. Corporate account The corporation
9. Association, club, religious, The organization
charitable, educational or other tax-
exempt organization account
10. Partnership account held in the The partnership
name of the business
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a State or local
government, school district, or
prison) that receives agricultural
program payments
- --------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner.
(5) List first and circle the name of the valid trust, estate, or pension trust.
(Do not furnish the identifying number of the personal representative or
trustee unless the legal entity itself is not designated in the account
title)
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
HUDSON RESPIRATORY CARE INC.
This form, or one substantially equivalent hereto, must be used to accept
the Exchange Offer of Hudson Respiratory Care Inc. (the "Company") made pursuant
to the Prospectus dated June __, 1998 (the "Prospectus"), if certificates for
the 9 1/8% Senior Subordinated Notes due 2008 (the "Notes") of the Company are
not immediately available or if the Notes, the Letter of Transmittal or any
other documents required thereby cannot be delivered to the Exchange Agent or
the procedure for book-entry transfer cannot be completed, prior to 5:00 P.M.,
New York City time, on the Expiration Date (as defined in the Prospectus). Such
form may be delivered by hand or transmitted by facsimile transmission,
overnight courier or mail to the Exchange Agent. Capitalized terms used but not
defined herein have the meaning given to them in the Prospectus.
TO: U.S. TRUST COMPANY OF NEW YORK, THE EXCHANGE AGENT
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier and By Hand after 4:30 p.m.:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 843 Cooper Station 770 Broadway, 13th Floor
New York, New York 10276 New York, New York 10003
Attention: Corporate Trust Services
By Hand before 4:30 p.m.: By Facsimile:
United States Trust Company of New York (212) 780-0592
111 Broadway Attention: Customer Service
New York, New York 10006
Attention: Lower Level Confirm by telephone:
Corporate Trust Window (800) 548-6565
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS
VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID
DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Notes is required to be guaranteed by
an "Eligible Institution" under the instructions thereto, such signature
guarantee must appear in the applicable space provided in the Letter of
Transmittal.
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Hudson Respiratory Care Inc., a
California corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, __________________________ Notes pursuant to the guaranteed
(principal amount of Notes)
delivery procedures set forth in Instruction 1 of the Letter of Transmittal.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
Principal Amount(s) of Notes Name(s) of Record Holder(s)
.................................... ..................................
.................................... ..................................
PLEASE PRINT OR TYPE
Address ..........................
..................................
ZIP CODE
Area Code and Tel. No. ...........
Signature(s) .....................
..................................
Dated: ...........................
If Notes will be delivered by
book-entry transfer at The
Depository Trust Company ("DTC"),
Depository Account No: ...........
This Notice of Guaranteed Delivery must be signed by the registered
Holder(s) of Notes exactly as its (their) name(s) appear on certificates for
Notes or on a security position listing as the owner of Notes, or by person(s)
authorized to become registered Holder(s) by endorsements and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must
provide the following information.
Please print name(s) and address(es)
Name(s): ...............................................................
...............................................................
Capacity: ...............................................................
Address(es): ...............................................................
...............................................................
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United States or a
commercial bank or trust company having an office or correspondent in the United
States or an "Eligible Guarantor Institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
hereby (a) represents that the above named person(s) "own(s)" the Notes tendered
hereby within the meaning of Rule 10b-4 under the Exchange Act, (b) represents
that such tender of Notes complies with Rule 10b-4 and (c) guarantees that
delivery to the Exchange Agent of certificates for the Notes tendered hereby, in
proper form for transfer (or confirmation of the book-entry transfer of such
Notes into the Exchange Agent's Account at DTC, pursuant to the procedures for
book-entry transfer set forth in the Prospectus), with delivery of a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof) with any required signature and any other required documents, will be
received by the Exchange Agent at one of its addresses set forth above within
three New York Stock Exchange trading days after the Expiration Date.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
AND NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD SET FORTH
ABOVE AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO THE
UNDERSIGNED.
Name of Firm....................... ......................................
AUTHORIZED SIGNATURE
Address............................
Name...................................
................................... PLEASE PRINT OR TYPE
ZIP CODE
Title...................................
Area Code and Tel. No..............
Date....................................
Dated:____________, 1998
NOTE: DO NOT SEND NOTES WITH THIS FORM; NOTES SHOULD BE SENT WITH YOUR LETTER
OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE AGENT WITHIN THREE
NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE EXPIRATION DATE.
3
